Can I Buy a Car Through My Business? 2025 Updated (Limited Company or Sole Trader)
Buying a car through your business—whether as a sole trader or limited company—can bring potential tax savings, but it also involves several layers of complexity. From capital allowances to benefit-in-kind (BIK) tax, and from insurance to choosing the right method of purchase, it’s essential to know the facts before making a decision.
This updated 2025 guide walks you through the practical and tax considerations of buying a car for your business.
Why Consider Buying a Car Through Your Business?
In short—yes, your business can buy a car. That might mean access to capital allowances, reclaimable costs, and tax deductions. But whether you’re better off doing so depends on a range of factors including how the car will be used, how it’s financed, and your overall tax position.
Questions to Ask Before You Decide
Before moving forward, make sure to consider:
- Will I lose my personal “no claims” bonus?
- What are the BIK implications?
- Is it better to buy, lease, or claim mileage?
- Who pays for fuel and maintenance?
- Would a car allowance be more tax-efficient?
- How will the company’s cash flow be affected?
Business Structure Matters: Sole Trader vs Limited Company
How your business is set up significantly affects the tax treatment of business vehicles.
For All Businesses: Claiming Capital Allowances
If you buy a car through your business, you can claim capital allowances. However, cars do not qualify for the Annual Investment Allowance (AIA)—you must use writing down allowances instead.
Here are the latest 2025 rules:
| Description | What You Can Claim |
| New and unused, CO₂ emissions = 0g/km (EV) | 100% First Year Allowance |
| New or used, CO₂ ≤ 50g/km | 18% Main rate WDA |
| New or used, CO₂ > 50g/km | 6% Special rate WDA |
Note: These rules remain in place until at least April 2027.
Handy Hint:
Motorcycles, vans, and lorries do qualify for AIA. Cars do not. From April 2025, double-cab pick-ups are now taxed as cars for both BIK and capital allowances.
Sole Traders: What You Need to Know
As a sole trader, you are the business. That means you can buy a car and claim business-related costs. But if the car is used personally as well, you’ll need to apportion expenses (and capital allowances) appropriately.
Options for Claiming:
- Simplified Mileage Method (once chosen, it cannot be changed for that vehicle)
- Actual Expenses + Capital Allowances (based on business use percentage)
Use HMRC’s Simplified Expenses Checker to see which method is more tax-effective for your situation.
Limited Companies: Buying a Car Through the Business
In a limited company, the vehicle is a company asset—distinct from the director or employee. You can:
- Claim capital allowances based on the car’s emissions
- Deduct running costs (fuel, insurance, servicing, repairs) to reduce corporation tax
But there’s a catch—Benefit in Kind (BIK).
2025–26 BIK Rates
| Vehicle Type | BIK Rate (%) |
| EVs | 3% (rising to 4% in 2026/27) |
| Petrol/Diesel (CO₂ 51–54 g/km) | 16% |
| Petrol/Diesel (155+ g/km) | 37% + 1% for every extra 5 |
| Plug-in Hybrids (e-range based) | 3% to 15% |
The BIK will be calculated based on the list price of the car when new multiplied by the relevant percentage above
Fuel BIK multiplier (2025–26): £28,200
Use HMRC’s online BIK calculator to estimate your personal tax charge.
Ways to Fund the Car
- Buying Outright
- Full ownership by the company.
- Capital allowances available.
- Annual depreciation reduces the accounts profit but added back for tax purposes.
- Hire Purchase
- Treated as an asset with a corresponding liability.
- Interest portion is tax deductible.
- Capital allowances still apply.
- Leasing
- The car is not an asset of the business.
- Lease costs go directly into profit and loss as expenses.
- Useful for managing cash flow and avoiding depreciation risks.
What About Second-Hand Cars?
Yes, your business can buy a second-hand car. Just be aware:
- CO₂ Emissions still determine capital allowances.
- BIK is still based on emissions, not vehicle age.
- Older cars may have higher maintenance and running costs, especially relevant with today’s high fuel prices.
Frequently Asked Questions
Is it worth buying a car through my company?
It depends on your personal and business circumstances. Tax savings might be offset by BIK costs. Always model a few scenarios with your accountant before committing.
Can my company buy an electric car?
Yes—and there are still significant tax incentives. EVs qualify for 100% first-year capital allowances and have a low BIK rate (3% in 2025/26).
Can I give a company car to a spouse?
Yes, but it’s still a taxable benefit. Make sure your company car policy and insurance reflect this.
Can my business buy any vehicle?
Yes, but tax treatment differs. Cars don’t qualify for AIA, but vans and lorries do. From April 2025, double-cab pick-ups are now treated as cars.
Can I claim the car as a business expense?
Yes—leased cars are expensed monthly. Purchased cars qualify for capital allowances, not direct expensing.
Final Thoughts
Buying a car through your business in 2025 remains a popular, yet complex area of small business tax planning. It’s not just about cost or convenience—vehicle type, CO₂ emissions, fuel usage, and financing method all impact the tax efficiency of your decision.
Get it right, and it could save you thousands. Get it wrong, and you could be facing an unnecessary BIK charge.
Need help modelling your options? Speak to IN Accountancy today—we’ll help you choose the most tax-efficient route for your business vehicle purchase.
