Company car accounting guide

You're a UK limited company director buying a car through the company. The company owns the car, pays all running costs, and you use it — including for personal journeys. That's completely legal. You pay Benefit in Kind (BIK) tax in return.

This guide covers every accounting task involved: what to record, what to file, what to claim, and when. It's written for directors who use FreeAgent and do their own bookkeeping without an accountant.

Use the cost comparison calculator to see whether buying through the company actually saves you money. This page tells you how to do the admin once you've decided.

When the company buys the car, it becomes a fixed asset on the balance sheet — not a day-to-day expense. You need to record two values:

• Purchase price — what the company actually paid. This goes on the balance sheet and into the capital allowance (WDA) pool.
• P11D value — the car's original list price when new, including extras and delivery but excluding VED and first registration fee. This is used for BIK calculations. It does not change just because you bought the car used.

How to find the P11D value

• Check the V5C (logbook) or manufacturer's website for the original spec
• Use HMRC's company car tax checker
• The dealer may also list the original price on their listing

FreeAgent Setting up the asset

• Go to Accounting → Fixed Assets → Add a Fixed Asset
• Category: Motor Vehicles
• Enter the purchase price (what the company paid)
• Set the depreciation method — FreeAgent uses reducing balance for motor vehicles
• Tag the bank transaction (the payment) to the new asset

The P11D is an annual form you file with HMRC listing benefits provided to employees and directors — including company cars.

Key facts

• Deadline 6 July — file P11D with HMRC for the previous tax year (ending 5 April)
• Deadline 31 May — give a copy of the P11D to the director/employee
• You must also file a P11D(b) — this declares the Class 1A NIC due on the benefits
• Report the original list price (P11D value), not what you paid
• Any accessories added after purchase that cost over £100 increase the P11D value

Payrolling BIK — the simpler alternative

From April 2026, HMRC is mandating payrolling of benefits for most benefits in kind. This means instead of filing a P11D at year-end, you tax the BIK through your monthly payroll.

• You must register for payrolling via HMRC's online service
• The BIK value is added to the director's taxable pay each month
• Tax is collected through PAYE in real time — no year-end P11D needed for that benefit
• You still need to file the P11D(b) to declare Class 1A NIC

When the company provides you with a car, the taxable benefit is:

P11D value × BIK % = annual taxable benefit

You (the director) pay income tax on this amount. The company pays employer NIC on it (see Class 1A).

EV Electric car BIK rates

• 2025/26: 3%
• 2026/27: 4%
• 2027/28: 5%
• 2028/29: 7%
• 2029/30+: 9%

Even at 9%, a £28,000 list-price EV only generates £2,520/yr taxable benefit — taxed at your marginal rate that's roughly £540/yr at basic rate.

ICE Petrol car BIK rates

Based on CO2 emissions. Typically 27–37% for petrol cars. A £23,000 list-price car at 28% = £6,440/yr taxable benefit — roughly £1,380/yr income tax at basic rate.

Pro-rata rules

• If the car is only available for part of the tax year, the BIK is pro-rated by the number of days available
• If the car is unavailable for 30+ consecutive days (e.g., off road for repairs), those days can be excluded
• Availability starts the day the car is first available to the director, not the purchase date

Recording BIK

• If payrolling: add the monthly BIK amount (annual ÷ 12) to the director's gross pay in the payroll
• If using P11D: report the full-year BIK value on the P11D form
• Either way, you also declare it on your personal Self Assessment (SA100)

The company pays employer NIC at 15% on the BIK value. This is a real company cost — unlike the BIK income tax which falls on you personally.

BIK value × 15% = Class 1A NIC

Example

EV P11D £28,000 × 4% BIK = £1,120 benefit → £1,120 × 15% = £168/yr NIC

ICE P11D £23,000 × 28% BIK = £6,440 benefit → £6,440 × 15% = £966/yr NIC

Deadlines

• Deadline File P11D(b) by 6 July
• Deadline Pay Class 1A NIC by 22 July (electronic) or 19 July (cheque)

FreeAgent Recording

• Class 1A NIC is a company expense — it's deductible against corporation tax
• In FreeAgent, record the payment as an expense or journal entry under employer NIC
• If payrolling BIK, FreeAgent may handle the Class 1A calculation in the payroll — check the payroll summary

Capital allowances let the company deduct the car's cost against taxable profits — not all at once, but spread over time using the Writing Down Allowance (WDA).

Which pool?

• EV New zero-emission cars: 100% First-Year Allowance (write off the entire cost in year 1)
• EV Used zero-emission cars: main rate pool — 14% WDA (from April 2026, was 18%)
• ICE CO2 ≤ 50g/km: main rate pool — 14% WDA
• ICE CO2 > 50g/km: special rate pool — 6% WDA

How reducing-balance WDA works

Each year you claim a percentage of the remaining pool value, not the original price:

• Year 1: £11,000 × 14% = £1,540 allowance. Pool balance: £9,460
• Year 2: £9,460 × 14% = £1,324 allowance. Pool balance: £8,136
• Year 3: £8,136 × 14% = £1,139 allowance. Pool balance: £6,997
• And so on…

Each allowance reduces your taxable profit and therefore your corporation tax bill.

Small pool write-off

If the pool balance falls below £1,000, you can write off the entire remaining amount in one go instead of continuing at 14%/yr.

Balancing allowance & charge on disposal

When you sell or scrap the car, compare the sale proceeds to the pool balance at that point:

• Pool > sale price → balancing allowance (extra tax relief on the difference)
• Sale price > pool → balancing charge (taxable, you "over-claimed")

This only applies cleanly if the car is the only asset in its pool. If the pool has other assets, the proceeds just reduce the pool balance.

FreeAgent Important distinction

FreeAgent calculates accounting depreciation (typically 25% reducing balance). This is not the same as HMRC's WDA (14% from April 2026).

• FreeAgent's depreciation feeds into your accounts — it's fine for management reporting
• On the CT600 (corporation tax return), you add back FreeAgent's depreciation and deduct the actual WDA capital allowance instead
• This is a standard adjustment — your CT600 filing software (or HMRC's online service) will have fields for this

The company gets tax relief (currently 19% for small profits) on:

• Capital allowances (WDA) — the annual writing-down amount on the car
• Running costs — insurance, VED, servicing, MOT, tyres, public charging
• Class 1A NIC — the employer NI you pay on the BIK
• Home charger installation — if the company pays

What's NOT deductible

• The BIK itself — that's a tax on the director, not a company cost
• The car purchase price directly — it goes through capital allowances instead
• Fines, penalties, or congestion charges for personal journeys

Deadlines

• Deadline CT600 filing: 12 months after accounting period end
• Deadline Corporation tax payment: 9 months + 1 day after accounting period end

CT600 adjustments for the car

1. Add back FreeAgent's accounting depreciation (it's in the P&L but not tax-deductible)
2. Deduct the actual WDA capital allowance for the period
3. Ensure all motor expenses are categorised so they flow into the return

VAT on company cars is a minefield. The basic rules:

Cannot reclaim VAT on

• The car purchase — if there's any private use (and there always is for a director's car), you cannot reclaim VAT on the purchase price. Full stop.
• Insurance — insurance is a VAT-exempt supply, there's no VAT to reclaim
• VED — no VAT on road tax

Can reclaim VAT on

• Repairs, servicing, and maintenance — 100% reclaimable even if the car has private use (because it's a company asset)
• Accessories and parts — reclaimable
• Home charger installation — if the company pays and it's for a company car
• Public charging — the VAT on commercial charging is reclaimable for business use

Fuel VAT

• ICE If you pay for fuel personally (to avoid the fuel benefit charge), there's no company VAT to reclaim. You could claim HMRC advisory fuel rates for business miles — but most directors with low mileage don't bother.
• EV Electricity from public chargers paid by the company: VAT reclaimable. Home electricity: complicated — see fuel section.

ICE Petrol / diesel

If the company pays for any private fuel, HMRC applies a flat fuel benefit charge — currently around £7,900/yr regardless of how much fuel you use. This makes it almost never worth it.

• Best approach: pay for all fuel personally, then claim business miles at HMRC advisory rates
• Advisory rates for petrol (based on engine size): roughly 12–16p/mile — check HMRC's current rates
• The mileage reimbursement is tax-free to you and deductible for the company
• Keep a mileage log: date, destination, business purpose, miles driven

EV Electricity

Electricity is not classified as fuel by HMRC. This is the big EV advantage — the company can pay for all your charging (including personal miles) with no fuel benefit charge.

EV Home charging

• The company can reimburse you for home electricity used to charge the car
• HMRC advisory rate for EVs: 7p/mile (check for current rate) — this is the simplest method
• Alternatively: install a separate meter and bill the company for actual kWh used
• Or: use a smart charger that logs energy and calculate the cost per kWh from your electricity bill
• The reimbursement at advisory rate is tax-free to you and deductible for the company

EV Public charging

• Company pays directly — record as a motor expense
• No fuel benefit charge applies
• VAT on commercial public charging is reclaimable (if VAT-registered)

FreeAgent Recording

• Public charging: tag to Motor Expenses
• Home charging reimbursement: process as an expense claim or director's loan credit
• Mileage claims (ICE): use FreeAgent's mileage feature or manual expense entries at advisory rates

Car insurance is a fully deductible business expense. No VAT to reclaim (insurance is VAT-exempt).

• The company must be the policyholder for a company-owned car
• Standard personal comparison sites usually won't work — you'll need to contact insurers directly or use a commercial vehicle broker
• Tell them: "This is a company-owned car used by a director, including personal use"
• Premiums may be higher than personal insurance — factor this into your cost comparison

FreeAgent Recording

• Tag the bank payment to Motor Expenses → Insurance
• If paid annually, FreeAgent will handle it as a single expense in that period
• Keep the policy document and certificate of insurance on file

Vehicle Excise Duty is a fully deductible business expense. No VAT on VED.

Current rates

• EV From April 2025, EVs pay VED for the first time. Standard rate: £195/yr for used cars (first-year rate differs for new registrations)
• ICE Standard rate: £195/yr (after first year). Cars with list price over £40,000 pay an additional £410/yr "expensive car supplement" for years 2–6

EV eVED (pay-per-mile)

From April 2028, electric vehicles will also pay a 3p/mile charge (eVED). At 5,000 miles/yr that's an extra £150/yr. This is on top of standard VED.

FreeAgent Recording

• Tag VED payment to Motor Expenses
• If paid by direct debit (monthly), tag each payment individually

MOT is a fully deductible business expense. VAT on the MOT fee is reclaimable.

• Required annually for cars over 3 years old (changing to 4 years for new cars registered from 2025)
• Used cars typically need an MOT every year from purchase
• Cost is small (~£55) but remember to record it

FreeAgent Recording

• Tag to Motor Expenses
• Keep the MOT certificate on file

All servicing, repairs, and maintenance are fully deductible. VAT is reclaimable on all of it.

• Scheduled services, oil changes, brake pads, tyres, wipers, bulbs
• Unscheduled repairs (breakdowns, bodywork, windscreen)
• Car wash and valeting
• EV EVs have significantly lower servicing costs — no oil, fewer brake wear items (regenerative braking), simpler drivetrain

FreeAgent Recording

• Tag all invoices/receipts to Motor Expenses → Servicing
• Keep all receipts — HMRC may ask for them in an enquiry

EV If the company pays for a home charger for a company car:

• No BIK on the charger — it's not a taxable benefit
• 100% First-Year Allowance (FYA) on the installation cost — write off the entire cost against profits in year 1 (extended to at least March 2027)
• VAT reclaimable on the installation if VAT-registered
• This covers the charger unit, installation labour, and any electrical work needed

FreeAgent Recording

• If claiming 100% FYA: add as a fixed asset and the full amount is written off in year 1
• Alternatively, if the cost is low enough, your accountant approach may be to expense it directly — but FYA as a capital item is the technically correct treatment
• Keep the installation invoice

When the company sells the car, you need to handle the capital allowance pool and remove the asset from the balance sheet.

Steps

1. Note the sale price (what you actually received)
2. Compare it to the WDA pool balance at the time of sale
3. Calculate the balancing adjustment:
   • Pool balance £6,997 − sale price £5,000 = £1,997 balancing allowance (extra tax relief — you didn't claim enough over the years)
   • Pool balance £6,997 − sale price £8,000 = −£1,003 balancing charge (taxable — you over-claimed)
4. The balancing allowance or charge goes on your CT600

Selling to yourself

If you (the director) buy the car from the company:

• The sale must be at market value — not a token amount
• Get an independent valuation or use trade guides (e.g., CAP, Glass's, Auto Trader market price)
• Record the sale as normal — market value goes into the pool calculation
• The company may need to account for VAT on the sale if VAT-registered (even though it couldn't reclaim VAT on purchase, the sale may still be a taxable supply — check with HMRC or take advice on this specific point)

FreeAgent Recording

• Go to Accounting → Fixed Assets → select the car → Dispose
• Enter the disposal date and sale proceeds
• FreeAgent will calculate the gain or loss for accounts — but remember the WDA balancing adjustment for CT600 may differ from FreeAgent's accounting gain/loss

FreeAgent is great for day-to-day bookkeeping but has some gaps for company cars. Here's what it handles and what you need to do manually.

What FreeAgent handles

• Fixed asset register — adding the car, tracking accounting depreciation
• Expense categorisation — tagging motor expenses to the right categories
• Payroll — including payrolling BIK if you set it up
• Bank reconciliation — matching payments to expenses
• Corporation tax estimate — gives a running estimate of your CT bill

What you must do outside FreeAgent

• P11D filing — FreeAgent doesn't generate P11D forms. Use HMRC's PAYE Online or third-party software
• P11D(b) filing — same, done via HMRC
• WDA calculation — FreeAgent's depreciation is accounting depreciation (25%), not the tax WDA (14%). You need to adjust on the CT600:
  • Add back FreeAgent's depreciation
  • Deduct the actual WDA capital allowance
• Class 1A NIC calculation and payment — calculate manually from the BIK value × 15%
• BIK on your Self Assessment — enter the car benefit on your SA100

Suggested FreeAgent categories

• Motor Expenses — main category for fuel, charging, servicing, MOT, VED, insurance
• Consider creating sub-categories or using the description field to distinguish: fuel/charging, insurance, VED, servicing, MOT
• Fixed Assets → Motor Vehicles — the car itself
• If using director's loan for reimbursements (e.g., home charging), process via the Director's Loan Account

Journal entries you may need

• WDA adjustment at year-end: add back accounting depreciation, recognise WDA (this typically happens in CT600 boxes, not as FreeAgent journals — but note it)
• Class 1A NIC provision at year-end if you want it in the accounts before the July payment date

Key deadlines assuming a standard 6 April – 5 April tax year. Your company accounting period may differ — adjust CT600 dates accordingly.

Monthly (if payrolling BIK)

• Include the monthly BIK amount in the director's payroll
• Submit RTI (Real Time Information) to HMRC as part of normal payroll
• Pay PAYE/NIC to HMRC by 22nd of the following month

Ongoing

• Tag all motor expenses in FreeAgent as they occur — don't let them pile up
• Keep a mileage log if claiming business mileage reimbursement
• File receipts digitally (photo or scan) — HMRC accepts digital records

HMRC requires you to keep records for a minimum of 6 years after the end of the accounting period they relate to. If fraud is suspected, they can go back 20 years.

Documents to keep

• Purchase invoice — showing the price paid, seller, date, vehicle details
• V5C (logbook) — registered in the company's name
• P11D value evidence — manufacturer spec or HMRC car checker printout showing the original list price
• Insurance — policy documents and certificates, annual renewal letters
• VED — payment confirmations
• Fuel/charging receipts — all of them, even small ones
• Service invoices — from garages, including itemised parts and labour
• MOT certificates — annual test results
• Mileage log — if claiming business mileage: date, from/to, business purpose, miles. A simple spreadsheet is fine.
• Home charger install invoice — for FYA claim
• Sale receipt — on disposal, showing buyer, price, date
• P11D copies filed — keep your copies of submitted P11D/P11D(b) forms

Digital records

HMRC accepts digital records. Photograph or scan paper receipts. FreeAgent's receipt attachment feature works well for this — attach receipts to the relevant transactions.