Company Car Leasing for Directors
- A fully electric company car is taxed at 4% Benefit-in-Kind for 2026/27, rising to 5% in 2027/28 and 7% in 2028/29 (HMRC).
- For a 40% taxpayer, that means around £60 a month in company car tax on a typical electric saloon with a P11D value of about £45,000.
- A high-emission petrol or diesel car sits in bands up to 37%, which can mean close to £600 a month for the same driver on a similar-value car.
- The company pays Class 1A National Insurance at 15% of the taxable benefit, which is far lower on an electric car because the benefit itself is smaller.
- Lease rentals attract corporation tax relief: in full for cars at or below 50g/km CO2, with a 15% restriction above that line (HMRC).
- VAT-registered companies can typically reclaim 50% of the VAT on car lease rentals, or 100% where the car is used solely for business, depending on circumstances.
- Dividends are taxed at 35.75% at the higher rate in 2026/27 (allowance £500), which is why funding a car personally from extracted profit is expensive.
- Single-director limited companies, including personal service companies, can lease through the business, subject to status.
Can a director lease a car through their limited company?
Yes, and it is one of the most common arrangements in UK business motoring. The lease, known as Business Contract Hire, is taken in the company's name: the company pays the monthly rentals, the car is a company asset in use if not in ownership, and the director drives it. Because the car is available for private use as well as business use, the director is taxed on it as a benefit in kind, and that single fact drives every number in this guide.
Eligibility is broader than many directors assume. You do not need a fleet, a payroll of dozens or years of filed accounts. Funders assess the company's financial position, its trading history and, for younger or smaller companies, sometimes the director's own record; a personal guarantee may be requested where the company is newly formed. A one-person consultancy can hold a business lease on exactly the same legal footing as a hundred-vehicle fleet, subject to status. At Intelligent Vehicle Finance we arrange Business Contract Hire for limited companies of every size, from personal service companies to established SMEs, checking each application across a panel of funders.
Personal service companies: what contractors and consultants need to know
If you run a personal service company, a limited company through which you sell your own professional work, the company-car rules apply to you in exactly the same way as to any other company. The company can lease the car, claim the available tax relief on rentals and recover VAT where registered, and you pay Benefit-in-Kind on your private use. For a PSC director choosing an electric car, the sums in the next section are often strikingly favourable, because the 4% band applies regardless of company size.
Two practical points deserve care. First, funders look at the company's accounts: a PSC with modest retained profit or a short trading history may be asked for a director's guarantee, which is routine rather than a red flag. Second, if some or all of your engagements fall inside the off-payroll working rules, the interaction between deemed employment income and company benefits is a genuinely specialist area, and the right answer depends on your contract mix. This guide describes the general position; your accountant should confirm how it lands for you.
What will a company car cost you in tax? Worked examples at the 40% rate
Company car tax is calculated in three steps: take the car's P11D value (its list price including options, VAT and delivery), multiply by the car's Benefit-in-Kind percentage (set by CO2 emissions and, for plug-in hybrids, electric range), then multiply by your income tax rate. For 2026/27, fully electric cars carry a 4% percentage; the highest-emission petrol and diesel cars carry up to 37%. Our company car tax and BIK rates guide sets out every band; here is what the bands mean in pounds for a higher-rate taxpayer.
| Example car | P11D value | BiK band | Taxable benefit | Director's tax at 40% |
|---|---|---|---|---|
| Electric saloon (e.g. Tesla Model 3 Long Range) | £44,925 | 4% | £1,797 | £719 a year (about £60 a month) |
| Premium electric seven-seater (e.g. Volvo EX90 Twin Motor Core) | £78,995 | 4% | £3,160 | £1,264 a year (about £105 a month) |
| Petrol SUV, 170g/km (e.g. Volvo XC60 B5 Core) | £48,395 | 37% | £17,906 | £7,162 a year (about £597 a month) |
Illustrative calculations using 2026/27 HMRC appropriate percentages and published P11D values current at July 2026; the exact figure for any car depends on its own certified data and options. Figures rounded to the nearest pound.
Read the first and third rows together, because they are the whole argument in one glance: a director can run a £45,000 electric car for about £60 a month in personal tax, while a petrol SUV of similar value costs nearly ten times more. The company feels the same gap through employer National Insurance: Class 1A contributions are charged at 15% of the taxable benefit, so roughly £270 a year on the electric saloon against around £2,686 on the petrol SUV. The electric advantage narrows only slowly, with the EV rate legislated to reach just 7% by 2028/29. Plug-in hybrids sit between the extremes: for 2026/27 those emitting 1-50g/km are banded by electric range, from 3% for the longest-range cars through 7%, 10%, 12% and 14%, though that range-based regime ends from April 2028.
If a fully electric car fits your driving, models like the Tesla Model 3 or the seven-seat Volvo XC90 plug-in hybrid show how differently the same badge can tax; our electric car leasing hub covers the practical side, from home charging to public networks.
What the company gets: rentals, corporation tax and VAT
The director's Benefit-in-Kind is only half the picture; the company's side of the ledger matters just as much. Lease rentals on a Business Contract Hire agreement are a trading expense, and the corporation tax treatment follows the car's emissions: cars at or below 50g/km CO2 attract relief on the full rental, while cars above 50g/km carry a flat 15% disallowance, meaning the company can deduct 85% of the rental. Every current fully electric car sits comfortably on the right side of that line.
VAT works in the company's favour too. A VAT-registered business can typically reclaim 50% of the VAT on the finance element of car rentals, the standing HMRC concession reflecting private use, and 100% where the car is used solely for business, depending on circumstances. VAT on any maintenance package is generally recoverable in full. Add it together and a company car on Business Contract Hire is funded from company income with meaningful tax relief at every stage, which is precisely what the personal alternatives below cannot offer.
Company car, extra salary or dividends: the director's three routes
Every director who wants a new car faces the same three-way choice: take it as a company car, pay yourself more salary and lease personally, or draw dividends and lease personally. The personal routes both share one structural problem: the money must leave the company as taxed income before a penny reaches the car. Whether the company should lease that car or buy it outright is a separate question with its own arithmetic, set out in our guide to leasing vs buying a company car.
| Route | Tax on the way to the car | Company relief |
|---|---|---|
| Company car (Business Contract Hire) | Benefit-in-Kind only - 4% band on a fully electric car, so about £60 a month at 40% on a £45,000 car | Corporation tax relief on rentals (full at 50g/km or below), 50% VAT recovery, rentals paid from pre-tax company income |
| Extra salary, then a personal lease | Income tax at 40% plus employee National Insurance, and the company pays 15% employer National Insurance on top | Salary and employer NI are deductible, but the personal rentals attract no company relief and no VAT recovery |
| Dividends, then a personal lease | Corporation tax on the profit first, then dividend tax at 35.75% at the higher rate (allowance £500) | None - dividends are paid from post-tax profit and the personal rentals attract no company relief |
Rates shown are the published 2026/27 figures. The comparison is a general framework, not advice; the optimal route depends on your income mix, your company's profits and the car you choose.
Put rough numbers on it and the shape is stark. For a higher-rate director, extracting profit as dividends in 2026/27 loses corporation tax and then 35.75% dividend tax before the remainder reaches your bank account; extra salary loses 40% income tax plus National Insurance on both sides. Broadly, the company needs to part with somewhere near two pounds of profit to put one pound of personally-funded car budget in your hands. The company car route skips that extraction entirely: the company pays the rentals from pre-tax income and your only personal cost is the Benefit-in-Kind, which on an electric car is measured in tens of pounds a month rather than hundreds. On a high-emission car the logic can reverse, which is why the framework matters more than any single rule of thumb.
The honest summary for 2026/27: if the car you want is electric, or a long-range plug-in hybrid, the company-car route is very hard to beat. If your heart is set on a high-emission petrol or diesel car, run the numbers both ways with your accountant before deciding, and remember that a Personal Contract Hire agreement funded from existing income keeps the car out of the benefit system altogether.
How IVF arranges director and PSC leases
Intelligent Vehicle Finance is a phone-first, FCA-authorised leasing broker and a BVRLA member, working with directors, personal service companies and SMEs across the UK. We start with your situation, company or personal, electric or combustion, mileage and term, then check availability and terms across a panel of funders and present clear written options. We are a credit broker, not a lender, and we may receive a commission from lenders for introducing customers to them. There is no cost and no obligation to get a quote: call 01752 429950 and a named specialist will walk through the whole picture, including the tax questions worth taking to your accountant.
Director company car FAQs
Sources
Benefit-in-Kind appropriate percentages are from HMRC's published tables for 2026/27 (gov.uk, 480 Appendix 2, published 6 April 2026). Dividend allowance and rates are from gov.uk tax on dividends. The Class 1A National Insurance rate is from HMRC CWG5 2026. The lease rental restriction is from HMRC BIM47725. P11D values in the worked examples are published list-price-based figures current at July 2026. Figures were correct at July 2026 and are refreshed as rates change.
Reviewed by Stacey Smith, Brand Director, Intelligent Vehicle Finance. Last updated: July 2026.
This guide is general information, not financial, tax or investment advice. Tax treatment depends on individual circumstances and may change. Worked examples are illustrative calculations from published rates and values, not quotations or offers of finance. Always consult your accountant before acting.
Intelligent Vehicle Finance is a trading style of XLCR Vehicle Management Ltd, authorised and regulated by the Financial Conduct Authority (FRN 315268), and a BVRLA member. IVF is a credit broker, not a lender, and may receive a commission from lenders for introducing customers to them.