Buying a Car Through a Limited Company: A Dentist's Decision Guide

The Question Every Incorporated Dental Principal Faces

You run your dental practice through a limited company. You need a car. Should the company buy or lease it, or should you own the car personally and have the company pay you a mileage rate? The answer is not the same for everyone, and it depends on three things: the type of car, your annual business mileage, and your tax position as a director.

This guide works through the decision for an incorporated dental principal who is a higher-rate taxpayer in 2026/27. It covers how the benefit-in-kind charge works, what the fuel benefit costs, the VAT rules on purchase versus lease, and a worked comparison of three routes: a company-owned electric car, a company-owned petrol car, and personal ownership with mileage at the new 55p rate.

Capital allowances rates on company-owned cars (writing-down allowances, the 100% first-year allowance for electric vehicles and the FA 2026 band changes) are covered in the writing-down allowance on cars guide. This page focuses on the decision framework, not the rates reference.

How the Benefit-in-Kind Charge Works

Under ITEPA 2003 ss.114-148, when your dental company makes a car available for your private use, HMRC treats the availability as a benefit in kind (BIK). The BIK value is:

List price of the car x appropriate percentage = BIK value

List price means the manufacturer's published price for the car when new, including standard accessories and VAT, regardless of any discount the company actually paid or whether the car is second-hand. If the company leases rather than buys, the BIK is still based on the list price; the financing method does not change it.

The appropriate percentage is set by HMRC based on the car's CO2 emissions (and for electric and ultra-low-emission vehicles, on electric range). Two costs flow from the BIK:

• Director's income tax: BIK value x your marginal rate (40% for a higher-rate taxpayer)
• Company's Class 1A NIC: BIK value x 15% (the employer rate from 6 April 2025)

Both are due each tax year the car is available. The director's tax is collected via a PAYE code adjustment or through self-assessment; the company pays Class 1A NIC alongside the P11D(b) filing.

2026/27 Appropriate Percentages: What Matters for a Dental Director

The two scenarios that come up most often for dental directors are:

• Pure electric car (0g/km CO2): 4% for 2026/27 (confirmed HMRC EIM24705, fetched 2026-07-09)
• Petrol car at ~120g/km: 30% for 2026/27 (petrol 120-124g/km band; 125-129g/km = 31%; 130-134g/km = 32%; confirmed EIM24705)
• Qualifying plug-in hybrid (PHEV) registered from 1 January 2025: deemed 1g/km CO2 under the EIM24710 easement, so treated as 4% for 2026/27

The difference is stark: on the same £45,000 car, a 4% appropriate percentage gives a BIK of £1,800, while a 30% appropriate percentage gives £13,500. For a 40% taxpayer that is £720 versus £5,400 in income tax, each year the car is available.

EV rates from 2027/28 onwards

The 4% rate for 2026/27 is confirmed. HMRC's EIM24705 page publishes rates through the current year only; the rates for 2027/28 and beyond are set by the government through Finance Bill schedules and are announced separately. The direction of travel is upward: the government has signalled that EV appropriate percentages will rise gradually each year to encourage early adoption while signalling that 4% is not permanent. Before committing to a three-year lease on an EV, check the then-current HMRC rate table at gov.uk/hmrc-internal-manuals/employment-income-manual/eim24705 for the confirmed rates across the lease term. Do not sign a long lease assuming 4% throughout.

Route A: Company-Owned EV (2026/27)

Assume a dental director with salary and dividends totalling around £120,000 (firmly higher-rate, 40% income tax on the marginal income). The company has profits above £250,000, so corporation tax is at 25%.

Car: £45,000 new electric vehicle, 0g/km, 8,000 business miles per year.

BIK value: £45,000 x 4% = £1,800

• Director's income tax: £1,800 x 40% = £720 per year
• Company's Class 1A NIC: £1,800 x 15% = £270 per year

Running costs (fuel/charging, insurance, servicing) paid by the company are fully deductible for corporation tax. Assume £3,000 per year: corporation tax saving of £750.

Capital allowances: a new zero-emission car purchased before 31 March 2027 qualifies for a 100% first-year allowance. On a £45,000 car the company gets a corporation tax deduction of £45,000 in year one, saving £11,250 in corporation tax at 25%. This is the headline advantage of buying an EV through the company while the 100% first-year allowance remains available. See the writing-down allowance on cars guide for what happens after the first-year allowance deadline.

Net first-year position: the director pays £720 in BIK tax. The company pays £270 in Class 1A NIC but saves £11,250 in corporation tax from the first-year allowance plus £750 from running costs, a net company saving of approximately £11,730 in year one. The director's BIK tax is modest for a nearly zero-emission result.

Route B: Company-Owned Petrol Car (2026/27)

Car: £35,000 petrol, 122g/km CO2, appropriate percentage 30%, 8,000 business miles per year.

BIK value: £35,000 x 30% = £10,500

• Director's income tax: £10,500 x 40% = £4,200 per year
• Company's Class 1A NIC: £10,500 x 15% = £1,575 per year

Capital allowances: a petrol car at 122g/km goes into the main capital allowances pool. Under FA 2026 s.28, the main-rate writing-down allowance falls from 18% to 14% from April 2026. On £35,000, the year-one writing-down allowance is approximately £4,900, generating a corporation tax saving of around £1,225. No 100% first-year allowance is available for petrol cars. See the writing-down allowance guide for the full band mechanics.

Running costs (assume £3,500 per year): corporation tax saving of £875.

Net first-year position: the director pays £4,200 in income tax. The company pays £1,575 in Class 1A NIC and saves approximately £2,100 from allowances and running costs. The director's tax cost alone is nearly six times that of the EV route, and the company's year-one tax benefit is a fraction of the EV first-year allowance saving.

Route C: Personal Car, AMAP at 55p/Mile (2026/27)

From 6 April 2026, the approved mileage allowance payment (AMAP) rate for cars and vans is 55p per mile for the first 10,000 business miles and 25p per mile above that (ITEPA 2003 s.230(2); HMRC EIM31240). These rates replaced the old 45p/25p rates that applied up to 5 April 2026. If the company pays you at or below the AMAP rate for business miles in your personal car, the payment is entirely tax-free to you and generates no Class 1A NIC.

At 8,000 business miles:

• AMAP received by the director: 8,000 x 55p = £4,400 per year (entirely tax-free)
• Director's income tax on the AMAP: £0
• Company's Class 1A NIC: £0
• Company's corporation tax deduction on the £4,400 AMAP payment: £4,400 x 25% = £1,100 saving

There is no benefit-in-kind charge and no P11D complexity. The director owns the car personally and bears the depreciation and running costs personally (net of the AMAP receipt). No capital allowances are available to the company on a personally owned car, but the director can claim personal writing-down allowances on a car used partly for business, subject to a private-use reduction.

The 55p AMAP rate is the current figure for 2026/27. Never pay at the old 45p rate as the current rate: 45p applied up to 5 April 2026 only.

Side-by-Side Comparison: Higher-Rate Dental Director, 8,000 Business Miles

Route	Director annual income tax	Company Class 1A NIC	Company CT benefit year 1
Company EV (£45k list, 4%)	£720	£270	~£11,730 (100% FYA + running costs)
Company petrol (£35k list, 30%)	£4,200	£1,575	~£2,100 (14% WDA + running costs)
Personal + AMAP (55p x 8,000mi)	£0	£0	£1,100 (CT deduction on AMAP)

The EV route dominates on director tax cost and year-one corporation tax benefit, provided the car is purchased before the 100% first-year allowance deadline. The AMAP route is the simplest and avoids all BIK complexity; it is usually optimal for a petrol car at moderate mileage. The company petrol route is the least attractive of the three for a higher-rate taxpayer: high director BIK tax, significant Class 1A NIC, and only modest capital allowances.

The Fuel Benefit: Almost Always Worth Avoiding

The fuel benefit is a separate BIK charge under ITEPA 2003 s.149, triggered when the company provides free private fuel for a company car. The charge is calculated as:

Fuel benefit multiplier x appropriate percentage = fuel benefit BIK

The fuel benefit multiplier for 2026/27 is £29,200 (up from £28,200 in 2025/26 and £27,800 in 2024/25; confirmed HMRC EIM25580, s.150(1) ITEPA 2003, SI 2025/1254).

For a petrol car at 30% appropriate percentage: £29,200 x 30% = £8,760 additional BIK. At 40% income tax that costs the director an additional £3,504 per year, on top of the main BIK charge. To break even, the company would need to pay for an extremely large amount of private fuel. The practical rule for dental directors is straightforward: do not allow the company to pay for private fuel. Keep private and business fuel entirely separate, and reimburse the company promptly for any private element.

Electric vehicles are in a different position entirely. Electricity is not "fuel" for the purposes of the fuel benefit rules (HMRC EIM23900), so the fuel benefit charge does not apply to EV charging, whether at the surgery or at home. This is another significant advantage of an EV over a petrol car in the company-car context.

EV Charging and the Advisory Electric Rate

If your company installs a charge point at the surgery and pays for the electricity used to charge a company EV, it can recover the input VAT on that electricity in the normal way (subject to your practice's partial-exemption position, given the dental VAT exemption).

If you charge the company EV at home and the company reimburses you for the electricity cost, that reimbursement is exempt from income tax and NIC provided it relates solely to the company car and is calculated on a business-mileage basis (ITEPA 2003 s.239(2); EIM23900). The approved method is to use HMRC's advisory electric rate (AER). From 1 June 2026 the AER is 7 pence per mile for home charging and 15 pence per mile for public charging (gov.uk advisory fuel rates guidance, confirmed 2026-07-09). These rates are reviewed quarterly (March, June, September, December). Using the current AER avoids any benefit-in-kind risk on the reimbursement; paying above the AER without metered evidence could create a taxable excess.

VAT on a Company Car Purchase or Lease

The VAT rules on company cars work differently depending on whether the company is buying or leasing.

Purchase

Input VAT on a car purchase is blocked under the Value Added Tax (Cars) Order 1992, unless the car is used exclusively for business purposes with no possibility of private availability. This condition is almost never met for a dental director's car. Even if you genuinely use the car only for practice visits, the fact that it is available for private use at the weekend is enough to block the VAT recovery. Full VAT recovery is reserved for vehicles used in a business that genuinely has no private use: a pool car that is stored at the practice and never taken home, used only by staff on business trips, with documented controls, can qualify. A director's car does not.

Lease

The lease position is more favourable. Where a business leases a qualifying car and there is some private use, 50% of the input VAT on the lease rental payments is recoverable. The other 50% is blocked to reflect the private-use element (VAT Notice 700/64, section 4.2; VATA 1994). This applies to the financing element of the lease charge; if maintenance is separately invoiced on a contract hire, the VAT on that maintenance element is fully recoverable in the normal way.

The 50% rule makes leasing slightly more VAT-efficient than purchasing outright for a dental director, where the purchase VAT is entirely blocked. Running costs such as tyres, servicing and insurance are not affected by the car-purchase VAT block, and the input VAT on those costs is recoverable in the normal way (subject to partial exemption if your practice has exempt dental income).

Does Leasing Change the BIK or Tax Analysis?

The BIK is calculated on the car's list price regardless of whether the company bought or leased it. Leasing does not reduce the BIK charge.

What changes is the corporation tax treatment. Lease rentals paid by the company are generally a revenue deduction against taxable profits, giving a corporation tax saving spread over each year of the lease. A purchase goes through the capital allowances system. For a new EV before the 100% first-year allowance deadline, buying and claiming the full allowance in year one can produce a bigger immediate corporation tax saving than the annual revenue deductions on a lease. After the deadline, or for petrol cars, the comparison is closer and leasing gives a steadier annual deduction.

The capital allowances treatment of both routes is covered in full in the writing-down allowance on cars guide.

NHS Pension: Does the Company Car Interact?

The BIK from a company car is not pensionable pay for NHS Pension Scheme purposes. As an incorporated principal taking salary through PAYE, your NHS pension accrual in the 2015 CARE scheme is based on your PAYE salary only; benefits in kind and dividends do not accrue pension (see the incorporation pension trap in our profit extraction guide).

Where the company car BIK can have an indirect effect is on your annual allowance taper position. A large BIK from a petrol car increases your total adjusted income. If your salary, dividends and other income are already close to the taper threshold (threshold income above £200,000 and adjusted income above £260,000 for 2025/26), adding a petrol-car BIK of £10,500 could push you further into the taper, reducing your pension annual allowance from £60,000 towards the £10,000 floor. An EV at 4% BIK typically adds only £1,800 to adjusted income, which is unlikely to move the needle materially. If you are near the taper thresholds, discuss the full adjusted-income picture with your accountant before choosing a high-BIK car through the company.

The Decision: A Practical Rule of Thumb

For most incorporated dental directors in 2026/27, the choice comes down to two scenarios:

Scenario 1: You want to replace the car now and electric is an option. If the car is new and zero-emission, and you can complete the purchase before 31 March 2027, the company-EV route is usually compelling. The 4% BIK is low (£720 per year income tax for a 40% taxpayer on a £45,000 car), the 100% first-year allowance saves significant corporation tax upfront, the fuel benefit does not apply, and the advisory electric rate makes home-charging reimbursement straightforward. The AMAP route on a personally owned EV is also viable if simplicity is the priority, but you lose the 100% first-year allowance (which only applies where the company owns the car).

Scenario 2: The car is petrol or the budget is for a used vehicle. The personal-car-plus-AMAP route almost always wins. At 55p per mile for the first 10,000 business miles from 6 April 2026, you receive a generous, entirely tax-free reimbursement. There is no BIK, no Class 1A NIC, no P11D complexity, and the company gets a corporation tax deduction on the mileage payments. The company petrol-car BIK route costs a higher-rate director around £4,200 per year in income tax alone, with only modest capital allowances to offset it at the company level. The AMAP route is cleaner and cheaper for most moderate-mileage petrol situations.

For wider profit extraction planning, including how salary-dividend mix interacts with the NHS pension picture, see the profit extraction for dental directors guide. For how your company's mileage reimbursement interacts with associates claiming across multiple practices, see the AMAP guide for associates. For the full capital allowances picture on cars, including the first-year allowance end-date and what happens after it, see the writing-down allowance on cars guide and the full expensing and capital allowances guide.

P11D Filing and Deadlines

If the company does own the car, the annual reporting obligation is the P11D. The company must file a P11D for each director or employee receiving a company car benefit by 6 July following the end of the tax year (6 July 2027 for 2026/27). A P11D(b) must also be filed to declare the total Class 1A NIC liability. Class 1A NIC at 15% on the BIK value is payable by 22 July (19 July if paying by cheque rather than electronically).

The director does not pay the income tax on the BIK separately via the P11D; HMRC typically adjusts the PAYE tax code to collect it through the year, or the director includes it on a self-assessment return if one is already filed. If the car is taken mid-year or returned during the year, the BIK is time-apportioned.

Missing the P11D deadline or paying Class 1A NIC late attracts automatic penalties and interest. If your practice does not already use a payroll bureau or accountant to handle P11D filing, a company car is the point at which that support becomes worth the cost.