Is it possible to avoid paying company car tax in the UK?

Behind every great fleet car is a company car tax bill. So how can you avoid shelling out lots of cash to HMRC? We explain three options...

Seat Leon rear right driving

Nothing comes free in life. There’s no denying that – and it applies just as much to company car drivers as anyone else.

That’s because, while you get to drive around in a shiny new fleet car, you also face having to pay company car tax to the Treasury each and every month. And such a monthly bill can be quite steep, depending on which company car you’ve chosen.

That’s why "How can I avoid paying company car tax?" is a very common online search. So, is there a way to have a sweet-tasting slice of company car cake and be able to devour it too? Well, no… and yes.

Here we set out your three main options if you want to avoid paying benefit-in-kind (BIK) tax.

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Three ways to avoid company car tax

1. Skip the car – take the cash

The simplest way to avoid paying tax on your company car is to not bother having the company car in the first place. So, you can take the company car allowance instead, and spend it on a car of your choice, which means no company car tax bill each month.

However, there are downsides. The amount you’ll get will be roughly equivalent to the amount your company would have spent on a lease for a company car each month, but you’ll face higher income tax on the extra cash, which might limit how much you can spend.

Still, at least you won’t have to shell out money to HMRC in company car tax each month.

Read more: Is it worth getting a company car?

 2. Jump into the pool car

There is a way to avoid both company car tax and paying extra income tax on your company car allowance, and that’s to avoid both. And the way to do so is simply to opt out of any company car interest whatsoever. However, to do that, your employer will need to run a pool car.

A pool car is one which is owned or leased by the company and is available for use by any authorised employee during the working day. So, you can jump in it in the morning, go about your daily visits, then return to the office and park it up.

The downside is that the car must never be used for private mileage, and must remain at your company’s premises overnight. You’ll have to get to and from the office at your own expense.

While that might work for someone who has good public transport links to and from their place of work, you’ll still face the problem of having to buy your own vehicle to get around at weekends and in the evenings.

Read more: The best company car finance options

3. Minimise tax instead

As we’ve seen, the way to avoid company car tax altogether is to not bother having a company car, but this can often bring more difficulties than is worthwhile. So, what do you do?

Well, perhaps the happy middle ground is to be found by choosing to have a company car, but being clever about how you do so by choosing a fleet car that will be cheap in monthly tax. For example, picking an electric company car cuts BIK tax, as does avoiding the options list.

(You can also compare models by using our company car tax calculator.)

If that sounds like the ideal option for you, we have lots more information on our cut your BIK tax bill page.

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