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Company Cars in the UK

If your company has employees in the UK—particularly those in sales or field-based roles—it’s natural to consider how best to provide a car for their work. Whether you plan to offer a company car or pay a car allowance, it’s important to understand how UK tax rules apply and what’s practically possible for a business based outside the UK.

This page explains the key tax rules and options for company cars in the UK, and links to further resources to help you stay compliant.

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What Is a “Company Car” in the UK?

In the UK, a company car is any car made available to an employee by the employer. This includes:

  • Cars purchased by the employer
  • Cars leased or rented by the employer
  • Cars provided by a group company or affiliate


If the car is available for private use—which includes commuting from home to work—it is treated as a benefit in kind (BiK) – ie a fringe benefit – and is taxable.

Tax Implications of Providing a Company Car

If a company car is available for private use, the employee must pay income tax on the benefit. The employer must also pay Class 1A National Insurance Contributions (NICs).

The taxable value (BiK) is calculated using:

  • The manufacturer’s list price (including VAT and accessories)
  • The car’s CO₂ emissions
  • The fuel type (petrol, diesel, electric, hybrid)

 Typical BiK rates range from 2% (for electric cars) up to over 37% for higher-emission vehicles.

What If the Car Is Used Only for Business?

If the car is strictly limited to business journeys, and there is no private use, the benefit can be avoided—but the conditions are strict:

  • A formal policy must be in place (preferably written into the employment contract)
  • Employees must sign declarations acknowledging the restriction
  • Detailed mileage logs must be kept

In practice, most employees will use the vehicle for at least some private travel, such as commuting.

Pool Cars

A pool car—used by several employees and kept at the business premises—is not taxable, provided:

  • It’s not used by one person to the exclusion of others
  • It is not kept overnight at an employee’s home
  • Any private use is purely incidental

Fuel for Private Use

If the employer also pays for private fuel for a company car, a separate BiK charge applies. This is calculated using a fixed multiplier (£28,200 for 2025/26) × the car’s BiK percentage.

To avoid this charge, the employee must fully reimburse the cost of private fuel or the employer should only reimburse business mileage based on HMRC rates.

The Alternative: Paying a Car Allowance

Many overseas companies choose not to provide a company car at all, but instead:

  • It’s not used by one person to the exclusion of others
  • It is not kept overnight at an employee’s home
  • Any private use is purely incidental


This is simpler from a tax perspective and avoids the complexities of BiK reporting.

The allowance should be structured clearly in the employment contract, and the employee must be responsible for ensuring their car is roadworthy and insured for business use.

Can an Overseas Business Lease or Buy a UK Car?

Leasing or financing a car in the UK usually requires a UK credit history or UK-registered entity. If your business is not formally established in the UK (e.g. no subsidiary or permanent establishment), you may struggle to lease a car.

Can an Overseas Business Lease or Buy a UK Car?

Leasing or financing a car in the UK usually requires a UK credit history or UK-registered entity. If your business is not formally established in the UK (e.g. no subsidiary or permanent establishment), you may struggle to lease a car.

Alternatives include:

  • Paying a car allowance and having the employee lease or purchase a vehicle in their own name
  • Purchasing a car outright through the business, if feasible
  • Working with specialist fleet providers familiar with international group structures

Reporting and Employer Responsibilities

  • Benefits in kind must be reported annually on Form P11D, with the employer’s summary on Form P11D(b)
  • The tax year runs 6 April to 5 April, and filings are due by 6 July
  • HMRC adjusts the employee’s tax code to collect tax through the payroll
  • Class 1A NICs are payable by the employer by 19 July

Next Steps

Learn more about:

 

Would you like help evaluating the best approach for your UK employees?

As a regulated firm of Chartered Accountants, we support many overseas businesses managing UK employee benefits and payroll. Contact us today.

FAQs

A company car is any car provided by the employer for the use of an employee. This includes owned, leased, or rented cars. If the car is available for private use, including commuting, it is considered a taxable benefit.
The tax is based on the car’s list price, CO₂ emissions, and fuel type. HMRC assigns a benefit-in-kind (BiK) percentage to each vehicle, which is applied to the list price to calculate the taxable amount.
A company car is owned or leased by the employer and provided to the employee. A car allowance is an extra payment to the employee’s salary, allowing them to use their own vehicle for business travel.
This can be difficult without a UK presence or credit history. Many overseas companies choose instead to pay a car allowance.
If the employer pays for private fuel for a company car, an additional BiK tax applies. This can be avoided if the employee reimburses the cost in full or if only business mileage is reimbursed using HMRC-approved rates.
To avoid BiK charges, mileage logs must be maintained showing business-only use, and restrictions must be clearly documented in employment contracts and signed by the employee.
Form P11D reports benefits in kind (like company cars) for each employee. It must be submitted by 6 July following the end of the UK tax year (5 April). Employers must also submit a P11D(b) summarising NICs owed.
Employers must pay Class 1A NICs (15%) on the total taxable value of company car and fuel benefits.
Yes, electric vehicles have significantly lower BiK rates. For example, zero-emission electric cars currently attract just 2% tax.
Yes. Whether providing a car or paying a car allowance, the terms should be clearly stated in the employment contract, including any mileage policies or insurance requirements.

Contact Our Experts

Chris Marr

Senior Manager

Global Mobility & Personal Tax

chris.marr@tuerner.com
+44 (0) 1636 526 075

Sarah English

Senior Manager

Head of Direct Taxes

sarah.english@tuerner.com
+44 (0) 1636 526 075

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