Company cars sound great, don't they? The possibility of tax savings, easier expense management, and a professional image, it can be tempting.
But as an Amazon seller, Shopify entrepreneur, or online retailer, you might wonder: is a company car really worth it for my business? After all, much of your work happens online, not on the road.
The truth is, a company car can be useful for some eCommerce businesses, from convenience to financial planning to possible tax benefits. However, it also comes with responsibilities, costs, and tax implications that you should consider before jumping in.
Understanding when a car makes sense for business use
Before you dive into the tax benefits or electric car incentives, it's important to consider whether your business actually needs a vehicle.
For eCommerce owners, legitimate business use might include:
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Transporting stock between warehouses and fulfilment centres
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Visiting suppliers, manufacturers, or trade shows
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Handling returns or urgent deliveries
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Travelling to meetings or networking events
If you regularly make these kinds of journeys, a company car could make financial sense. But if the vehicle is mainly for personal use (like school runs and weekend trips), you may lose some of the tax relief opportunities. HMRC requires accurate records of when the car is used for personal and business purposes.
What company car options do I have?
You usually have two main options for getting a company car through your limited company, buying or leasing. Both can be tax-efficient, depending on your situation.
Buying outright
Buying outright means your business owns the car as a company asset. You can claim capital allowances to reduce your taxable profits, but this option usually requires a large upfront payment.
Leasing a company car
Leasing a car often means lower upfront costs and predictable monthly lease payments. You can typically claim tax relief on these payments, based on the car's CO₂ emissions and business use.
For many eCommerce business owners, leasing is a flexible and cash flow–friendly option, particularly if you like the idea of upgrading to a new model every few years. Plus, you could be doing your bit for the planet with a more eco-friendly car.
Capital allowances and claiming tax relief
One of the key benefits of a company car is the ability to claim capital allowances, which can help to reduce your tax bill.
What are capital allowances?
Capital allowances let your business deduct part or all of the car's cost from your profits before calculating tax. The amount you can claim depends on the car's CO2 emissions and when you bought it. Electric and hybrid vehicles often qualify for higher tax relief rates, making them a tax-efficient choice.
How to claim capital allowances for a company car
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Keep invoices and purchase records for the vehicle.
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Record how much of its use is for personal and business journeys
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Provide this information when preparing your annual accounts.
Benefit in Kind (BIK) Tax explained
Whenever you or an employee uses a company vehicle for personal use, it counts as a Benefit in Kind (BIK), which is a non-cash benefit, and must be reported to HMRC.
How Benefit in Kind works
BIK tax is calculated based on several factors:
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The car's CO2 emissions
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The car's list price when new (including accessories)
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The type of fuel (petrol, diesel, hybrid, or electric)
Environmentally friendly cars (like electric and low-emission cars) generally attract much lower BIK rates, making them a tax-efficient choice for eCommerce business owners. For example, a fully electric car can have a BIK rate as low as 2%, compared to 25% or more for petrol or diesel cars.
So, although electric vehicles might have a higher purchase price, the potential tax savings can make them a greener and cost-effective choice.
Why should you have a company car policy for your eCommerce business?
If your limited company provides vehicles to directors or employees, you'll be responsible for more than just your own car use and safety. There's a lot to consider, including costs, insurance, and any possible damages or accidents that could happen. A clear company car policy sets expectations and ensures compliance from you and your company car drivers.
Your policy should include:
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Which roles can have a company car
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Rules for personal and business use
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How to record and report mileage
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Responsibilities for maintenance, insurance, and fuel costs
Having a clear policy helps avoid confusion, ensures you follow HMRC rules, and makes managing a company-owned vehicle so much easier. It also encourages your team to take responsibility and simplifies financial reporting.
Comparing company car ownership vs. mileage allowance
Deciding whether a company car or mileage allowance makes more sense for your business all depends on how much business travel you do and how you like to manage your finances.
We've broken down each one to help you make the right decision. If you need more help, reach out to us, and one of our specialist tax accountants will be more than happy to assist.
|
Factor |
Company Car |
Mileage Allowance |
|---|---|---|
|
Upfront Cost |
Higher (purchase or lease) |
None |
|
Tax Relief |
Capital allowances |
Mileage claims |
|
Benefit in Kind Tax (BIK) |
Applies to personal use |
Not applicable |
|
Record Keeping |
More detailed |
Simpler |
|
Best for |
Frequent travel, logistics, larger teams |
Minimal business travel |
If you only make occasional business trips, claiming a mileage allowance is usually simpler and more tax-efficient. But if you're often on the road for business, a company car can offer better long-term value, especially when you go for a low-emission vehicle.
Looking to make a tax-efficient choice for your eCommerce business?
Choosing whether to buy, lease, or skip a company car altogether might feel overwhelming, but it doesn't have to. The most tax-efficient route depends on your business structure, driving habits, and long-term goals.
At Unicorn Accountants, we work with eCommerce business owners across the UK to identify cost-effective, compliant, and tax-efficient solutions, from capital allowance claims to BIK tax planning and beyond.
Call us today on 0208 064 0454 or book your meeting to discuss your company car options and get help with costs, practicalities, and tax deductions.