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Disadvantages of Having a Company Car

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Having a company car sounds convenient — but for many employees and director-owners, it can be significantly more expensive and restrictive than expected. Below are the key disadvantages.


1. High Benefit-in-Kind (BIK) Tax — Often Much More Than People Expect

A company car used for any private use (including commuting) creates a taxable benefit.


Why this is a disadvantage:

  • BIK is calculated using the car’s list price (P11D value) and CO₂ emission band — not the cheaper price you may have bought it for.

  • Higher CO₂ emissions = higher BIK percentage = higher annual tax.

  • Directors in small businesses often think it’s tax-efficient — but BIK frequently removes any advantage.


2. Fuel Benefit Charge Makes Employer-Paid Fuel Extremely Tax-Inefficient

If the business pays for private-use fuel, HMRC charges an additional benefit called the Fuel Benefit Charge.


Why this is bad:

  • It uses a standard fuel benefit multiplier, not your actual fuel usage.

  • Even if you use very little private fuel, you may still pay hundreds or thousands more in tax.


HMRC itself says fuel benefit is rarely worthwhile unless you do very high private mileage.


3. You Lose the Ability to Reclaim VAT on Most Purchases

Businesses generally cannot reclaim VAT on a purchased company car if there is any private use. Only cars used 100% for business (no commuting, no personal trips) qualify — which is rare.


For leased company cars:

  • Only 50% of VAT on the leasing cost is reclaimable when there is private use.


This significantly reduces tax savings.


4. Limited to Cars That Fit HMRC Rules and Employer Policies

Having a company car means the car belongs to the business, not the employee.


Disadvantages:

  • You cannot customise it freely.

  • You may be limited to certain brands, specs, or emissions levels.

  • If you leave your job or close your company, you must return the car immediately.

  • No long-term ownership means no asset value for you.


5. Complicated Record-Keeping & Admin Load

Company car arrangements involve more paperwork than expected.


Employers/directors must:

  • Report the benefit to HMRC

  • Track business vs private mileage

  • Update HMRC if the car is changed, replaced, or no longer provided

  • Manage servicing, insurance, and employer responsibilities

  • Handle fuel reimbursement rules correctly


For small business owners, this can add unnecessary administrative work.


6. Can Be Less Cost-Effective Than a Car Allowance or Personal Car

Many employees and directors assume company cars are cheaper — in reality they often cost more when you factor:

  • BIK tax

  • Fuel benefit tax

  • Lost VAT recovery

  • Insurance implications

  • Limited tax relief under capital allowances


In many cases, it is cheaper to: take a car allowance or own/lease your own car and claim 45p per mile (HMRC mileage allowance) for business use.


7. Capital Allowance Restrictions — Worse After 2025

If you're a business owner buying a car through your company:


From April 2025:

  • Capital allowance reliefs depend more tightly on CO₂ emissions.

  • Cars with higher emissions only qualify for slower tax relief (special rate).

  • This means the business receives less tax deduction, reducing the value of buying a company car.


Electric cars also lose some previous advantages because the 100% first-year allowance regime is changing.


8. Personal Use Can Become Surprisingly Expensive

Even a few personal miles (e.g., commuting) trigger the entire BIK charge — not a proportional amount.


Meaning:

  • A person who drives privately once a week

  • Pays the same BIK tax as someone who drives privately every day.


This makes the system particularly expensive for low private-use drivers.


9. Not Suitable If You Value Flexibility or Freedom

Because the car belongs to your employer/company:

  • You cannot sell it.

  • You cannot change it without permission.

  • You cannot choose any car you want.

  • If the company has cash-flow issues, your car options may shrink.


For many, this loss of flexibility is a major disadvantage.


Final Thoughts

If you drive high business mileage and choose a low-emission or electric car, a company car can still work. But for many employees, directors, or small businesses, the disadvantages outweigh the benefits, especially with 2025 BIK increases and capital allowance restrictions.


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