The benefit in kind percentage is the whole argument. Everything else is detail.

For 2026/27, a zero-emission car sits at 4% of its list price. A petrol car emitting 120g/km sits at 30%. Same list price, same driver, and the taxable benefit is seven and a half times larger on the petrol car. Employer National Insurance at 15% applies to that benefit too, so the company pays more on the worse choice as well.

Take a car with a list price of £40,000. Electric, the taxable benefit is £1,600 a year. Petrol in a 30% band, it is £12,000. A higher rate taxpayer pays income tax on those amounts at 40%, and the company pays Class 1A on top. These are illustrative figures using the published 2026/27 bands, not a quote for your car.

Electric rates are rising on a published path: 5% in 2027/28, 7% in 2028/29, 9% in 2029/30. That still leaves electric cheap across a normal lease term. Petrol and diesel bands are rising too, and the top band goes to 38% then 39% over the same period. A non-RDE2 diesel adds four percentage points on top.

A car allowance looks clean because there is no P11D, no Class 1A and no benefit in kind. It is also the most heavily taxed way to get money out of a company.

An allowance paid through payroll is salary. It carries employee National Insurance, employer National Insurance and income tax at your marginal rate. The company gets corporation tax relief on the gross cost, which softens it, but the combined bite on a higher rate director is still the worst of the three routes.

Most owner-directors do not take a formal allowance at all. They take the money as a dividend and buy or lease the car personally. That avoids both National Insurance charges, though the profit has already borne corporation tax and the dividend carries its own tax. For a director weighing this up, the real comparison is almost never car versus allowance. It is company car versus extra dividends.

If you go the personal route, the company can still pay you 45p a mile for the first 10,000 business miles and 25p after that, tax free. For a director doing real business mileage in their own car, that reimbursement is worth more than most people assume and it never appears on a P11D.

Four things get left out of most spreadsheets, and they change the answer often enough to matter.

• Private fuel. If the company pays for petrol used on private journeys, that is a second benefit in kind with its own charge, and it is almost always a bad deal. Reimbursing the company at HMRC’s advisory fuel rates removes the charge entirely, provided the private mileage is recorded properly.
• Commuting counts as private use. There is no realistic argument that a director’s car is business-only. Assume the full benefit applies.
• VAT on leases. On a car with any private use, the company recovers half the VAT on the lease rental. On maintenance it can recover all of it, if that element is billed separately.
• Corporation tax relief. A fully electric car bought outright attracts a 100% first year allowance. A leased car with emissions above 50g/km has 15% of the rental disallowed. That gap is worth real money on a 25% corporation tax rate.

Add those four and the electric company car usually pulls further ahead, and the petrol company car falls further behind.

Hybrids are the one case where you cannot work the answer out from the fuel pump.

The benefit depends on both the CO2 figure and the electric-only range. A hybrid with 130 miles of electric range sits at 4% for 2026/27, the same as a pure electric car. One with under 30 miles of range sits at 16%. Four times the charge on cars that look similar on a forecourt.

There is a specific rule for plug-in hybrids registered between 1 January 2025 and 5 April 2028. If the registration certificate shows CO2 of 51g/km or more, an electric range of at least one mile, and the Euro status section does not show Euro 6d-ISC-FCM or Euro 6e, the CO2 figure used for the benefit is treated as 1g/km. That is a large difference driven entirely by what is printed on the V5C.

We check the actual registration certificate before running any hybrid comparison. Two cars from the same model year can land in different bands, and the dealer will not know which one you are looking at. If you are already in a hybrid and nobody has checked this, it is worth half an hour of someone’s time.

The method matters more than any rule of thumb, because the right answer changes with your dividend position.

We build the total annual cost to you of each route, on your figures. For the company car: the lease or purchase cost after corporation tax relief, the recoverable VAT, the Class 1A National Insurance, and your personal tax on the benefit. For the personal route: the gross dividend needed to fund the same car after tax, plus any mileage reimbursement the company can pay you tax free.

Then we look at what the money does to your dividend headroom. A director taking an extra £12,000 of dividends to fund a car may cross into the higher rate band and pay 33.75% on the lot. That single fact flips the answer more often than the benefit in kind table does.

This is the sort of thing that comes up in the set-up review. One procurement consultant we took on came in asking about a car and left having changed his VAT scheme, which saved him more every quarter than the car decision was ever going to. The car question is rarely the biggest number on the table.