Company car vs car allowance calculator 2026/27
Enter the car the company would buy and the cash allowance you would take instead, and see the tax, the Class 1A and the net figures side by side. It uses 2026/27 UK rates.
2026/27 UK ratesRates checked 16/09/2026No sign-up required
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These two routes are not like for like. With the company car, the company owns and runs the car. With the allowance, you fund and run the car yourself out of the net figure above.
Company car against car allowance
Tax, NI and cost compared
Built and reviewed by Luvero Accounting
- Reviewed by Dan Edwards FMAAT
- AAT licensed accountancy practice, Bawtry, South Yorkshire
- Tax rates last reviewed 16/09/2026
- How the calculators work
What this calculator works out
It compares two ways of getting a car into your life through the company. A company car creates a taxable benefit, taxed as employment income, with the company paying Class 1A National Insurance on it. A cash allowance is taxed as salary, with employee and employer National Insurance both applying, and any business mileage paid on top set against the approved mileage rates.
How company car tax works in 2026/27
The benefit is the list price, including options and VAT and ignoring any discount, multiplied by the appropriate percentage set by CO2 and fuel type, less a capital contribution of up to £5,000 and any private use payments you make. Electric cars are 4 per cent in 2026/27, up from 3 per cent in 2025/26, then 5 per cent in 2027/28, 7 per cent in 2028/29 and 9 per cent in 2029/30. Plug-in hybrids and other cars at 1 to 50g/km sit between 4 and 16 per cent depending on electric range. Petrol cars start at 17 per cent at 51 to 54g/km and rise one point for every 5g/km to 37 per cent at 155g/km and above. Diesels that do not meet the RDE2 standard add 4 percentage points, still capped at 37.
Private fuel adds a separate benefit: £29,200 in 2026/27 (£28,200 in 2025/26) multiplied by the same percentage. The whole benefit is taxed as employment income at your marginal rate and reported on the P11D or payrolled through the year. The company pays Class 1A National Insurance at 15 per cent on the benefit, due by 22 July after the end of the tax year.
How the car allowance is taxed
An allowance is taxed as salary: employee National Insurance at 8 per cent up to £50,270 and 2 per cent above it, and employer National Insurance at 15 per cent. Approved mileage rates are 55p a mile for the first 10,000 business miles in 2026/27 (45p in 2025/26) and 25p after that. Mileage paid below the approved rate earns mileage allowance relief, claimed on your tax return. Mileage paid above the approved rate is itself taxable.
Worked example, 2026/27
A £40,000 petrol car at 100g/km, salary £12,570 and dividends £30,000, no private fuel. The appropriate percentage is 26 per cent, so the benefit is £10,400. The same director's alternative is a £6,000 allowance with 12,000 business miles paid at 25p a mile: approved mileage £6,000, mileage paid £3,000, so mileage allowance relief is £3,000.
| Company car | Car allowance | |
|---|---|---|
| Taxable benefit / allowance | £10,400 | £6,000 |
| Tax for the year | £2,755 | £600 |
| Employee National Insurance | n/a | £480 |
| Net for the year / per month | n/a, £230 tax a month | £4,920, £410 a month |
| Class 1A / employer National Insurance | £1,560 | £900 |
| Employer cost, including mileage paid | n/a | £9,900 |
The £2,755 tax on the company car is £2,080 at 20 per cent on the benefit itself, plus £675 because it pushes £2,700 of dividends from 10.75 to 35.75 per cent. Swap the petrol car for a £45,000 electric car and the percentage drops to 4 per cent: benefit £1,800, tax £360, Class 1A £270.
Company car questions
How is company car tax calculated?
The list price, including options and VAT, is multiplied by the appropriate percentage for the car's CO2 and fuel type, less any capital contribution up to £5,000 and any private use payments. That gives the taxable benefit, which is added to your other income and taxed at your marginal rate. The company separately pays Class 1A National Insurance at 15 per cent on the benefit.
What is the company car tax rate for electric cars in 2026/27 and the next few years?
4 per cent in 2026/27, rising to 5 per cent in 2027/28, 7 per cent in 2028/29 and 9 per cent in 2029/30. The first two steps were set at Autumn Statement 2022; Autumn Budget 2024 raised the last two. It was 2 per cent from 2022/23 to 2024/25 and 3 per cent in 2025/26.
Is a car allowance taxed as salary?
Yes. A cash car allowance is ordinary pay. It goes through payroll, is taxed at your marginal rate, and carries employee National Insurance at 8 per cent up to £50,270 and 2 per cent above, plus employer National Insurance at 15 per cent. Business mileage paid on top is a separate calculation against the approved mileage rates.
Which is better for a director, company car or allowance?
An electric or low-CO2 car through the company usually wins outright: the benefit and the Class 1A are both small. A petrol or diesel car at 30 per cent or more plus rarely does, once the tax and Class 1A are added up against a modest car of your own. An allowance tends to suit high business mileage, where the mileage payments do most of the work, or a cheaper car than the company would otherwise buy. Which applies to you is a judgement for your accountant, not a fixed rule.
What is the diesel supplement and RDE2?
Diesel cars that do not meet the Real Driving Emissions Step 2 standard carry a 4 percentage point supplement on top of the ordinary appropriate percentage, capped at the 37 per cent maximum. Diesel cars that do meet RDE2 are taxed the same as petrol cars of the same CO2. Most diesels registered from September 2019 meet RDE2; the car's certificate confirms it either way.
Does the company get tax relief on the car?
New zero-emission cars qualify for a 100 per cent first year allowance. Autumn Budget 2025 extended it by a year, to 31 March 2027 for Corporation Tax. Other cars get an 18 per cent or 6 per cent writing down allowance depending on whether CO2 is above or below 50g/km. Lease payments on a car above 50g/km have 15 per cent of the cost disallowed for Corporation Tax. None of the company's own tax relief is modelled in this calculator.