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Company Car vs Mileage 2024: UK Limited Company Travelling

Company car vs mileage

Company car vs mileage

Introduction -contractor company car vs mileage allowance 

As a UK limited company contractor, let’s compare the costs of a contractor company car vs mileage allowance in your personally owned vehicle for business journeys. Many UK contractors consider whether I should get a company car (UK) and how much tax I pay on a company car. Indeed, company car vs mileage reimbursement is key when seeking company car advice as a UK contracting professional. As a contractor, when incurring company mileage, you can use your own car and claim mileage allowances from your business. However, nowadays, more contractors are choosing a company car. This guide will compare company car versus mileage to help you understand which is best. Importantly, for a company vehicle to be beneficial, we should consider tax-efficient company cars.

First, how do tax savings compare for a contractor company car or mileage reimbursement for your private vehicle use? Basically, what should we consider in both scenarios? What’s more, how much is company car tax when contracting? Furthermore, what are the overall savings of a company vehicle? In this guide, we’ll see how much tax you’ll pay personally when running one and incurring company car private mileage. As a result, we can compare this to the savings when you’re claiming mileage as a contractor for your private vehicle.

A company vehicle has advantages and disadvantages. Indeed, the tax savings and running costs depend on the type of contractor car you use and how many miles you travel in the vehicle. When searching for the best work vehicles for contractors regarding tax efficiency, your contractor accountant can help. If you can provide them with the specific details of the car, they can work out the tax position in terms of tax-efficient company contractor cars.

Initial thoughts -company car vs mileage allowance 

First thoughts

In most cases, UK limited company contractors travel to work each day by car. However, since the pandemic, some have spent more time working from home.

The journeys by contractors to work by car will consist of visiting their main client site(s). Furthermore, business journeys by car could include:

  • Visits to other work-type sites.
  • To attend training sessions.
  • Attend conferences and seminars.

Common questions 

There’ll be common questions from UK contractors and business owners regarding how they travel to work. Indeed, when they’re considering using a company vehicle or claiming business mileage, these questions will include:

  • Is a company car worth it?
  • How does a company car work?
  • How much tax do you pay on a company car?
  • Can you use a company car for personal use?
  • How much does a company car cost to run?
  • How to work out mileage costs?
  • Can you claim mileage on a company car?
  • How do you report personal use of a company vehicle?

In this guide, we’ll examine how much tax I pay on a company car and what you can save when you use your private vehicle for business journeys.

What can you claim for business travel?

Knowing what you can claim can be confusing when you use your car for business. Therefore, this guide aims to make this process more straightforward.

Most importantly, when you’re a sole trader, there’s no actual concept of a business car. Indeed, this is because you and your business are the same legal entity. On the other hand, when you own a company, you and your company are separate legal entities. Therefore, when you’ve your own contractor limited company, it can own a vehicle and provide this to you as an employee of your company.

When we consider is mileage taxable, providing you only claim for genuine business journeys, your mileage allowances are tax-deductible. 

Company car versus mileage allowance -using own car for work mileage 

For sole traders 

Sole traders have a choice of two methods in terms of how to calculate mileage for taxes. Therefore, as a sole trader, we show below how you can work out how to claim mileage on taxes when you use your own personal car for your work journeys:

  • The first option is the `mileage method.’ To clarify, you can use this method if you’ve never claimed capital allowances on your car. Moreover, this method gathers the total business mileage for their business travels during the tax year. As a result, you can convert it into mileage allowances by claiming at the HM Revenue & Customs (HMRC) approved mileage rates. 45 pence per mile is claimable for the first 10,000 miles you travel in the tax year (6 April to 5 April). In addition, after this, 25 pence can then be claimed for each mile after that or
  • The second choice is the `actual cost method.’ Moreover, this way of calculating what you can claim takes the total business mileage and compares it against the total overall mileage. Indeed, once you’ve done this, you can calculate a percentage of the total miles related to your business journeys. Next, you can apply this percentage against the total cost of all your car’s various running costs. As a result, you can calculate the proportion of your vehicle running costs you can claim as a business expense.

To sum up, whichever choice you make from the above, your claim will reduce your taxable profits. As a result, that’ll reduce the tax and NI you pay on these. 

For contractors     

First, most contractors work through their own company or perhaps via an umbrella company. Therefore, you can claim mileage on taxes when you use your private vehicle to travel to work. Furthermore, you’ll claim your company mileage allowances under HMRC’s approved mileage rates, enabling your company to pay you a private car mileage allowance.

As mentioned above, the mileage reimbursement rate for independent contractors is 45p for the first 10,000 miles travelled in the tax year. However, the rate then changes to 25p per mile for each mile after that. What’s more, when you calculate mileage claims, these rates intend to compensate you as the employee for your overall car running costs for the vehicle. This includes contractor fuel expenses, repairs and maintenance, road tax, and insurance. Therefore, you can claim mileage on taxes if you run your own company and use your private vehicle for business. As a result, your company can reimburse your company mileage at the above rates. In turn, this will save company tax.

You can also claim two other car-related costs when using a private vehicle for business journeys. Indeed, if you claim private car mileage for business journeys, these are:

  • Parking fees.
  • Road tolls.

In summary, the company will save on Corporation Tax (CT) when you use your private car for business journeys. This CT saving is 19% or 25% on the company mileage in your private vehicle. In addition, the company can save CT on any parking fees and road tolls. 

Company car versus mileage -a look at company vehicles 

Initial considerations

First, with the rising benefits for company vehicles in recent years, some good contractor company car tax advice is that it’s usually no longer beneficial to run a car through your business. Basically, as part of our company car v mileage for a private car comparison, this is especially the case where the vehicle has a large engine size and high CO2. Therefore, many refer to such vehicles as `gas-guzzlers’.

However, running a car through your business can be beneficial if it’s a tax-efficient company vehicle. For it to be tax-efficient, the car should have low CO2 emissions. What’s more, it can be even more beneficial if your car is a hybrid or electric. Most importantly, most electric cars and some hybrid vehicles are tax-efficient company vehicles. Therefore, electric-powered cars are becoming more popular daily, and plug-in hybrid cars are another popular option.

Low emissions

Any `normal’ vehicle without ultra-low emissions is more expensive to run as a company car. As a result, such a car won’t be tax-efficient. Therefore, the type of car is a key consideration when you’re looking to use a company vehicle in the future.

Company vehicle considerations

As part of this mileage reimbursement vs company car comparison, when a contractor considers looking for a company vehicle, it’s worth looking at the latest electric and hybrid cars. Most importantly, if a contractor’s car is electric, these types of vehicles are very tax-efficient. However, for those contractors’ cars that are electric, they can be expensive to purchase.

Many contractors will ask if company cars are worth it in terms of the additional tax. These come in addition to extra reporting for a business car. Therefore, it’s worth running this past your accountant if you consider purchasing a company vehicle. Indeed, they’ll be able to determine if your choice of vehicle will or won’t be a tax-efficient company car for you. As a result, your accountant can help you choose an option that fits your circumstances. In conclusion, if your accountant calculates the best choice, you should not pay extra taxes.

Today, the way you pay tax on business cars depends on:

  • The level of CO2 which the car emits from petrol and diesel cars; and
  • The electric range for electric cars.

You can use HMRC’s company car tax calculator to determine benefits and see if it’ll be tax-efficient. Alternatively, you can work these out yourself or via your accountant. Therefore, let’s now look at this more closely.

If you’re thinking about a company vehicle and claiming mileage on the company car instead of being provided with fuel by your employer, you can generally do this. When you do, you won’t have a fuel benefit. However, the mileage rates are set by HMRC and are lower than the ones shown above for private vehicles.

Road tax for company cars

When you own a car in the UK, you must pay road tax annually. This charge is based on your vehicle’s CO2 emissions. In addition, when you buy a new car in the UK, there’s a fee of £55 if you register and tax a car for the first time with the DVLA.

There is no vehicle excise duty (road tax) on electric cars. However, if you buy an electric vehicle:

  • You must tax your vehicle from the outset and
  • Then renew your electric car road tax every 12 months, even though there is nothing to pay.

If you buy a hybrid car, the road tax rate will depend on the year of registration and CO2 emissions. Further information about your vehicle type can be found online.

Company car vs mileage allowance -company car tax explained 

Contractor company vehicle  

If we consider how do company cars work, we should carefully consider the company car tax rules. Indeed, all company car drivers should do this before proceeding with a company vehicle. Therefore, once you’ve done your research, you can investigate what vehicle you could buy or lease through your business. What’s more, if you go ahead, you’ll arrange for your company to provide you with a business car. As a result, when you do, the company car expenses are paid for by the company, and CT is saved on the various company car running costs. Meanwhile, although depreciation on the actual vehicle cost is claimed in the accounts, the company will save CT on the cost through Capital Allowances. Therefore, these, in turn, are applied in the company’s CT computations.

When we investigate how company car tax works, we see that there is a tax cost if the company allows you to use the car for private car mileage journeys. Therefore, because of the private miles in a company car, the tax cost for the personal mileage in the vehicle is based upon what we call Benefits in Kind (BiK). The benefit in kind (BiK tax) results in the company car tax (UK). Therefore, when working out the benefit, we must know how to calculate company car tax.

How do you calculate the benefits & tax on company cars?

HMRC require the fuel type and other vehicle details when you report the benefits to them on form P11D. Therefore, as mentioned, when we look at how to work out company car tax, it’s calculated on the BIK. Indeed, when we work out the car’s P11D benefit in kind, this is based on either:

  • The car’s CO2 emissions when it’s a regular petrol or diesel car, and most hybrid cars. CO2 represents the amount of carbon dioxide the vehicle emits. Therefore, once the CO2 emissions figure is known, you can calculate the percentage rate. Next, this percentage is applied to the car’s list price to calculate the BIK.
  • The car’s electrical range if it’s an electric car. Once the electrical range is known, you can calculate the percentage rate. This rate is applied to the car’s list price to calculate the BIK.

The benefit percentage company car rates that apply can be found in a company car tax table from HMRC. Please see the section below on `Company car vs mileage allowance -the company car tax bands and BIK rates.’

Company & personal taxes

As the director/employee provided with the company vehicle, you’ll pay tax on the benefit via your tax code, which is applied to your annual salary. Meanwhile, the employer will pay National Insurance on the benefit. Therefore, how can you determine the amount of company vehicle or BiK tax you’ll pay?

  • BIK is taxable on the employee at their highest tax rate (the tax bands are 20%, 40% or 45%). As a result, the BIK is included in their tax code, which is applied to their salary.
  • The BIK is taxable on the employer as Class 1A National Insurance(NI) at a rate of 13.8%.

To sum up, a company car will save CT on the company vehicle running costs and actual car purchase price (under Capital Allowances). However, the company and director will incur company vehicle tax/NI on the BIK. Therefore, we’ll look at how to work out and calculate business car tax compared to using your private car.

Compare company car vs mileage allowance in private car

Now, we’ll consider using a company vehicle or mileage reimbursement for your private car for business journeys.

BiK rates 

The current company car BIK rates start at:

  • 2% for electric cars. However, this is increasing by 1% each year from 2025/26 to 2027/28, when it will reach 5%.
  • A lower rate for the greenest hybrids. The BIK can be up to ten times more than an electric car would pay.
  • 25% for any car with 100 g/km CO2.

For conventional petrol and diesel vehicles, the bands rise from 14% in 1% increments to a maximum of 37%. Diesel models are subject to a 4% supplement should they not meet RDE2 tests.

Company car vs mileage allowance -what are company car tax bands & BIK rates?

As part of this company car tax guide, HMRC has a table that shows how the percentage BIK rates vary with vehicle CO2 and electric-only range. Indeed, this table represents petrol, diesel, hybrid, and electric-related BIK rates for the tax years 2022-2025 (the rates are frozen for 2024 and 2025). In addition, there’s a 4% supplement for diesel cars that do not meet the Euro 6d (RDE 2) emissions standards.

How to calculate BIK

Car fuel benefit £27,800 in 2023/24 and 2024/25  x the appropriate percentage.
Van benefit £3,960 in 2023/24 and 2024/25 (nil if an electric van).
Van fuel benefit £757 in 2023/24 and 2024/25 (nil if an electric van).

Mileage in private car v company car tax comparison for 2023/24

Now, we will examine the differences in tax costs/savings between the two choices.

Worked example

2017 BMW 4 Series 2.0TD M Sport Gran Coupe 5d Auto 1995CC Company car (£) Private car (£)
CT savings:
The company car running costs:
Fuel for the car 2,400
Repairs of the car 1,000
Insurance costs 500
Road Tax costs 200
Class 1A National Insurance 2,327
The Capital allowances on the vehicle list price 37,155 x 18% 6,688
Company mileage on business -27,000 miles:
10,000 miles at 45p 4,500
17,000 miles at 25p 4,250
Total costs 13,115 8,750
CT saved at a rate of 19% 2,492 1,663
Company car tax:
2017 BMW 4 Series 2.0TD M Sport Gran Coupe 5d Auto 1995CC. The CO2 emissions are 114 CO2
114 CO2 is equivalent to 27% of the list price of treating the car as a benefit in kind.
List price 37,155 x 27% 10,032
Car fuel 27,800 x 27% 7,506
Total benefits in kind 17,538
Basic rate taxpayer Higher rate taxpayer
The tax on the contractor at an income tax rate of 20% 3,507
Tax on the contractor at an income tax rate of 40% 7,015
The Class 1A National Insurance at 13.8% 2,420 2,420
Total taxes on the company vehicle 5,927 9,435
The overall tax savings for the company/individual:
Corporation Tax savings 2,492 2,492
The Taxes on benefits in kind -5,927 -9,435
Therefore, the overall tax savings (costs) for the company/individual are -3,435 -6,943

Summary of above example

As you can see in the above company car vs personal car calculations, there are overall tax costs for the company vehicle. On the other hand, there’s overall tax savings of £1,663 on the mileage cost of a personal car. This example is based on a BMW 4 Series 1995CC. However, the company vehicle option is much more favourable when you run the calculations with an electric car.

If you’d like to run some figures to see the outcome for company vehicle vs mileage reimbursement, you can search online for a company car vs personal car calculator. When you do this, you can compare company cars and compare company car tax outcomes to see how tax-efficient they are. 

Contractor company vehicle & company car tax conclusion 

In the above Company car versus mileage comparison, we now have the results. To sum up, as you can see, in this example, to run the BMW through your company, how much tax you’ll pay will depend on your income tax bracket. As a result, the overall tax bill would be £3,435 in business car tax costs per annum if you’re a basic rate taxpayer. On the other hand, if you’re a higher-rate taxpayer, it’ll cost you £6,943 in tax costs.

In contrast, you’ll make overall annual company tax savings of £1,663 if you keep the car as a private vehicle and claim company mileage allowances. Moreover, the company will reimburse the mileage allowances (£8,750 in this example) to the director tax-free. As a result, this reduces the amount of your drawings, which are taxable income.

In conclusion, the result and advice in this example show you’re considerably worse off running the BMW through your company due to the high CO2.

Therefore, you should calculate your car’s tax position to determine its tax efficiency. You can find a director company car tax calculator and a mileage claim calculator (HMRC) to assist you.

Other thoughts

Company car vs mileage allowance -what are company car mileage rates?

Instead of claiming contractor fuel expenses (and being taxed on the fuel benefit) for a business car, there’s an option to claim a company car mileage rate using the official HMRC rates. These are known as the HMRC Advisory Fuel Rates, which are the official HMRC mileage rates (company car). Therefore, when you use the official mileage allowances for company cars, just like with a personal car, when you claim a mileage allowance (company car):

  • Your business can reimburse the company car mileage allowance amounts to you.
  • The company will save tax on the company car business mileage. 

The official mileage rates for a business vehicle are lower than the HMRC mileage rates for private cars. Indeed, this is because they re-compensate the individual for the fuel costs rather than all the car running costs. Therefore, when you run a company vehicle, you can make a company car mileage claim each time you travel on business under these rates.

How about a hire car option?

A further option for a company vehicle for a contractor is car leasing. In the same vein, with the company owning the vehicle, a contractor car lease through your business will result in a benefit in kind. Once again, it’s based on the same method: applying a percentage rate to the vehicle’s list price. Therefore, as explained earlier, you should look for a tax-efficient company vehicle.

Under the contractor lease car option, a company can claim the hire costs as an expense (as opposed to claiming the car cost). In addition, the business can reclaim 50% of the VAT on the hire costs if it’s VAT-registered and operates under the standard VAT scheme.

In the above example, choosing the hire car option will result in a similar outcome: you will be worse off by hiring the car through your company. However, when you hire a tax-efficient company car, such as an electric vehicle, you’ll be better off in terms of tax costs and savings.

Travel by bicycle

We’ve written about using a bicycle or motorcycle for work journeys. This guide looks at the considerations between company-owned and privately owned bikes. It’s a good read if you’re considering using this method of travel.

Final thoughts

Today, most contractors run their vehicles as private cars when considering a company car versus mileage allowances. As a result, they can claim business mileage for their private contractor cars through their company. Indeed, when you’re a UK contractor, you may wish to consider tax-efficient company cars for directors. Consequently, if you do, you’ll likely look at electric or hybrid vehicles or a vehicle with low CO2 emissions. Finally, in comparing business cars or mileage reimbursement, many contractors with a business car use these types of vehicles as they’re tax-efficient.

After considering the company car vs mileage allowance, you may proceed with a company vehicle. Therefore, the next decision is whether to buy this outright, on hire purchase, or go for an electric car lease through a limited company. Indeed, under both scenarios, there’ll be a BiK tax you’ll pay and a company tax saving. However, if you decide to run a vehicle through your company, looking for tax-efficient company cars first is best. Finally, few contractors run a `gas-guzzler’ petrol or diesel model. In conclusion, the tax repercussions aren’t worth it under the current tax system.

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