· UpCars Team · Finance · 5 min read
Company Car vs Buying Your Own Used Car: Tax and Costs Explained
Company car tax can cost a higher-rate taxpayer thousands a year, while a used car you own comes with 45p-a-mile claims instead. Here's how to work out which route is genuinely cheaper for you.
Somewhere between “my employer will sort it” and “I’ll just buy something sensible” sits a decision that costs UK drivers thousands of pounds a year, and most people make it on gut feel. Company car or your own used car? The answer swings wildly depending on your tax band, how many business miles you do, and whether there’s a plug involved.
Here’s the plain-English version, with real numbers.
How company car tax actually works
A company car isn’t free money. HMRC treats it as a benefit in kind (BiK), and you pay income tax on that benefit through your PAYE code.
The maths is short:
P11D value x BiK percentage x your tax rate
The P11D value is roughly the list price plus options, not what your employer paid. The BiK percentage comes from the car’s CO2 emissions and fuel type. Your tax rate is 20%, 40% or 45% in England, Wales and Northern Ireland (Scotland has its own bands, topping out at 48%).
A real example
Take a petrol car with a £30,000 P11D value and CO2 around 130g/km. That puts it at roughly 35% BiK. The taxable benefit is £10,500. If you’re a 40% taxpayer, that’s £4,200 a year, or £350 a month — before you’ve paid a penny for anything else. On top of that, your employer pays Class 1A National Insurance at 15% on the benefit.
Now swap it for an electric car with a £45,000 P11D value. Zero-emission cars sit at just 3% BiK in 2025/26, rising to 4% in 2026/27 and 5% in 2027/28. The taxable benefit is £1,350. A 40% taxpayer pays £540 a year — £45 a month.
Same driver. Same driveway. A difference of more than £3,600 a year, and the EV is the more expensive car.
The fuel benefit trap
If your employer pays for fuel you use privately, you’re taxed on a separate fuel benefit. That’s a fixed figure (around £28,200 in 2025/26) multiplied by the same BiK percentage. On a 35% BiK petrol car, that’s a £9,870 benefit — nearly £4,000 of tax for a 40% taxpayer. For most people it’s cheaper to pay for your own fuel and claim business miles back instead.
Charging an electric car at your workplace isn’t a taxable benefit, which is another quiet advantage of going electric through the business.
What buying your own used car really costs
No BiK, no fuel benefit, no P11D. But you’re carrying everything.
A realistic annual picture for a five-year-old petrol hatchback bought for £12,000:
- Depreciation: £1,500–£2,000 (far gentler than on a new car)
- Insurance: £500–£700
- Servicing and repairs: £500–£700
- Road tax: £195
- MOT: £55
- Fuel: £1,200–£1,500
- Tyres and wear: £200
Call it £4,200 to £5,400 a year, or roughly £350–£450 a month — and at the end you own an asset rather than handing the keys back.
Buying used matters here. A new car can lose 40% of its value in the first three years; a car that’s already absorbed that hit depreciates far more slowly. In most comparisons that single factor does more for your wallet than anything else.
Don’t forget the 45p
If you drive your own car for work, your employer can pay you tax-free mileage at the approved mileage allowance rate: 45p per mile for the first 10,000 business miles, then 25p. If they pay less, or nothing at all, you can claim tax relief on the shortfall through self-assessment.
Do 8,000 business miles a year and that’s £3,600 heading your way — enough to cover a serious chunk of your running costs.
Side by side: rough annual picture
| Company car (petrol, £30k P11D) | Own used car | |
|---|---|---|
| Car, insurance, servicing | Covered by employer | £3,000–£4,000 |
| Tax you personally pay | ~£4,200 (40% taxpayer) | £0 BiK |
| Fuel | Often covered | £1,200–£1,500 |
| Business mileage | Not applicable | Up to £3,600 claimed |
So who actually wins?
A company car makes sense if…
- You’re driving an EV, especially through salary sacrifice.
- You do high business mileage and your employer covers fuel, servicing and insurance.
- You want zero hassle and a predictable monthly tax cost.
- You’re a basic-rate taxpayer with a low-emission car.
Buying your own used car makes sense if…
- You do low or moderate business mileage and can claim 45p a mile.
- You’re a higher earner looking at a petrol or diesel company car — the tax bill is brutal.
- You want to own something outright, keep it five years and avoid a permanent monthly outgoing.
- You’re a contractor or limited company director who can claim mileage instead.
The salary sacrifice shortcut
Salary sacrifice is where you give up part of your gross salary in exchange for a car. Because the money comes out before income tax and National Insurance, and because EVs carry such low BiK rates, the effective discount can be enormous — often 30–40% off the real cost for a higher-rate taxpayer. Many employers also pass on their own NIC savings, which sweetens it further.
The catches: it only really works on low-emission cars, it ties you to your employer, and you need to read the early-exit terms carefully.
If you run your own limited company, the sums shift again. Buying the car personally and claiming 45p a mile from the company is often more efficient than putting a petrol car through the business, because tax relief on lease payments is restricted for higher-emission cars — and you’d still pay BiK on top.
The takeaway
Do the maths on your own numbers before you decide:
- Work out your BiK percentage from the car’s CO2 figure and P11D value.
- Multiply by your tax rate — that’s your true monthly cost.
- Compare it against the all-in cost of a used car you’d genuinely buy, minus what you’d reclaim in mileage.
- If it’s close, weigh up hassle, job security and whether you actually want to own the thing.
For most higher-rate taxpayers doing modest business mileage, a well-chosen used car wins comfortably. For EV drivers in a salary sacrifice scheme, the company car is hard to beat. And for everyone in between, it’s genuinely worth fifteen minutes with a calculator.
When you’re ready to make that change, UpCars.uk is a sensible place to start — the cars listed there are checked over properly before they go up, so you’re not gambling on a stranger’s word.
