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...
A fleet car is undoubtedly a great perk, but paying a large sum to HMRC in company car tax each month will definitely take the shine off it.
If only there was a way to have the use of a car without having to foot the exorbitant bill... Well, actually, there are a number of ways to cut your benefit-in-kind (BIK) tax bill – and they’re all totally within the rules.
Here we list a few of the best ways to reduce the amount you pay each month for the privilege of running a company car.
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Five legal ways to pay less company car tax
1. Trade in your petrol or diesel for an electric car
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 2%.
Better still, that rate will remain at 2% until April 2025, after which it will go up by 1% each year, up to 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 BMW X3 and its fully electric equivalent, the BMW iX3 – and the results are quite startling:
BMW X3 (petrol)
Annual BIK tax for a 20% tax payer: from £3,420
Annual BIK tax for a 40% tax payer: from £6,839
BMW iX3 (electric)
Annual BIK tax for a 20% tax payer: from £268
Annual BIK tax for a 40% tax payer: from £537
In other words, 20% tax payers can save the price of a new small car over a few years of running an electric rather than petrol SUV as a company car. Shocked by the difference? We're not surprised.
Even in a few years, when the rate on electric fleet cars is 5%, they will still be vastly cheaper to run than a petrol or diesel model. If you're considering making the switch, see our guide to setting up your business for electric cars.
Read more: The best electric company cars
2. Don't add too many expensive options
P11D is a set of numbers and letters very familiar to fleet car drivers, because this is the value of the car on which you’ll be taxed. The P11D value is the on-the-road price, but less the cost of registration and the first year's VED (road tax).
However, that price does include the cost of options, so if you get all a bit “want, want, want” with the options list, the car will cost more, and therefore, so will the amount you’ll have to pay in BIK tax each month. Are those ventilated leather seats and quad-zone climate control system looking quite so attractive now?
That’s why it’s better to choose a fleet car that has loads of equipment as standard, because you won’t feel the need to stack it with options.
Indeed, some car makers offer trim levels specifically aimed at business drivers, which feature the sort of kit most company car drivers usually choose from the options list.
Read more: The cheapest company cars in the UK
3. Avoid getting a car with big alloy wheels
Large-diameter wheels look great, with their rubber-band low-profile tyres adding attitude. However, they’re heavy, and those wide tyres are also more difficult to roll, which means the drivetrain has to work harder simply to make the car move.
That in turn means it not only means your car ends up using more petrol, diesel or electricity, but also emits more CO2 – unless its an electric car. As our guide to company car tax explains, the CO2 figure is used to calculate your monthly tax bill.
In the past, that wasn’t an issue, but the 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 BMW 1 Series 116d SE rides on 16-inch alloys, and officially emits 119g/km of CO2. The 116d M Sport has the same engine and gearbox, but runs on cool-looking 19-inch alloy wheels. It emits 124g/km, which is enough to push up the car's tax band. Bear in mind that you’ll face increased fuel costs at the same time.
Read more: Can I take my company car on holiday abroad?
4. Use a company pool car instead
If the world of company car taxation just doesn’t appeal, you could always skip it altogether and use a company pool car instead.
A pool car is provided by your company for you and your colleagues to do business journeys, but you can’t then do any private miles in it or use it for commuting. Indeed, pool cars tend to get left at company premises overnight. Therefore, HMRC doesn’t consider a pool car as a benefit, so you pay no BIK tax on it.
Of course, getting to and from work will be down to you, so you’ll need to factor in using your own vehicle for commuting, or jumping on public transport. But the upside is that 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.
This certainly isn’t a one-size-fits-all solution, but if it works for you, you could save plenty of cash by not having a car and merely hiring one when you really need one. 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.
To qualify for the flat-rate BIK tax that also applies to vans, the pick-up must be a single-cab variant, have a payload of at least a tonne and be used for private miles as well as business ones.
If it is, the driver pays tax on £3,960 (during the 2023/24 tax year). So for a 40% taxpayer, a pick-up will set them back £132 per month.
Compare that with the benefit-in-kind taxation on a conventional car such as a BMW 3 Series 320d Touring M Sport, which has a P11D of £43,995, which works out at £454.58 per month tax. Living with a pick-up would save that same driver £322.58 every single month.
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