Last Updated on 30/09/2025 by Adrian Lamb
What is the current vehicle allowance for limited companies?
Key HMRC / Tax Rules
Mileage Allowance Payments (MAPs)
If an employee uses their own car (or van) for business journeys, the employer can reimburse them at HMRC “approved” mileage rates tax‑free up to certain limits.
The main rates are:
- Cars & vans: 45p per mile for the first 10,000 business miles in a tax year.
- After 10,000 business miles: 25p per mile.
- Motorcycles: 24p per mile.
- Bicycles: 20p per mile.
Capital Allowances
The company might get a tax-deductible allowance when they buy a car (or other business vehicles) through capital allowances, especially for low-emission or zero-emission vehicles. For instance: If you buy a brand-new zero-emission car (not leased), you can deduct the entire cost in the first year. Other cars (with CO₂ emissions) fall into groups for annual writing-down allowances (WDAs), which are usually around 18% or 6% per year, depending on how much they pollute.
Van Allowances
Vans offer a flat-rate tax deductible allowance if you use them for more than just commuting. For the 2025/26 tax year, if you use your van for private purposes, you’ll get a van tax deductible allowance of £4,020 per year. And if you provide your own fuel, you’ll get an additional fuel tax allowance (which is currently around £769).
What “Car Allowance” Usually Means in Practice
“Car allowance” usually means a fixed extra payment (on top of salary or instead of a company car) that helps employees pay for and take care of their own vehicles for work. These allowances are usually taxable (i.e. treated as salary) unless carefully planned. The allowance should include not only fuel but also maintenance, insurance, depreciation, tax, etc. Many companies still give back business miles on top of a car allowance.
Benefit in Kind (BIK) for Company Cars
If a company gives its employees a car to use for personal purposes (or to go from home to work, which is quite common), that’s considered a tax allowance. The tax (and National Insurance) depends on the car’s CO₂ emissions, price, and other factors. Electric cars have good BIK rates right now: 2% of the list price for pure electric cars in 2025/26. These rates are going to go up a bit in the coming years.
