Company car: business or private, buy or lease, and the real cost per kilometre
Compare total cost per kilometre after tax, not monthly payments or tax advantages alone.
In this topic: Finance 12
The lowest monthly payment is rarely the lowest cost per kilometre
How to choose between a company car and a private car, between buying and leasing, and how tax on private use and VAT change the answer.
A company car decision usually starts with a lease quote and a purchase price. The real cost is decided elsewhere: how many kilometres you drive for business and privately, what the car is worth at the end and how your country taxes private use. Two people with the same car can reach opposite conclusions.
Below: three choices (business or private, buy or lease, combustion or electric), the tax mechanisms in major markets and a worked cost per kilometre.
Many countries fix a car's tax treatment when it is registered or provided, then change the rules for new cars. The Netherlands, for example, introduces an extra tax on petrol, diesel and hybrid company cars for employees from 1 January 2027 (source: Business.gov.nl, October 2026). Check the rules for the date you order.
Company car or private car: the first choice
With a company car, the business owns or leases the car and deducts all costs; private use is taxed as a benefit or added back to profit. With a private car, the business pays or deducts an amount per business kilometre. Which is cheaper depends on your business share of kilometres, the cost of the car and how private use is valued.
Watch commuting. Many tax systems treat the trip between home and a regular workplace as private, for example in Canada for employer-provided cars (source: Canada Revenue Agency, March 2026).
Buy, operational lease or finance lease
| Form | Who owns it | In your accounts | Risk and cash |
|---|---|---|---|
| Buy | The business, from day one | Depreciation and interest | Cash or a loan up front; you carry residual value and repair risk |
| Finance lease | Economically the business; legally often the lessor until the end | Like buying: depreciation and interest | Little cash up front; you still carry the residual value risk |
| Operational lease | The leasing company | A monthly cost, often including maintenance and insurance | Predictable; charges for extra kilometres, damage and early termination |
Balance-sheet treatment depends on your accounting standard. Under IFRS 16 a lessee recognises assets and liabilities for almost all leases longer than twelve months (source: IFRS Foundation, October 2026); many smaller businesses report under national rules, so ask your accountant.
How private use of a company car is taxed
Private use of a car the business pays for is income. Authorities value it with a formula based on the car's price, often adjusted for emissions or fuel, or with actual costs times the private share from a logbook. The formula is simple; the logbook is fairer but takes discipline.
| Market | Mechanism | Records and electric cars |
|---|---|---|
| United Kingdom | Benefit in kind: employees and directors pay tax on the value of a company car used privately, including commuting (source: GOV.UK, October 2026). | The value depends on purchase cost and fuel type and is lower for low CO2 emissions (source: GOV.UK, October 2026). |
| Netherlands (EU example) | Addition rule: a percentage of the list price is added to taxable income, unless private use does not exceed a set number of kilometres a year (source: Business.gov.nl, June 2024). | You must be able to show low private use, for example with a trip log; zero-emission cars get a lower addition that is being phased out (source: Business.gov.nl, June 2024). |
| Germany (EU example) | For a car used more than half for business, private use is valued monthly at a fixed share of the gross list price, the one-percent method, or at actual costs with a proper logbook (source: German Federal Ministry of Justice, October 2026). | For qualifying electric and plug-in hybrid cars only a quarter or half of the list price counts (source: German Federal Ministry of Justice, October 2026). |
| United States | Personal use of an employer-provided vehicle is a taxable fringe benefit, valued under the general valuation rule or special rules such as cents-per-mile, commuting and lease value (source: IRS, October 2026). | The self-employed deduct only the business use, with the standard mileage rate or actual expenses (source: IRS, October 2026). |
| Canada | A standby charge when the car is available for personal use, plus an operating expense benefit if the employer pays running costs of personal use (source: Canada Revenue Agency, March 2026). | Home-to-work driving generally counts as personal (source: Canada Revenue Agency, March 2026). |
| Australia | The employer pays fringe benefits tax, using the statutory formula (base value of the car) or the operating cost method (private use from a logbook) (source: Australian Taxation Office, March 2025). | Eligible zero or low emissions cars are exempt; plug-in hybrids no longer qualify from 1 April 2025 (source: Australian Taxation Office, April 2026). Sole traders can claim the business-use share of car expenses with a logbook (source: Australian Taxation Office, June 2024). |
VAT on cars: why recovery is restricted
VAT and GST on business purchases are recoverable to the extent they serve taxable business, and cars get special treatment because private use is hard to separate. In the United Kingdom, VAT on buying a car is recoverable in full only if it is used exclusively for business, and half of the VAT on lease rentals is blocked to cover private use (source: GOV.UK, December 2024). In the Netherlands VAT is due on private kilometres, and commuting counts as private for VAT (source: Business.gov.nl, June 2024). The United States has no VAT; sales tax normally becomes part of the cost.
Electric or combustion: what changes
Electric cars often get a lower private-use valuation, as the table shows, and cost less to run. Against that stand a higher price and an uncertain residual value. Check whether the tax advantage lasts for the car's life or only a period, and how home charging is reimbursed.
Worked example: cost per kilometre
Greta, a self-employed technical sales consultant, needs an electric estate car costing €40,000 excluding VAT for four years. She drives 30,000 kilometres a year: 24,000 for business, 6,000 privately. First she compares the total cost of ownership.
| Per year | Buy | Operational lease | Finance lease |
|---|---|---|---|
| Depreciation ((€40,000 - €16,000 residual) / 4) | €6,000 | - | €6,000 |
| Interest or forgone return on €28,000 average capital (5% own cash, 6% lease) | €1,400 | - | €1,680 |
| Lease payments (€820 x 12) | - | €9,840 | - |
| Insurance, maintenance, tyres and road tax | €2,100 | included | €2,100 |
| Electricity (30,000 km x €0.06) | €1,800 | €1,800 | €1,800 |
| Total per year | €11,300 | €11,640 | €11,580 |
| Cost per kilometre (total / 30,000) | €0.38 | €0.39 | €0.39 |
Buying is €340 a year cheaper than the operational lease, if the residual value holds. At €12,000 residual value, buying costs about €12,200 a year, more than the lease: the lease premium buys certainty.
Next she compares a company car with a private car for which the business deducts a fixed allowance per business kilometre.
| Per year, bought car | Company car | Private car |
|---|---|---|
| Car costs | €11,300 | €11,300 |
| Deductible for the business | €11,300 | €7,200 (24,000 km x €0.30) |
| Taxable private-use benefit (formula) | €4,500 | €0 |
| Net deduction | €6,800 | €7,200 |
| Tax saving at 40% | €2,720 | €2,880 |
| Net cost after tax | €8,580 | €8,420 |
| Net cost per kilometre | €0.29 | €0.28 |
Fictitious Firmfocus example. Residual value, interest, allowance, benefit and tax rate are assumptions, not the rules of any country; VAT is left out because its recovery differs per route. The logic works in any currency.
The private car wins by €160 a year, too close to call. If Greta could show she hardly drives the company car privately and no benefit were taxed, it would cost €6,780 after tax (€11,300 minus 40%). If only 12,000 of her kilometres were business, the private car would cost €9,860, while the formula benefit stays the same.
How to choose in four steps
- 01
Estimate your kilometres
Split them into business, commuting and private, and count commuting as your tax authority does.
- 02
Calculate the total cost per scenario
Price, residual value, interest, energy, insurance, maintenance and taxes over the whole period, per kilometre. Compare vehicle costs with your industry in the profit and cost benchmark.
- 03
Add the tax and VAT effects
Deductions, the private-use benefit, VAT recovery and any private-use correction, at your own tax rate.
- 04
Keep records and review
A complete trip log supports a low private share and your VAT position. Review when your driving or the rules change.
Sole trader or company with staff
Sole trader or freelancer
The car is either a business asset with private use added back, or a private car with a business allowance. Your own kilometres decide, so keep a log for a few months before you choose.
Company with an owner-director or employees
Private use becomes a taxable benefit for the user and can add employer charges. A car policy with a price cap or a cash allowance keeps costs predictable.
Find out when a car must or may be a business asset, how private use and commuting are valued, which records you need, how much VAT or GST you can recover on purchase, lease and fuel, and whether electric cars get a time-limited advantage.
Pitfalls
- Comparing monthly payments only: a lease payment and a loan instalment cover different things; compare cost per kilometre.
- Forgetting the residual value: it is the largest uncertain item when you buy.
- Treating the private-use benefit as a cost: it is extra taxable income; its cost is the tax on it.
- Forgetting VAT on private use: it can be due even when no income tax benefit applies.
See the Finance overview for related topics, business taxes for deductions and VAT, reducing costs for other savings, your cash flow forecast for liquidity and Start a business for the first steps.
Is it better to lease or buy a company car?
Can I reclaim VAT on a company car?
Should my car belong to the business or stay private?
Sources
- GOV.UK: Tax on company cars (October 2026) and VAT on motoring expenses (December 2024)
- Business.gov.nl: Company car (June 2024) and Extra tax on petrol and diesel company cars (October 2026)
- German Federal Ministry of Justice: Income Tax Act, valuation rules (October 2026)
- IRS: Employer's tax guide to fringe benefits and Business use of car (October 2026)
- Canada Revenue Agency: Automobile provided by the employer (March 2026)
- Australian Taxation Office: Taxable value of a car fringe benefit (March 2025), FBT on cars and the electric cars exemption (April 2026) and Logbook method (June 2024)
- IFRS Foundation: Leases standard (October 2026)
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