Director Mileage: Company Car vs Own Car in the UK

If you run a limited company and drive for business, you have two main routes. You can use your own car and claim mileage from the company, or you can have the company buy or lease a car. They are taxed very differently, and the cheaper one depends on the car, your mileage and how you use it. This guide walks through both so you can ask the right questions before you commit.

Key takeaways

• Using your own car and claiming approved mileage is simple and usually involves no benefit in kind tax.
• A company car can create a taxable benefit for you and Class 1A National Insurance for the company.
• Only business journeys count. Commuting and personal trips do not.
• A mileage log is essential in both cases.
• The right choice depends on car price, emissions, mileage and private use, so compare the numbers.

Option one: your own car

You keep the car in your own name and the company pays you for business miles. HMRC publishes approved mileage rates, and payments up to those rates are tax-free for you and deductible for the company. If the company pays less than the approved rate, you may be able to claim relief on the difference through your tax return. The current rates are on GOV.UK's mileage allowance page. You carry the cost of buying, insuring and fuelling the car yourself. The mileage payment is meant to cover all of those costs.

Option two: a company car

The company buys or leases the car, so it pays for the vehicle and its running costs, often with capital allowances or lease deductions. But if the car is available for your private use, HMRC treats it as a taxable benefit. You pay income tax on a figure based on the car's list price and its emissions, and the company pays Class 1A National Insurance. If the company also pays for private fuel, a separate fuel benefit may apply. Low-emission and electric cars attract much lower benefit percentages, which can change the result entirely. The official method is on GOV.UK's company car tax page. The benefit is reported on a P11D, as our guide to benefits in kind explains.

Side by side

Keeping the right records

Whichever route you choose, keep a log showing the date, start and end points, purpose and miles for each business journey. For a company car, keep a record of private use too, because it affects the tax position. Fuel receipts and servicing invoices should go into your bookkeeping. If you are weighing up the wider tax structure, see our article on salary versus dividends and our limited company accountant packages.

Worked example (illustrative)

"Marcus", an illustrative example, is the sole director of a small consultancy. He drives to client sites several times a week in his own car. Using the approved mileage rate, the company reimburses him per business mile, and he logs each journey. The payment is tax-free to him and a deduction for the company. Another director, "Sophie", also an illustrative example, is considering a new electric car through the company. Because of the lower benefit in kind percentage for electric cars, the tax charge could be modest, and the company may claim capital allowances. Her accountant models both options with the current rates, then tells her which route leaves her better off over the likely life of the car. The results depend on the figures for each car, so they cannot be copied across.

Common mistakes

• Paying for a private car through the company without reporting it. This can be a benefit or a loan, see our guide to the director's loan account.
• Counting commuting as business mileage. Home to a normal place of work is generally private.
• No mileage log. Without one, a claim is hard to support.
• Choosing on sticker price alone. Emissions, list price, running costs and private use all affect the final result.
• Forgetting the fuel benefit. If the company pays for private fuel in a company car, an extra charge may apply.

Thinking about a car through your company? Talk to us before you sign. Our limited company packages include advice on how to extract value from the company, car decisions included.