Thinking about providing a car or van through your limited company?
The tax treatment can vary considerably depending on the vehicle, who uses it, how it is used and whether the business pays for private fuel.
Here’s what you need to know for the 2026/27 tax year.
First, are you a sole trader or limited company?
This makes an important difference.
If you are a sole trader buying or leasing a vehicle for your own business, the Benefit in Kind rules in this guide do not apply to you. Instead, you need to consider which vehicle and running costs can be claimed against your business profits.
For example, a self-employed delivery driver using their own van would normally fall into this category.
If a limited company provides a car or van to a director or employee, Benefit in Kind rules may apply, particularly where the vehicle is available for private use.
Company cars
If a company car is available to a director or employee for private use, including commuting, it will normally be treated as a taxable Benefit in Kind.
The taxable value is based on the car’s list price and a percentage determined largely by its CO₂ emissions and fuel type. The individual then pays Income Tax on that benefit.
Electric company cars
Electric cars continue to receive favourable company car tax treatment.
For 2026/27, a fully electric zero-emission company car has a Benefit in Kind rate of 4%.
A £40,000 electric car would create a taxable benefit of £1,600. For a basic-rate taxpayer, that means £320 of Income Tax for the year.
This can make an electric vehicle considerably more tax-efficient than many petrol or diesel company cars.
What about hybrid cars?
For cars producing between 1g/km and 50g/km of CO₂, the Benefit in Kind percentage also considers how far the vehicle can travel using electric power alone.
For 2026/27, rates within this emissions band can range from 4% to 16%, depending on the vehicle’s electric range.
Private fuel
If the company pays for private fuel, a separate taxable benefit can arise.
For 2026/27, the car fuel benefit multiplier is £29,200, which is multiplied by the car’s Benefit in Kind percentage.
The fuel benefit can usually be avoided where the full cost of private fuel is repaid within HMRC’s required timescale.
Electricity is treated differently, so charging an electric company car should be considered separately.
Company vans
Company vans have different rules.
Where a van is provided mainly for business use and private use is limited to commuting and insignificant private journeys, a taxable van benefit may not arise.
Where unrestricted private use is allowed, the standard van Benefit in Kind charge for 2026/27 is £4,170. If private fuel is also provided, a further £798 van fuel benefit can apply.
The distinction between a car and a van is not always straightforward, particularly with some double-cab pick-ups, so check the tax position before choosing the vehicle.
Is a company vehicle tax-efficient?
It depends on the vehicle, emissions, private use, fuel arrangements and the individual’s tax position.
Electric cars can still provide significant tax advantages, while higher-emission vehicles and employer-funded private fuel can result in much larger Benefit in Kind charges.
For sole traders, the calculation is different because the question is generally which purchase, lease and running costs can be claimed through the business.
Understanding which rules apply to you before committing to a vehicle can prevent an expensive surprise later.
Thinking about a car or van for your business?
Whether you’re a sole trader considering a business vehicle or a limited company looking at providing a car or van, it pays to understand the tax position before making the decision.
We can look at the figures with you, explain which rules apply and help you understand the potential tax implications.
Thinking about buying or leasing your next business vehicle? Talk to North Devon Accounts before you make the decision.
