Own Car Mileage Claims vs Company Car: Which Costs Less Tax? 2026/27

Two very different tax mechanics

Choosing between using your own car for business travel (claiming mileage) and having a company-provided car involves comparing two completely different tax mechanisms:

• Mileage claims are tax-free reimbursements up to the Approved Mileage Allowance Payment (AMAP) rates — 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile for any miles beyond that, regardless of the car's actual running costs, fuel type, or value.
• Company cars are taxed as a benefit-in-kind: a taxable amount is added to the employee's income each year, calculated as the car's list price (P11D value) multiplied by a CO2-based percentage, which ranges from very low rates for zero-emission cars up to 37% for the highest-emission petrol and diesel models. This charge applies regardless of how many miles are actually driven, or even if the car sits unused for periods.

Worked example: mileage claim

An employee drives 12,000 business miles in the tax year using their own car, and their employer pays the full approved rate.

• First 10,000 miles: 10,000 × 45p = £4,500
• Remaining 2,000 miles: 2,000 × 25p = £500
• Total tax-free reimbursement: £5,000

Because this is paid at or below the approved rate, none of it is taxable, and no benefit-in-kind charge arises at all — the employee simply receives the £5,000 with no tax or NI deducted.

Worked example: company car

The same employee instead has a company-provided petrol car with a list price of £32,000 and a CO2-based appropriate percentage of 30% (a reasonably typical mid-range figure for a moderate-emission petrol car).

• Taxable benefit: £32,000 × 30% = £9,600 per year
• If the employee pays Income Tax at the basic 20% rate, the actual tax cost is £9,600 × 20% = £1,920 per year, deducted through their tax code.
• The employer also pays Class 1A National Insurance at 15% on the same £9,600 benefit — a cost to the employer, not the employee, but relevant to whether an employer offers a company car or a cash alternative.

Unlike the mileage claim, this £1,920 tax charge is payable regardless of how many business or private miles are driven — it depends entirely on the car's list price and emissions.

When mileage claims usually win

Own-car mileage claims tend to be more tax-efficient when:

• Annual business mileage is high (making full use of the 45p rate before it drops to 25p).
• The employee's own car has a modest value, meaning an equivalent company car would carry a high list-price-based benefit-in-kind charge.
• The employee already owns a suitable car and does not need or want a new vehicle provided.
• Private use is limited, since a company car's benefit-in-kind charge is unaffected by how much of the driving is genuinely for business.

When a company car usually wins

A company car (especially an electric vehicle) tends to be more attractive when:

• The employee wants a new, well-specified car without the hassle of ownership, financing, insurance, and maintenance.
• The car is fully electric or very low emission, since the benefit-in-kind percentage for zero and near-zero emission vehicles is currently far lower than for petrol or diesel equivalents.
• Business mileage is relatively low, meaning mileage claims would not generate much value, but the employee still wants reliable access to a good car.

Cash car allowance is a separate question

Some employers offer a cash car allowance — a fixed monthly cash sum instead of providing a vehicle — which is simply added to salary and taxed as normal earnings (Income Tax and Class 1 NI), with no CO2-based calculation involved. Choosing a cash allowance and buying or leasing a car privately does not remove the employee's separate right to claim the approved mileage rate for genuine business mileage driven in that privately owned car, since the cash allowance compensates for not having a company car, while mileage payments compensate for business use of a personal vehicle — the two exist for different purposes.