Providing a vehicle can be a useful benefit for employees, particularly for businesses where staff are regularly travelling to customers, sites or meetings.
But there can be very different tax consequences depending on how the vehicle is provided.
Using a pool car
One option is for the business to own a vehicle that is shared between several employees.
If it meets HMRC’s rules, it can qualify as a pool car and there is normally no Benefit in Kind (BIK) charge for the employees using it.
To qualify, the car should:
- be available to and used by more than one employee
- be used mainly for business journeys
- not normally be kept overnight at an employee’s home
- have no private use other than incidental use
The important point is that it genuinely needs to operate as a shared business vehicle. If one employee effectively has their own car, takes it home regularly or uses it privately, HMRC may treat it as a company car instead.
Providing an employee with a company car
The position changes when a car is allocated to a particular employee and is available for private use.
This normally creates a taxable Benefit in Kind. Travelling between home and a normal permanent workplace also counts as private use.
The amount of BIK depends largely on the car’s original list price, CO₂ emissions and fuel type.
For example, a £40,000 petrol car with a 30% BIK rate would create a taxable benefit of £12,000 a year. The employee then pays Income Tax on that amount at their appropriate Scottish tax rate.
The company would also pay Class 1A National Insurance, currently 15%, giving an additional cost of £1,800 a year in this example.
Electric company cars can be much more tax-efficient
Fully electric company cars continue to receive considerably more favourable treatment.
For the 2026/27 tax year, the BIK rate for a zero-emission electric car is 4%.
A £40,000 electric car would therefore create a taxable benefit of only £1,600 a year. The employer’s Class 1A National Insurance would be £240.
There can also be tax advantages for the business when buying the vehicle. Qualifying new zero-emission cars can currently receive a 100% first-year capital allowance, allowing the business to deduct the qualifying cost from its taxable profits in the year of purchase.
Which option is best for your business?
There isn’t one answer that works for every company.
For some Glasgow and Scottish businesses, a genuine pool car can be a straightforward way of providing transport for business journeys. For others, particularly where a car is being provided as part of an employee’s package, an electric company car can offer significant tax advantages.
If you’re considering buying or providing vehicles through your company, speak to Callan Accountancy before making the decision. We can look at the figures and explain the tax implications for both the business and the employee.
