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Five ways to pay less company car tax in the UK – and they're all legal
Reduce your BIK company car tax payments by following these five clever tips. They could help you save thousands of pounds on fleet car costs – and are all completely within the law...
HMRC always seems determined to take the joy out of having a company car. After all, it’s the taxman who demands that you pay a painful sum in company car tax each month.
Wouldn’t it be great if you could enjoy having a company car but without the enormous tax bill? Well, you can. There are a few techniques you can use to cut your benefit-in-kind (BIK) tax bill – and they’re all completely above board.
Read on to discover the best ways to reduce the amount you pay each month for the privilege of running a company car.
Read more fleet and company car advice
Five legal ways to pay less company car tax
1. Ditch petrol or diesel and get an EV
Opting for an electric company car is by far the easiest way to cut your company car tax bill. That’s because electric cars and SUVs are subject to a BIK rate of a mere 3%.
That rate will go up to 4% next year, reaching a maximum of 5% in 2027-28.
To give you an idea of the potential savings, we did a quick search of our company car tax calculator to compare the lowest BIK rates for the Ford Puma and its fully electric equivalent, the Ford Puma Gen-e – and the results are quite startling:
Ford Puma 1.0T Ecoboost MHEV St-Line Design (petrol)
Annual BIK tax for a 20% taxpayer: from £1423
Annual BIK tax for a 40% taxpayer: from £2845
Ford Puma Gen-e (electric)
Annual BIK tax for a 20% taxpayer: from £205
Annual BIK tax for a 40% taxpayer: from £411
In other words, if a 40% taxpayer runs an electric rather than petrol SUV as a company car, they’ll almost save the cost of an entire small car in just a few years. There’s some food for thought for you.
Yes, the rate on company EVs will rise to 5% in a couple of years, but an electric car will remain enormously cheaper to run than an equivalent petrol or diesel model.
2. Be sparing with the expensive options
If you’ve chosen a company car before, you’ll be familiar with the term P11D; this is the value of the car on which you’ll be taxed. The P11D value comprises the on-the-road price, but less the cost of registration and the first year’s VED (road tax).
However, that price includes the cost of optional extras you’ve chosen to add, so if you end up going: “I’ll have that, and that, and those…” with the options list, the price of your car will rise accordingly, as will the eventual tax bill you’ll face from HMRC each month. How are that heated steering wheel and active suspension looking now?
It makes much more sense to choose a business car that has a decent amount of equipment as standard, to avoid you feeling the need to plunder the options list.
Some car makers have cottoned on to the needs of user-choosers by offering trim levels aimed at business drivers; these feature the sort of options many company car drivers choose.
Read more: The cheapest company cars in the UK
3. Choose a car with smaller alloy wheels
There’s no denying that large-diameter wheels look great, but there’s a price to pay – literally. This is because not only are they heavier than smaller rims, but the wide, low-profile tyres actually require more engine power just to roll along the road.
This means your car ends up using more petrol, diesel or electricity just to make itself move. If it’s a petrol or diesel, it’ll emit more CO2, and this is taken into account by HMRC when calculating your tax bill.
Modern WLTP efficiency tests dictate that manufacturers must provide a CO2 figure for standard versions of its cars, plus versions with options fitted. So, cars with larger alloys and therefore higher CO2 figures are penalised.
For example, the Vauxhall Corsa 1.2 MHEV Design rides on 16in alloys, and officially emits 103g/km of CO2. The 1.2 MHEV GS has the same engine and gearbox, but runs on cool-looking 17in alloy wheels. It emits 106g/km, which is enough to push the car up into the next band. And don’t’ forget, if a car emits more CO2, that automatically means it uses more fuel.
Read more: Can I take my company car on holiday abroad?
4. Use a company pool car instead
While a company car is an undeniably attractive option, you can avoid all the attendant tax bills by choosing not to have one. If your company offers you the ability to use a company pool car instead, it could make a cheap choice.
So what exactly is a pool car? In short, it’s a car provided by the business to allow you and colleagues to travel on work trips. However, the downside is that a pool car needs to be left at the company’s premises overnight, so you can’t commute or do any private miles in it.
Happily, a pool car isn’t seen as a perk by HMRC, so you pay no BIK tax on it, but getting to and from work is down to you. You’ll need to factor in the cost of using your own vehicle for commuting, or the price of public transport, but if you live in an area well served by transport links, or even if you live quite near your workplace, a pool car could end up being a cheaper option than a company car.
Another, slightly niche, solution is for you to ditch having a car altogether and instead just hire a car when you really need it. Joining a car club can also provide a convenient solution if you don’t want to join the fleet-car world.
Read more: Company car or car allowance?
5. Consider getting a pick-up truck
Pick-up trucks are no longer solely rough ‘n’ tough working vehicles – and if you go for a single-cab model, you’ll find it’s taxed differently from cars and SUVs.
If your single-cab pick-up has a payload of at least a tonne and is used for private miles as well as business ones then it qualifies for the van-based BIK flat rate of £4020 until the end of the 2025/26 tax year.
An employee will be taxed according to whether they are a 20% or 40% taxpayer: if you’re a 20% payer you’ll face an annual bill of £804, or £67 per month. A 40% payer will be charged £1608, or £134 per month.
However, the rules on double-cab and extended-cab pick-up ups changed in 2025, and they are now liable for the same emissions-based taxation as company cars, making them much less attractive to company car user-choosers.
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