Company Cars & Corporation Tax: Capital Allowances, BIK, and CT600 Treatment

Company Cars & Corporation Tax: What Goes on Your CT600

Company cars are one of the most misunderstood areas of corporation tax. The rules vary depending on whether the car is electric or petrol/diesel, whether you buy or lease it, and how you use it.

Get it right and you could save thousands. Get it wrong and you'll face unexpected tax bills and HMRC scrutiny.

Capital Allowances: Buying a Company Car

When your company buys a car, you can't claim the full cost as an expense in year one (unlike most other equipment). Instead, you claim capital allowances based on the car's CO2 emissions.

Electric and zero-emission cars

• 100% first-year allowance — deduct the full purchase cost in year one
• No CO2 emissions cap — purely electric cars qualify
• Also applies to new zero-emission goods vehicles

Example: Company buys an electric car for £45,000

• Year 1 CT600: Claim £45,000 capital allowance
• At 25% corporation tax: £11,250 tax saving in year one

Low-emission cars (CO2 ≤ 50g/km)

• Main rate pool: 18% writing-down allowance per year
• Includes most plug-in hybrids
• The allowance applies to the reducing balance each year

Higher-emission cars (CO2 > 50g/km)

• Special rate pool: 6% writing-down allowance per year
• Most petrol and diesel cars fall here
• It takes many years to write off the cost

Comparison: £40,000 car purchase

The difference is dramatic. An electric car gives you the full deduction immediately, while a petrol car takes decades to write off fully.

Leasing a Company Car

Operating lease (most common for company cars)

If your company leases a car on an operating lease (the leasing company retains ownership):

• Lease rentals are a deductible expense on the CT600
• BUT: if CO2 emissions exceed 50g/km, only 85% of the rental is deductible
• The 15% disallowance applies to each rental payment
• Electric/low-emission cars: 100% deductible

Finance lease / hire purchase

• Treated similarly to buying for capital allowance purposes
• Capital allowances apply based on CO2 emissions (same rates as purchase)
• Interest element of HP payments is separately deductible

Lease vs buy comparison

Benefit in Kind (BIK): The Personal Tax Hit

When a company provides a car for an employee's or director's personal use, it creates a benefit in kind — a taxable perk that both the employee and company must account for.

How BIK is calculated

BIK value = List price of car × BIK percentage (based on CO2 emissions)

BIK rates for 2025/26

Example: Electric car BIK

• Car list price: £45,000
• BIK rate: 2%
• BIK value: £900 per year
• Director's income tax (40%): £360 per year
• Company's Class 1A NI (13.8%): £124 per year

Example: Petrol car BIK

• Car list price: £45,000
• CO2: 130g/km
• BIK rate: 30%
• BIK value: £13,500 per year
• Director's income tax (40%): £5,400 per year
• Company's Class 1A NI (13.8%): £1,863 per year

The electric car costs the director £360/year in personal tax vs £5,400/year for the petrol car. That's a £5,040 annual saving.

What Goes on the CT600

Capital allowances (purchased cars)

• Box 660: Total capital allowances claimed
• Box 680: Capital allowances breakdown
• Specify the pool (main rate or special rate) based on CO2

Lease rental deductions

• Included in your total trading expenses
• Reduce the amount by 15% for cars with CO2 > 50g/km
• No separate CT600 box — it's part of your general expenses

Employer NI on BIK (Class 1A)

• Box 63: Expenses — include Class 1A NI as a deductible expense
• Class 1A NI is payable by 22 July following the tax year
• Report on form P11D (not the CT600 directly, but the NI is a CT600 expense)

Fuel Benefit

If the company also pays for the director's private fuel, there's an additional BIK:

Fuel benefit charge 2025/26

• Fixed amount: £27,800 (regardless of actual fuel cost)
• Multiplied by the BIK percentage for the car
• Electric cars: effectively zero (2% × £27,800 = £556 benefit, but no fuel cost for charging)

Example: Petrol car with fuel

• BIK %: 30%
• Fuel benefit: £27,800 × 30% = £8,340
• Director's tax (40%): £3,336 per year — just for fuel

Tip: For non-electric cars, it's almost always more tax-efficient for the director to pay for private fuel personally and claim business mileage at HMRC's advisory rates.

Mileage Allowances: The Alternative

Instead of a company car, the director can use their personal car for business and claim mileage:

HMRC advisory mileage rates

• 45p per mile for the first 10,000 business miles
• 25p per mile thereafter

Company pays mileage

• The mileage payment is a deductible expense on the CT600
• No BIK for the director (up to HMRC rates)
• Simpler administration — no P11D for the car

When mileage is better than a company car

If the director does fewer than ~8,000 business miles per year, personal car + mileage is usually more tax-efficient than a company car — especially for higher-emission vehicles.

Electric Cars: The Tax Sweet Spot

Electric company cars currently offer the best tax treatment of almost any employee benefit:

Company perspective (CT600)

• 100% capital allowance in year one (if purchased)
• 100% lease rental deduction (no 15% restriction)
• Low Class 1A NI: 13.8% of just 2% of list price
• Zero fuel benefit if company pays for charging

Director perspective

• 2% BIK — negligible personal tax
• No fuel benefit charge for electricity
• Free charging at work is not a taxable benefit

Total tax comparison (£45,000 car, higher-rate taxpayer)

The electric car is dramatically more tax-efficient at every level.

Selling or Disposing of a Company Car

When the company sells a car:

Proceeds vs tax written-down value

• If sold for more than the tax written-down value: balancing charge (taxable)
• If sold for less than the tax written-down value: balancing allowance (deductible)

CT600 treatment

• Balancing charges increase your taxable profit
• Balancing allowances reduce your taxable profit
• Report in the capital allowances section

Frequently Asked Questions

Can I claim capital allowances on a second-hand car?

Yes, but you can't claim the 100% first-year allowance for electric cars — that's for new cars only. Second-hand cars go into the appropriate WDA pool based on CO2 emissions.

What if the car is used partly for business and partly personal?

Capital allowances are claimed on the full cost (no reduction for personal use). The personal use element is dealt with through the BIK charge instead.

Can I claim car insurance and servicing as expenses?

Yes. Running costs (insurance, servicing, repairs, road tax) are deductible business expenses on the CT600, regardless of the car's CO2 emissions.

What about vans?

Vans are treated as plant and machinery, not cars. They qualify for the AIA (100% first-year deduction regardless of emissions). The BIK on a van is also much lower (£3,960 fixed for 2025/26).

Should my company buy the car or should I buy it personally?

For electric cars: company purchase is almost always better (100% FYA + 2% BIK). For petrol/diesel: personal ownership + mileage claims is often better (avoids high BIK).

Filing a CT600 with company car capital allowances? Taxpipe handles capital allowance calculations automatically. Just £59 per filing.

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