Company car vs car allowance UK

By PaySlipCheck Editorial · 14 June 2026 · 5 min read

One of the most common UK employment-benefit decisions: company car or cash car allowance. The answer depends heavily on the specific vehicle emission profile + your tax band + private mileage. For 2026/27, electric vehicles are exceptionally strong as company cars (3% BiK) — even a £40,000 EV costs only £480/year of higher-rate tax as a BiK. But for petrol/diesel cars with typical emissions (~30% BiK), the tax exceeds most cash allowances. This guide gives the specific decision framework + worked numbers.

Verified against 4 official sources · Last reviewed 14 June 2026
On this page
  1. The decision framework
  2. Worked example — Higher-rate driver, £5k allowance vs £40k EV
  3. Worked example — Higher-rate driver, £5k allowance vs £40k petrol
  4. Salary sacrifice EV — the third option
  5. Fuel + mileage
  6. In short

The decision framework

Company car wins if: - Electric or ultra-low-emission (< 50g/km) vehicle - Higher-rate taxpayer - Employer covers maintenance + insurance - Low personal mileage (private BiK doesn't scale with usage)

Cash allowance wins if: - Petrol/diesel car with typical (30%+ BiK) emissions - Higher personal mileage (get miles paid from allowance) - You already own a suitable car - Want flexibility on vehicle choice

Worked example — Higher-rate driver, £5k allowance vs £40k EV

Company EV (£40k Tesla Model 3): - BiK: £40k × 3% = £1,200 - Higher-rate tax: £480/year - Employer covers everything (insurance, servicing) - Net cost to driver: £480

£5,000/year cash allowance: - Gross to net: ~£2,900 (after Income Tax + NI at higher rate) - You buy/lease + insure/service a car - Typical mid-range car all-in cost: £4-6k/year - Net cost to driver: £1,000-3,000 (depending on your car choice)

Company EV wins by £500-£2,500/year.

Worked example — Higher-rate driver, £5k allowance vs £40k petrol

Company petrol car (BiK ~30%): - BiK: £40k × 30% = £12,000 - Higher-rate tax: £4,800/year - Employer covers everything - Net cost: £4,800

£5,000/year cash allowance: - Net cash: £2,900 - Buy £15-25k used car, run cheaply - Net cost: £2,500-4,000

Cash allowance wins by ~£1,000-£2,500/year for petrol.

Salary sacrifice EV — the third option

Increasingly common. Employer leases EV; you sacrifice gross salary: - Save Income Tax + NI on sacrificed amount - Only 3% BiK on EV - Insurance, servicing typically included - Very tax-efficient at higher-rate

Often the best of all worlds if available.

Fuel + mileage

  • Company car fuel benefit rarely worth taking (£27,800 × emission % is a big BiK)
  • Cash allowance + business-mileage claim usually better
  • HMRC-approved rate for own car: 45p/mile first 10k, 25p thereafter

In short

Company EV or EV salary sacrifice for higher-rate workers = usually best. Company petrol/diesel for anyone = usually worst. Cash allowance for own petrol/diesel = often best financial outcome + flexibility.

Frequently asked questions

Which wins for a Tesla Model 3?

Company car — 3% BiK on £40k = £480 tax/year vs £2,900 net cash you'd get from typical £5k allowance.

Which for a BMW 3 Series petrol?

Cash allowance usually — £4,800 tax on company car vs £2,900 net cash typically covers ownership.

Salary sacrifice EV — worth it?

Usually yes if offered. Tax + NI saving on sacrifice + only 3% BiK.

What if I do 20k business miles?

Cash allowance shines — you can claim mileage on own car (45p first 10k, 25p thereafter). Total value often exceeds company car.

Can I have both?

No — you choose one or the other. Some employers offer 'blended' with allowance + additional company car for private use.

Related calculators

Related guides

  • Tax code with BiK — Benefits in kind (company car, private medical, beneficial loans,
  • How to read a payslip — A UK payslip has up to 20+ separate lines, each with a specific
  • Tax code 1257L — Tax code 1257L is the standard UK tax code for 2026/27. The 1257
  • Salary sacrifice — Salary sacrifice is the most tax-efficient UK pension contribution
  • Is sacrifice worth it? — Salary sacrifice is typically a strong win for higher-rate
  • What is a P11D — The UK P11D form is submitted annually by employers to HMRC reporting all Benefits in Kind provided to employees. You get a copy showing your total BiK for the tax year. HMRC uses this to adjust your tax code and collect BiK tax.

More on related topics

  • Childcare vouchers — UK childcare vouchers closed to new joiners in October 2018 — existing users can continue. Tax-Free Childcare replaced it (£2,000/child/year government top-up). This guide covers both + which is better for your situation.
  • Company car tax — UK company car BiK tax is calculated as list price × emission-band % × your marginal Income Tax rate. Electric cars sit at 3% BiK for 2026/27 (rising 1% per year), making them exceptionally tax-efficient. This guide covers the maths + when a company car beats a car allowance.
  • Fuel benefit — UK company car fuel benefit is a flat £27,800 × emission % (2026/27). At higher rate on a 30% emission car that's ~£3,300/year tax — usually far more than the actual value of private fuel. Nearly always better to decline.

Related salary breakdowns

Glossary terms used on this page

Quick definitions for the key terms above.

  • Salary sacrifice — An arrangement where you give up part of your gross salary in exchange for a non-cash benefit (most commonly pension contributions), reducing your Income Tax and National Insurance.

Sources

All figures on this page are sourced from official UK government publications. We don't cite secondary commentary or other calculator sites.

  1. GOV.UK — Employer-provided benefits (Expenses and benefits)
  2. GOV.UK — P11D form
  3. GOV.UK — Income Tax rates
  4. MoneyHelper — Employee benefits

All tax figures on this page use the same configuration that powers our calculators — see our editorial standards for the review process.

Last reviewed: 14 June 2026. Next review due 14 December 2026.

Disclaimer: This page provides general information based on published HMRC and gov.scot figures. It is not personal tax or financial advice. For your specific situation, please consult a qualified accountant or contact HMRC directly.