Should I buy, lease, or claim mileage for a business vehicle?

If you use a vehicle for work, one of the most common questions is how to put it through your business. Should the business buy it, lease it, or should you own it personally and claim mileage?

There is no single answer that suits everyone, but for most small businesses the simplest option is also the most tax efficient: own the car personally and claim mileage.

That is not always the case, and there are real exceptions, particularly around electric vehicles. This guide explains the main options, how they are taxed, and why mileage usually wins.

First, your business structure matters

How a vehicle is best treated depends heavily on whether you are a sole trader or a limited company. The two are taxed very differently, so it is worth being clear which applies to you.

For a sole trader, there is no legal separation between you and the business, so the choice is really between claiming a flat mileage rate or claiming a share of your actual running costs.

For a limited company, the company is a separate legal entity. That opens up the option of the company owning or leasing the car, but it also brings in a Benefit in Kind charge if there is any private use, which is where a lot of the cost comes from.

We will look at each in turn.

The mileage method, the usual winner

Under this approach, you own the vehicle personally and claim a fixed rate for every business mile you drive. This is known as Approved Mileage Allowance Payments, or AMAP, and the same flat rates are used by sole traders under simplified expenses.

For the 2026/27 tax year the rates are:

• Cars and vans: 55p per mile for the first 10,000 business miles, then 25p per mile
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

You can also claim an extra 5p per mile for each colleague you carry as a passenger on the same business journey.

The car and van rate rose from 45p to 55p on 6 April 2026. This was the first change since 2011, so if you have seen 45p quoted elsewhere, that figure is now out of date. The Government has said it will review the rates again at Budget 2026, so they may change in future.

The mileage rate is designed to cover everything: fuel, insurance, servicing, repairs, road tax and wear and tear. You do not claim those costs separately on top.

The current rates are published by HMRC here: https://www.gov.uk/government/publications/rates-and-allowances-travel-mileage-and-fuel-allowances

Why it is so popular

• It is simple. You keep a mileage log, and that is essentially it.
• It is tax free to you personally. For a company director, the reimbursement is not treated as a Benefit in Kind and does not go on a P11D, provided you stay within the AMAP rates.
• The business gets tax relief on the mileage paid.
• There is no company car tax, no capital allowances to track, and no VAT complications on the vehicle itself.

One important point about commuting

Business mileage does not include ordinary commuting between home and a regular workplace. It covers journeys to temporary workplaces, client sites, meetings and travel between work locations. If you work from home as your main base, travel to client premises normally counts as business mileage.

If you are a sole trader

As a sole trader you choose between two methods for a vehicle:

1. Simplified mileage You claim the flat rate above (55p / 25p for cars and vans) for your business miles. You cannot then also claim actual running costs for that vehicle.

2. Actual costs You claim the business proportion of your real running costs, such as fuel, insurance, repairs and servicing, plus capital allowances on the vehicle itself. You must keep records and work out the business use percentage.

Once you choose a method for a particular vehicle, you must stick with it for as long as you use that vehicle. You also cannot use simplified mileage if you have already claimed capital allowances on the same vehicle.

For most people with an ordinary car, simplified mileage is easier and gives a good result. Actual costs tend to win only where business mileage is very high or the running costs are unusually large, for example a high mileage van. It is worth calculating both in your first year with a vehicle before you commit.

HMRC guidance on simplified expenses is here: https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-

If you run a limited company

A limited company has more options, but they are not always cheaper. Here are the main ones.

Personal car plus mileage

This works exactly as described above. You own the car, the company reimburses you at the AMAP rate, and that reimbursement is tax free to you and deductible for the company. For most directors with a normal petrol or diesel car, this is the most tax efficient route by a clear margin.

The company buys the car

The company owns the car outright. On the face of it this sounds efficient, but there are two things to weigh up.

Benefit in Kind. If the car is available for any private use, which is almost always the case, you pay Income Tax on a Benefit in Kind. This is a percentage of the car's list price, based on its CO2 emissions. The company also pays Class 1A National Insurance on the same value.

For a petrol or diesel car, that percentage sits between roughly 23 percent and 37 percent of the list price, with an extra surcharge for most diesels. On a car with a list price of £30,000, that can mean thousands of pounds of extra personal tax every year, which is what usually makes a conventional company car poor value.

Capital allowances. The company can claim tax relief on the cost of the car, but not quickly. A petrol or diesel car over 50g/km CO2 goes into the special rate pool, giving relief at only 6 percent a year on a reducing balance. So the relief is spread over many years.

The company leases the car

Instead of buying, the company leases the car and claims relief on the lease payments. The same Benefit in Kind charge applies if there is private use, so this does not avoid the main problem with a conventional car. For cars over 50g/km CO2, 15 percent of the lease cost is also disallowed for tax.

The electric vehicle exception

Electric cars are where a company car can genuinely make sense, because the tax rules are far more generous:

• The Benefit in Kind rate for a fully electric car is just 4 percent of list price for 2026/27, rising to 5 percent in 2027/28 and gradually to 9 percent by 2029/30. Compare that to 23 to 37 percent for petrol and diesel.
• A new, unused fully electric car qualifies for a 100 percent First Year Allowance, so the company can deduct the full cost from its profits in the year of purchase. This relief has been extended to 31 March 2027 for companies. Used electric cars do not qualify for the 100 percent allowance.

Because of this, a company owned electric car can be more tax efficient than mileage, especially for a director who does relatively low business mileage in an otherwise expensive car. It is one of the few situations where putting the vehicle through the company is worth the extra admin.

If the company reimburses you for charging a company EV, HMRC sets a separate Advisory Electric Rate for this, which is updated each quarter.

So why does mileage usually win?

For a typical business owner with an ordinary petrol or diesel car, mileage tends to come out ahead because:

• There is no Benefit in Kind and no company car tax
• The reimbursement is tax free to you and deductible for the business
• You avoid the slow capital allowances and the VAT complications of a company owned car
• The record keeping is minimal

The main scenarios where another option beats mileage are a fully electric company car, very high business mileage where actual costs stack up, or a genuine commercial vehicle.

Vans are treated differently

If your vehicle is a van rather than a car, the rules are more generous. Van Benefit in Kind is a flat amount rather than a percentage of list price, a fully electric van has no van benefit charge at all, and vans usually attract faster capital allowances. So a company van is often far more workable than a company car. If you are unsure whether HMRC treats your vehicle as a car or a van, it is worth checking, as it changes the tax significantly.

What to do next

Before deciding how to run a vehicle through your business, it helps to know:

• Whether you are a sole trader or a limited company
• Roughly how many business miles you drive a year
• Whether you are considering a petrol, diesel or electric vehicle
• The list price or lease cost of the vehicle you have in mind

With those figures we can compare the options properly and tell you which is likely to leave you better off. In most cases the answer is mileage, but the electric vehicle rules are worth checking before you rule a company car out.

If you would like us to run the numbers for your situation, just get in touch and we will help you work out the right approach.