MilesheetWhy a company car is taxed and a mileage claim is not
One is a benefit you receive, the other is a cost you are being repaid. Once that distinction is clear, most company car questions answer themselves.
Update, April 2026: the approved rate for cars and vans rose from 45p to 55p a mile for the first 10,000 business miles. The 25p rate above that, and the 5p passenger payment, are unchanged. This post describes the position as it stood when it was written.
The tax system draws one line here and everything else follows from it: are you receiving something, or being repaid for something?
The benefit side
A company car available for private use is a benefit in kind. You are getting the use of an asset you did not buy, so you are taxed on the value of that use.
The value is not what the car costs your employer. It is a percentage of the car's list price, with the percentage set by carbon dioxide emissions, so a low emission car attracts a much smaller taxable figure than an identical petrol one. That is deliberate policy, and it is why electric company cars became so popular so quickly.
Fuel provided for private use is a second, separate benefit with its own charge, and it is one of the few places in the tax system where the sensible answer is often to decline the benefit and pay for your own petrol.
The reimbursement side
A mileage payment for using your own car on business is not a benefit. Nothing is being given to you. You spent money getting somewhere for your employer and they are giving it back.
That is why it is untaxed up to the approved rate, and why the rate is built to approximate the whole running cost rather than just fuel: it is standing in for a cost you genuinely bore.
What this means for the two situations
The line explains the rule that catches most people.
Your own car, business miles: approved mileage rates. Currently 45p for the first 10,000 business miles in the tax year, then 25p. Untaxed at or below that.
Company car, business miles: the approved rates do not apply. You already have the car, so the running costs are not yours. What can be reimbursed tax free is fuel, at the advisory fuel rates, which are published quarterly and are much lower per mile.
Claiming 45p on a company car is the single most common expensive error in this area. It is not a marginal overclaim: it is roughly three times the right figure, repeated on every journey, and it can run for years before anyone notices.
| Your own car | Company car | |
|---|---|---|
| Taxed on having it | No | Yes, benefit in kind |
| Benefit based on | n/a | List price and emissions |
| Business miles reimbursed at | Approved mileage rates | Advisory fuel rates |
| Roughly | 45p, then 25p | Pence per mile, revised quarterly |
| Private fuel | Your own cost | Separate taxable benefit if provided |
The comparison people actually want
Whether a company car beats taking the cash and running your own is a genuine calculation, not a rule, and it turns on three things.
Emissions. A low emission car has a small benefit charge, which shifts the answer sharply towards taking the company car.
Your business mileage. High business mileage in your own car generates a large tax free mileage claim, which shifts it back the other way.
What the car is actually worth to you. A company car you would never have bought is worth less than its list price suggests, and the benefit charge does not care.
The record still matters, on both sides
It is tempting to think a company car removes the need to log anything. It does the opposite in one respect: the advisory fuel rate reimbursement is per business mile, so the business miles still have to be counted, and they are being counted at a lower rate where accuracy matters proportionally more.
And if you ever move from a company car back to your own, the rate changes on the day you change vehicles. A log that knows which car a journey was in is the only thing that gets that boundary right.
Sources
- Tax on company cars (HMRC)
- Calculate tax on company cars (HMRC)
- Advisory fuel rates (HMRC)
- Travel, mileage and fuel rates and allowances (HMRC)
General information, not tax advice. Benefit charges depend on your car and your circumstances: check with HMRC or your accountant.
