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

Company car drivers are acutely aware there’s no such thing as a free lunch. Or a free anything, for that matter. We’re not talking service station meal options here – we’re on about company car tax, and how much you have to pay out to HMRC each month for the privilege of driving a shiny new fleet car.

Depending on various factors, these monthly bills can be quite steep, which is why online search engines are becoming very familiar with the phrase “How can I avoid paying company car tax?”. So, is there a way to enjoy a slice of the company car cake, and eat it, too? Well, no – and yes.

Here we set out your three main choices for avoiding that steep benefit-in-kind (BIK) tax bill.

1. Don’t have a company car – take the cash instead

If you really don’t want to pay a company car tax bill each month, the easiest way to avoid it is to not bother having a company car. You then have the ability to take your company car allowance, spend it on a new car, and you’ll face no bill from HMRC each month.

However, this approach has caveats. Your allowance will be roughly equivalent to the monthly sum your company would have spent on a company car lease, but you’ll be liable for more income tax on the extra cash. This could restrict the final amount you’d have to spend on a new car.

However, the whole point of doing this is to avoid paying out BIK money each month, in which case your work here is done.

2. Just use the company’s pool car

Legally avoiding a tax bill, be it a BIK bill or higher income tax, is tricky for business drivers, but there is one way to do so – opt out of any company car interest whatsoever. No company car, no company car allowance. However, this is only possible if your employer runs a pool car.

So, what’s a pool car? It’s a vehicle that your company owns or leases for use by any employee during the working day. This means you can drive it around on work business during the day, then park it up at your company’s premises at the end of the day.

You need to bear in mind, though, that the car cannot be used for any private mileage, so you’ll have to commute to and from work at your own expense.

That means you’ll have to bear your own fuel costs if you have your own vehicle, or you’ll have to pay for your own public transport fares. And how do you get around at weekends and in the evenings? If you're considering this option, then it's food for thought.

3. Pay some tax, but as little as possible

So there you go – you can skip company car tax by not having a company car or a company car allowance. Easy. Well, maybe not, because avoiding all company car involvement can often be more trouble than it’s worth. If only there were a happy middle ground. And as it turns out, there is.

All you need to do is choose a fleet car that will be cheap in monthly tax, namely an electric car. An EV qualifies for minimal BIK taxation, and if you stay away from the options list you’ll be quids in.

You can also compare models by using our company car tax calculator, and 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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