Company car schemes can be a useful benefit for employees and a practical solution for businesses that rely on vehicles. But they come with rules, tax considerations and choices that are worth understanding before you set one up.

This guide explains what company car schemes are, how they work and when they make sense for your business.

What's a company car scheme?

A company car scheme is where a business provides a car for an employee to use. The car is owned or leased by the business rather than the individual. The employee can usually use the car for work and personal journeys, which is where tax comes into play.

Company car schemes are most common in limited companies, but the structure matters more than the size of the business.

How company car schemes work

The business arranges the vehicle, either by buying it or leasing it. Ongoing costs like insurance, servicing and repairs are often covered by the business.

The employee pays tax on the benefit of having access to the car. This is known as Benefit in Kind, or BIK.

The amount of tax depends on:

• The car’s list price
• Its CO2 emissions
• The employee’s income tax band

Lower emission vehicles usually come with lower tax bills.

Why businesses offer company cars

Company car schemes can offer practical and commercial benefits.

They can:

• Support employees who need to travel regularly
• Act as a perk to attract or retain staff
• Give the business more control over vehicle standards
• Simplify costs by bundling expenses together

For some roles, a company car isn’t a perk. It’s essential for doing the job.

Costs and tax to consider

Company cars affect both the business and the employee.

For the business, there may be:

• Lease or purchase costs
• Employer National Insurance on the benefit
• Maintenance and running costs

For employees, tax is based on the car’s benefit value rather than how much it’s used. Electric and low emission cars often make schemes more tax efficient for both sides.

Company cars vs car allowances

Some businesses choose to offer a car allowance instead of a company car. With an allowance, the employee chooses and owns the vehicle. The allowance is taxed as income.

Company cars give more control and predictable costs. Allowances offer flexibility but less oversight. The right choice depends on your team, your budget and how vehicles are used.

Is a company car scheme right for your business?

Company car schemes work best when vehicles are essential to the role and used regularly. If driving is occasional, mileage payments or allowances may be simpler.

As with most business decisions, clarity matters. Knowing the true cost and tax impact helps avoid surprises later. A well set up company car scheme supports your people and your operations without adding unnecessary complexity.