Should Your Limited Company Buy a New or Second-Hand Electric Car?

New or Second-Hand Electric Car Through Your Limited Company?

New vs Used EV Tax Explained – Capital Allowances, BIK, VAT, Grants and Mileage for 2026/27

By Steve Bicknell FCMA, CGMA

You have found two electric cars.

One is brand new.

The other is two or three years old.

The second-hand car may be thousands of pounds cheaper — but the new car could potentially qualify for 100% First-Year Capital Allowances.

So which is actually better?

For a limited company in 2026/27, the answer is more complicated than simply comparing the purchase prices.

You need to consider:

100% capital allowances on qualifying new EVs;
14% writing-down allowances on second-hand EVs;
the 4% electric company-car Benefit in Kind rate;
the original list price of a second-hand car;
Corporation Tax;
VAT;
government EV grants;
charging costs;
business mileage;
depreciation;
Vehicle Excise Duty;
finance;
and what happens when you eventually sell the car.

And there is a third option which shouldn’t be overlooked:

BUY THE EV PERSONALLY AND CLAIM 55P PER BUSINESS MILE.

Let’s compare them.

Quick Answer – New EV, Used EV or Personal Ownership?

	New EV – Company	Used EV – Company	Personally Owned EV
Company funds purchase	Yes	Yes	No
100% zero-emission FYA	Potentially yes	No	No company CA
Capital allowances	Potentially 100%	Normally 14% WDA	—
2026/27 EV BIK	4%	4%	None
BIK based broadly on original list price	Yes	Yes	—
Electric Car Grant	Potentially	No	Potentially on eligible new EV
AMAP – first 10,000 business miles	No	No	55p
Company owns car	Yes	Yes	No
VAT on purchase with private availability	Usually blocked	Usually blocked	—
Initial depreciation	Potentially high	Often substantially absorbed already	Personal cost

The biggest tax difference between buying a new and second-hand EV through your company is generally the timing of the:

CAPITAL ALLOWANCES.

Why Are New Electric Cars So Tax-Efficient?

A qualifying new and unused zero-emission car can currently qualify for a:

100% FIRST-YEAR ALLOWANCE

That potentially allows the company to deduct the entire qualifying cost from taxable profits in the relevant accounting period.

For Corporation Tax purposes, the current relief runs until:

31 MARCH 2027

and for Income Tax purposes until:

5 APRIL 2027.

This relief is particularly valuable because cars are excluded from:

Annual Investment Allowance;
Full Expensing;
and the general 40% First-Year Allowance.

A qualifying new zero-emission car has its own specific 100% FYA.

Example – £50,000 New Electric Car

Suppose Consultancy 4 Business Ltd buys a qualifying brand-new zero-emission car for:

£50,000

Potential First-Year Allowance:

£50,000 × 100% = £50,000

If the company obtains tax relief at 25%, the simple illustrative Corporation Tax reduction is:

£50,000 × 25% = £12,500

POTENTIAL CT SAVING: £12,500

That is an extremely valuable timing advantage.

But it does not mean a £50,000 EV really costs £37,500.

The company has still spent £50,000 and needs to consider depreciation, finance, running costs, BIK and eventual disposal.

The actual Corporation Tax benefit also depends on the company’s taxable profits and applicable Corporation Tax rate.

What Counts as New and Unused?

Don’t assume that:

“new to me”

means:

“new and unused”

for capital allowance purposes.

The conditions need to be checked.

Limited mileage arising from matters such as delivery, testing, customer test drives or demonstrator use does not necessarily mean a vehicle is second-hand.

Similarly, pre-registration does not automatically prevent qualification.

So if you’re considering a:

PRE-REGISTERED EV

or:

DEMONSTRATOR

it is worth checking the facts before assuming the 100% allowance has been lost.

What About a Second-Hand Electric Car?

A second-hand EV does not qualify for the special 100% zero-emission car FYA.

Instead, a zero-emission car will generally fall within the:

MAIN-RATE CAPITAL ALLOWANCE POOL.

The main writing-down allowance rate reduced from 18% to:

14%

from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax.

Accounting periods spanning the change can have a hybrid rate.

Example – £50,000 Second-Hand EV

Suppose Consultancy 4 Business Ltd instead pays:

£50,000

for a second-hand zero-emission car.

Using a simple full-year 14% illustration:

£50,000 × 14% = £7,000

At an illustrative 25% Corporation Tax rate:

£7,000 × 25% = £1,750

Compare that with our qualifying new car:

	New EV	Used EV
Purchase price	£50,000	£50,000
Illustrative first-year CA	£50,000	£7,000
Illustrative CT reduction @25%	£12,500	£1,750
Difference in first-year CT relief		£10,750

That is a very substantial difference.

But it is primarily a difference in the timing of tax relief.

The second-hand EV hasn’t necessarily lost all the remaining capital allowances — they are generally obtained more slowly.

But the Used EV Could Be £20,000 Cheaper

This is where tax relief can distract from the real commercial decision.

Suppose the choice is:

Brand-new EV

£50,000

versus:

Three-year-old equivalent

£30,000

The new EV may potentially produce a £50,000 FYA.

The £30,000 used EV would have an illustrative first-year 14% WDA of:

£30,000 × 14% = £4,200

At 25% CT, that’s an illustrative first-year tax reduction of:

£1,050

But the used car required:

£20,000 LESS CASH

to buy.

That’s considerably more than the difference in our illustrative first-year Corporation Tax savings.

So remember:

DON’T SPEND £1 SIMPLY TO SAVE 25P OF TAX.

Tax is only part of the calculation.

Are There Still Government Grants for Electric Cars?

YES.

The Government’s Electric Car Grant currently gives discounts on qualifying new zero-emission cars.

There are two grant bands:

Band 1

UP TO £3,750

Band 2

UP TO £1,500

You don’t normally claim the grant yourself.

The seller applies the grant as a discount to the purchase price.

But not every electric car qualifies.

The scheme applies to approved vehicles satisfying conditions including zero tailpipe emissions, minimum range, warranties, sustainability requirements and price limits.

The main Electric Car Grant price cap is currently £37,000 RRP, although particular rules can allow certain variants in the same interpolation family up to £42,000.

That means our hypothetical £50,000 new EV would not ordinarily qualify for the standard Electric Car Grant.

This is important — don’t add £3,750 to the tax saving on a £50,000 car unless the particular vehicle actually qualifies.

The list of eligible vehicles changes, so check the current Government list before ordering.

New EV – Potential Double Advantage

For an eligible qualifying new EV, there could therefore be:

ELECTRIC CAR GRANT

plus:

100% FIRST-YEAR ALLOWANCE

plus the low:

4% EV BIK RATE.

That can significantly narrow the economic difference between a new and nearly-new EV.

Benefit in Kind – New and Used EVs Get the Same Percentage

The low Benefit in Kind rate remains one of the biggest attractions of putting an EV through a limited company.

For a zero-emission company car, the appropriate percentage is:

2026/27

4%

2027/28

5%

2028/29

7%

2029/30

9%

So a second-hand EV doesn’t suffer a higher percentage simply because it is used.

But there is a trap.

BIK Uses List Price – Not What You Paid Second-Hand

Suppose your company buys a three-year-old EV for:

£30,000

but its relevant original list price was:

£50,000.

The company-car BIK is broadly based on the relevant list price and taxable accessories — not the £30,000 your company paid.

At 4%:

£50,000 × 4% = £2,000 taxable benefit

So the BIK could broadly be the same as on a brand-new £50,000 EV.

THE USED PRICE FALLS.

THE BIK LIST PRICE DOESN’T FALL WITH IT.

This is an important consideration when looking at heavily depreciated premium EVs.

What Does a £2,000 EV Benefit Actually Cost?

For a £50,000 relevant list price and a 4% BIK percentage:

TAXABLE BENEFIT = £2,000

Illustratively, the employee/director’s Income Tax could be:

Tax rate	Illustrative tax
20%	£400
40%	£800
45%	£900

The company will also normally pay Class 1A National Insurance.

Even after allowing for that, the BIK can remain dramatically lower than on many petrol or diesel company cars.

New £50,000 vs Used £30,000 – The Interesting Comparison

	New EV	Used EV
Company purchase price	£50,000	£30,000
Original list price	£50,000	£50,000
2026/27 BIK rate	4%	4%
Illustrative taxable benefit	£2,000	£2,000
Potential first-year CA	£50,000	£4,200*
Illustrative CT reduction @25%	£12,500	£1,050*
Cash purchase difference	—	£20,000 cheaper

*Simple 14% full-year illustration.

Now the decision is much less obvious.

The new car wins on immediate tax relief.

The used car wins on purchase price.

And both have the same illustrative BIK because they originally had the same list price.

Depreciation May Matter More Than Tax

This is probably the most important commercial point in this article.

Imagine a new EV costs:

£50,000

and is worth:

£25,000

three years later.

That’s a:

£25,000 LOSS IN VALUE.

Receiving accelerated Corporation Tax relief doesn’t eliminate that economic loss.

A two or three-year-old EV may allow you to buy after somebody else has absorbed much of the initial depreciation.

So the real comparison is closer to:

PURCHASE PRICE

minus:

EXPECTED RESALE VALUE

plus:

FINANCE AND RUNNING COSTS

plus:

PERSONAL BIK TAX

minus:

COMPANY TAX RELIEF.

What Happens When the Company Eventually Sells the EV?

Don’t look at the 100% FYA in isolation.

Capital allowance disposal rules apply when the company eventually sells the vehicle.

So claiming £50,000 upfront doesn’t mean the proceeds received when the car is sold are ignored.

A proper whole-life calculation should therefore consider:

PURCHASE + OWNERSHIP + DISPOSAL.

What About VAT When Buying an Electric Car?

This is one of the most misunderstood EV tax rules.

ELECTRIC DOES NOT MEAN VAT-FREE.

An electric car is still a car for VAT purposes.

VAT on buying a car is generally blocked where the vehicle is available for private use.

Full VAT recovery is normally only possible where the relevant conditions are satisfied — for example, where the car is not available for private use or is acquired for certain qualifying activities.

So if a director buys an electric car through the company and uses it both privately and for business:

DO NOT ASSUME THE COMPANY CAN RECLAIM THE PURCHASE VAT.

What About VAT on Leasing an EV?

Leasing is different.

Where a VAT-registered business leases a car that has private use, it can normally recover:

50% OF THE VAT ON THE LEASE RENTAL

subject to the normal rules.

VAT on separately charged maintenance can potentially have different treatment.

This is one reason why a proper comparison between:

cash purchase;
HP;
PCP;
and lease

is worthwhile before signing the agreement.

What About VAT on Charging an Electric Car?

This is another area where the rules differ from petrol and diesel.

HMRC says VAT incurred by a business on charging an EV can be recovered to the extent it relates to business use where charging takes place:

at the workplace; or
at a public charging point,

subject to the normal VAT rules.

Mileage records should be maintained to identify business and private use where necessary.

But home charging by an employee is different.

Where an employee charges an EV at home, HMRC’s published position is that the electricity is supplied to the employee, not the employer.

The employer therefore cannot currently recover VAT on that home electricity under HMRC’s published guidance.

Does the VAT Fuel Scale Charge Apply to an Electric Car?

This needs particular care.

Businesses with petrol or diesel cars sometimes reclaim VAT on road fuel and account for private use using HMRC’s:

VAT ROAD FUEL SCALE CHARGE.

For 1 May 2026 to 30 April 2027, the lowest CO₂ band — 120g/km or less — has an annual VAT-inclusive scale-charge value of £657.

But:

DON’T SIMPLY APPLY THE £657 SCALE CHARGE TO AN EV BECAUSE IT HAS 0G/KM CO₂.

HMRC’s VAT Notice deals with electricity for charging EVs separately from its rules on road fuel and fuel scale charges.

HMRC says businesses should identify business/private electricity use through mileage records where appropriate.

The practical VAT treatment therefore depends on:

where the EV is charged;
who receives the supply of electricity;
who pays for it;
whether the business has incurred recoverable VAT;
and the business/private mileage split.

This is another reason to keep good mileage and charging records.

Are There Still Grants for EV Chargers?

YES.

The Workplace Charging Scheme currently contributes towards the purchase and installation of EV chargepoints at eligible workplaces.

The scheme can cover up to:

75% OF THE COST

subject to a maximum of:

£500 PER SOCKET

and:

40 SOCKETS

across all sites per applicant.

The current scheme closes on:

31 MARCH 2027.

Eligibility conditions apply, so check them before committing to the installation.

Can the Company Also Claim Tax Relief on a Charger?

Potentially.

Qualifying expenditure on new and unused electric vehicle chargepoints can currently qualify for:

100% FIRST-YEAR ALLOWANCES.

The current relief is available until:

31 March 2027 – Corporation Tax

5 April 2027 – Income Tax

So a business considering workplace charging should potentially investigate both the grant and the capital allowance position.

The interaction with grant funding needs to be taken into account when determining the qualifying expenditure.

What About Charging at Home?

The tax position shouldn’t be confused with the VAT position.

For a fully electric company car, HMRC says an employer does not have to report charging provided for the employee’s company EV as a taxable benefit.

For reimbursement of business mileage in a company EV, HMRC now publishes separate advisory electric rates.

From:

1 SEPTEMBER 2026

these are:

Home charging

7P PER MILE

Public charging

15P PER MILE.

These rates relate to company electric cars.

They should not be confused with the 55p AMAP rate for personally owned cars.

What If I Buy the EV Personally?

This has become significantly more interesting in 2026/27.

If you personally own the vehicle and use it for qualifying business journeys, your company can pay Approved Mileage Allowance Payments of:

First 10,000 business miles

55P PER MILE

Thereafter

25P PER MILE.

The increase from 45p to 55p was backdated to:

6 APRIL 2026.

So if you drive 10,000 qualifying business miles:

10,000 × 55p = £5,500

£5,500

can potentially be reimbursed under the AMAP rules.

That rate applies to electric cars as well as petrol, diesel and hybrid cars.

£30,000 Used EV Personally vs Company Owned

Suppose you buy a used EV personally for:

£30,000

and drive:

10,000 QUALIFYING BUSINESS MILES.

Your company could potentially reimburse:

£5,500

under the AMAP rules.

There is no company-car BIK because:

IT IS YOUR CAR.

But you personally had to fund the £30,000 purchase.

If the company buys it instead:

the company provides the £30,000;
it owns the vehicle;
it potentially obtains capital allowances;
it can pay relevant running costs;

but private availability will normally create a company-car BIK.

Neither answer is automatically better.

Don’t Confuse the EV Mileage Rates

There are now some very different numbers being quoted for electric cars:

Situation	2026/27 rate
Personally owned car – first 10,000 qualifying business miles	55p/mile
Personally owned car – thereafter	25p/mile
Company EV – home charging advisory rate from 1 Sept 2026	7p/mile
Company EV – public charging advisory rate from 1 Sept 2026	15p/mile

These rates do completely different jobs.

55P DOES NOT APPLY TO A COMPANY CAR.

What About Vehicle Excise Duty?

Electric cars are no longer generally exempt from Vehicle Excise Duty.

There is also the Expensive Car Supplement to consider.

From 1 April 2026, the Expensive Car Supplement threshold for zero-emission cars increased from:

£40,000

to:

MORE THAN £50,000.

So an EV’s list price can affect:

company-car BIK; and
potentially VED.

That’s another reason to look beyond the discounted price you actually pay.

What About Salary Sacrifice?

EVs can also remain particularly attractive through properly structured salary-sacrifice arrangements because low-emission cars benefit from special treatment under the Optional Remuneration Arrangement rules.

But salary sacrifice introduces additional considerations including:

National Minimum Wage;
pensionable pay;
statutory payments;
early termination charges;
maternity and other leave;
employees leaving;
insurance;
damage;
and excess mileage.

For an owner-managed limited company, straightforward company ownership may often be easier to compare first.

So Which Option Is Best?

A NEW COMPANY EV MAY BE BEST IF:

your company has sufficient taxable profits;
the car qualifies for the 100% FYA;
immediate Corporation Tax relief is valuable;
an eligible vehicle qualifies for the Electric Car Grant;
you value a full manufacturer/battery warranty;
you want the latest battery and charging technology;
you expect to keep the car for a reasonable period.

A SECOND-HAND COMPANY EV MAY BE BEST IF:

somebody else has already absorbed substantial depreciation;
the purchase price is significantly lower;
preserving company cash is important;
immediate capital allowance relief is less important;
the battery condition and warranty are good;
you are comfortable with the original list price used for BIK.

PERSONAL OWNERSHIP MAY BE BEST IF:

you can buy a relatively inexpensive used EV personally;
you drive significant business mileage;
the 55p AMAP rate is valuable;
you want to avoid company-car BIK;
you prefer personal ownership and flexibility.

The Comparison I Would Make Before Buying

For an owner-managed limited company, don’t just ask:

“Should the company buy an electric car?”

Compare:

OPTION 1

NEW EV BOUGHT BY THE COMPANY

Potential 100% FYA
Low 4% BIK
Potential grant on qualifying lower-priced models
Potentially highest depreciation

OPTION 2

SECOND-HAND EV BOUGHT BY THE COMPANY

Much lower purchase price possible
14% main-rate capital allowances
Same 4% BIK percentage
BIK still based broadly on original list price

OPTION 3

EV BOUGHT PERSONALLY

No company capital allowances
No company-car BIK
Company can potentially pay 55p/mile for first 10,000 qualifying business miles
You personally fund the vehicle

10 Questions to Ask Before You Order an EV

Is it genuinely new and unused?
Does it qualify for the 100% EV FYA?
Does the particular new model qualify for the Electric Car Grant?
What was the original list price for BIK?
How much has an equivalent used EV already depreciated?
What is the expected resale value in three or four years?
How many business miles will I actually drive?
Should I buy it personally and claim 55p mileage instead?
Should the company buy, HP, PCP or lease it?
Where will I charge it and what are the VAT and reimbursement consequences?

Answer those questions before choosing the car.

Frequently Asked Questions

Does a new electric car get 100% tax relief?

A qualifying new and unused zero-emission car can currently qualify for 100% First-Year Allowances. For Corporation Tax purposes, the current relief runs to 31 March 2027.

Does a second-hand electric car get 100% capital allowances?

No. A second-hand zero-emission car will generally receive main-rate writing-down allowances instead.

What is the capital allowance rate for a used EV in 2026?

The main WDA rate reduced to 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Hybrid rates can apply to accounting periods spanning the change.

Can I claim AIA on an electric car?

No. Cars are excluded from AIA.

Can I claim Full Expensing on an electric car?

No.

Does the general 40% FYA apply to cars?

No.

The 100% relief for qualifying new EVs comes from the specific zero-emission car FYA.

What is the EV BIK rate for 2026/27?

4%.

Is BIK lower if I buy the EV second-hand?

Not simply because it is second-hand. The calculation is broadly based on the relevant original list price rather than the second-hand price paid.

Can my company reclaim VAT when it buys an electric car?

Usually not where the car is available for private use. EVs don’t receive a special exemption from the normal VAT rules for cars.

Does the VAT fuel scale charge apply to electricity?

Don’t automatically apply the conventional road-fuel scale charge to an EV. HMRC deals with EV charging electricity separately in its VAT guidance, and business/private use and the identity of the recipient of the electricity supply need to be considered.

Can my company recover VAT on home charging?

Under HMRC’s currently published position, where an employee charges an EV at home, the electricity is supplied to the employee rather than the employer, so the employer cannot recover that VAT.

Are EV grants still available?

Yes. Eligible new cars can currently qualify for the Electric Car Grant, with maximum discounts of £3,750 or £1,500, depending on the vehicle’s grant band.

Are charger grants still available?

Yes. The Workplace Charging Scheme currently offers up to 75% of eligible costs, capped at £500 per socket for up to 40 sockets, subject to eligibility.

Can my company pay 55p per mile if I own an EV personally?

Yes, for the first 10,000 qualifying business miles in 2026/27 under the AMAP rules. The rate then falls to 25p.

New Doesn’t Automatically Mean Better

There is a very compelling tax case for a qualifying new company EV:

100% FIRST-YEAR ALLOWANCE

4% BIK

POTENTIAL EV GRANT

POTENTIAL CHARGEPOINT SUPPORT.

But:

TAX RELIEF DOESN’T MAKE DEPRECIATION DISAPPEAR.

A two or three-year-old EV might cost £15,000 or £20,000 less than its new equivalent.

And personal ownership has become more competitive because the first 10,000 qualifying business miles can now potentially be reimbursed at:

55P PER MILE.

So the right question isn’t:

“Which option gives me the biggest tax deduction?”

It is:

“WHICH OPTION GIVES ME THE LOWEST WHOLE-LIFE AFTER-TAX COST?”

Bicknell Business Advisers

For owner-managed limited companies, electric cars remain one of the most tax-efficient company-car options available in 2026/27.

But new, second-hand and personally owned EVs can produce very different results.

Before ordering a car, we can compare:

new vs second-hand;
company vs personal ownership;
cash vs HP vs PCP vs lease;
Corporation Tax;
capital allowances;
Benefit in Kind;
Class 1A NIC;
VAT;
grants;
charging;
business mileage;
and expected disposal value.

When you’re spending £30,000, £40,000 or £50,000 on a vehicle, doing the calculation before you buy it can be considerably more useful than working out the tax consequences afterwards.

More Company Car & Vehicle Tax Guides

Buy, HP, PCP or Lease a £50,000 Car Through Your Business?

Compare cash purchase, finance, PCP, leasing and personal ownership.

Hire Purchase, PCP & Leasing – Capital Allowances & Tax

How the method of finance changes the tax and accounting treatment.

Is It a Van or a Car for Tax?

Double-cab pickups, crew vans, Benefit in Kind, capital allowances and VAT explained.

About the Author

Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, landlord tax planning, SDLT, Capital Gains Tax and property company structures throughout the UK.

Buy, HP, PCP or Lease a £50,000 Car Through Your Business?

Buying a £50,000 business car? Compare cash, HP, PCP, leasing and personal ownership, including EV tax relief, VAT, BIK, salary sacrifice and 2026 mileage rates.

Limited Company vs Self-Employed – Tax, VAT, Benefit in Kind & Capital Allowances Explained for 2026/27

By Steve Bicknell FCMA, CGMA

Business owners ask us about cars all the time.

You have found the car you want.

It costs:

£50,000

Now comes the difficult question:

WHAT IS THE MOST TAX-EFFICIENT WAY TO GET IT?

Should your limited company:

buy it outright?
use Hire Purchase?
take a PCP?
lease it?
buy a new electric car?
buy a second-hand electric car?

Or would you actually be better buying the car personally and claiming business mileage?

The answer isn’t simply:

“Put the car through the company and claim the tax.”

How the vehicle is financed, its CO₂ emissions, whether it is new or second-hand, how much private use there is, and whether you operate through a limited company or are self-employed can completely change the answer.

And the 2026/27 rules contain some important changes.

Company Cars Are Making a Comeback – And Half Are Electric

Company cars certainly haven’t disappeared.

HMRC’s latest official statistics estimate that 920,000 people received company-car benefit in 2024/25, up from 840,000 in the previous year.

That represents an increase of:

80,000 COMPANY-CAR RECIPIENTS IN ONE YEAR

But the type of company car has changed dramatically.

In 2024/25:

51% of reported company cars were fully electric
around 467,000 company-car recipients had zero-emission cars
693,000 company cars had emissions of 74g/km or less
diesel cars represented only 7% of company cars
average reported company-car emissions had fallen to 41g/km

HMRC’s figures are provisional for 2024/25, but the direction is striking.

That helps explain why the question:

“SHOULD MY COMPANY BUY ME AN ELECTRIC CAR?”

has become so common.

But before deciding which car to buy, we should first determine who should own it and how it should be financed.

£50,000 Car – Quick Answer

There is no single winner.

But some useful starting points are:

NEW ELECTRIC CAR

Potentially very attractive through a limited company because a qualifying new and unused zero-emission car can currently obtain a 100% first-year capital allowance.

The 2026/27 company-car Benefit in Kind percentage is also only:

4%

SECOND-HAND ELECTRIC CAR

Still benefits from the low electric-car BIK percentage, but it doesn’t receive the same 100% first-year capital allowance.

It instead falls into the main-rate capital allowance regime.

PETROL OR DIESEL CAR

Can be considerably less attractive through a company if there is private availability, because company-car BIK percentages can reach:

37%

in 2026/27.

HP

Normally represents acquisition of the car using finance.

The repayments themselves aren’t simply deducted as a monthly business expense: capital allowances and finance costs need to be considered separately.

PCP

The precise tax treatment depends on the actual agreement.

Don’t decide the accounting or tax treatment simply because the paperwork says PCP.

LEASE

The business normally obtains tax relief for lease rentals rather than claiming capital allowances on the car.

VAT treatment can also be more favourable than outright purchase.

PERSONAL OWNERSHIP + MILEAGE

This has become more attractive since 6 April 2026, because the approved rate for the first 10,000 qualifying business miles increased to:

55p PER MILE

The First Decision Isn’t HP or PCP

Before deciding how to finance the vehicle, ask:

WHO SHOULD OWN THE CAR?

There are really two decisions.

Decision 1

Business/company car or personally owned car?

Then:

Decision 2

Cash, HP, PCP or lease?

Those decisions are often approached in the wrong order.

Our £50,000 Example

We’ll compare:

OPTION 1

Business buys for cash

OPTION 2

Hire Purchase

OPTION 3

PCP

OPTION 4

Lease / contract hire

OPTION 5

Personal ownership + business mileage

But there is another factor capable of completely changing the result:

WHAT TYPE OF CAR IS IT?

So we also need to compare:

£50,000 NEW ELECTRIC CAR

£50,000 SECOND-HAND ELECTRIC CAR

£50,000 PETROL/DIESEL CAR

New Electric Car – 100% Capital Allowance

For qualifying new and unused zero-emission cars, the business can currently claim:

100% FIRST-YEAR ALLOWANCE

HMRC’s current business-car rules distinguish these cars from other vehicles.

So if Consultancy 4 Business Ltd buys a qualifying new EV for:

£50,000

potential qualifying first-year allowance:

£50,000

If the company is paying Corporation Tax at 25%, a simplified illustration gives:

£50,000 × 25%

£12,500 CORPORATION TAX SAVING

subject to sufficient taxable profits and the company’s circumstances.

That is a very powerful tax incentive.

Second-Hand EV – Very Different Capital Allowances

Now change just one thing.

The £50,000 electric car is second-hand.

It does not receive the special 100% first-year allowance available to a qualifying new EV.

Instead it falls into the main-rate capital allowance regime. HMRC’s current main-pool WDA is:

14%

from April 2026.

So a simple first-year illustration would be:

£50,000 × 14%

£7,000 CAPITAL ALLOWANCE

Compare:

New qualifying EV

£50,000

Second-hand EV

£7,000 first-year WDA

That is a major difference in the timing of tax relief.

It doesn’t necessarily make the second-hand EV commercially worse — depreciation and purchase price still matter — but:

ELECTRIC DOESN’T AUTOMATICALLY MEAN 100% TAX RELIEF

Higher-Emission Car

A higher-emission vehicle may fall into the special-rate pool.

The current special-rate WDA remains:

6%

So on £50,000:

£50,000 × 6%

£3,000

of first-year WDA in a straightforward illustration.

The capital allowance contrast can therefore be enormous.

£50,000 Car	Illustrative First-Year Capital Allowance
Qualifying new zero-emission car	£50,000
Second-hand electric / qualifying main-rate car	£7,000
Higher-emission special-rate car	£3,000

The actual result depends on the specific vehicle and period, but this demonstrates why the emissions and whether the car is new matter so much.

Capital Allowances Are Only Half the Story

A company might get excellent tax relief on acquiring the car.

But if it is available to the director for private use, the director can simultaneously have a:

COMPANY-CAR BENEFIT IN KIND

And private use includes ordinary commuting.

So we need to compare:

COMPANY TAX SAVING

against:

PERSONAL TAX COST

£50,000 Electric Company Car – 2026/27 BIK

For a zero-emission company car, the 2026/27 appropriate percentage is:

4%

Assume the relevant list price is £50,000.

£50,000 × 4%

£2,000 TAXABLE BENEFIT

Illustrative personal tax:

Tax rate	Annual Income Tax
20%	£400
40%	£800
45%	£900

The employer also has Class 1A NIC to consider.

That’s one reason electric company cars remain attractive.

EV Company-Car Tax Will Rise

The percentage doesn’t stay at 4%.

For zero-emission company cars:

2026/27

2027/28

The government’s published policy continues increasing the electric-car percentages thereafter.

So if you’re considering a three- or four-year finance agreement:

Don’t calculate the whole deal using today’s BIK percentage.

Compare a £50,000 Petrol Car

A sufficiently high-emission car can attract the maximum 2026/27 percentage of:

37%

£50,000 × 37%

£18,500 TAXABLE BENEFIT

For a 40% taxpayer:

£18,500 × 40%

£7,400 INCOME TAX PER YEAR

Compare that with the £800 illustrative tax on our £50,000 EV.

Same £50,000 list price.

Very different personal tax cost.

Option 1 – Buy the Car for Cash

The business pays:

£50,000

and acquires the vehicle.

Potential advantages:

no finance interest;
no monthly finance commitment;
business owns the vehicle;
potential capital allowances;
potentially 100% FYA for a qualifying new EV.

Potential disadvantages:

major immediate cash outflow;
company bears depreciation risk;
VAT on an ordinary car purchase is usually difficult to recover;
company-car BIK arises if available privately.

Can the Business Reclaim VAT When Buying a Car?

This is often misunderstood.

For an ordinary business car which is available for private use:

INPUT VAT ON PURCHASE IS NORMALLY BLOCKED

Full recovery typically requires the circumstances to meet one of the specific exceptions, including genuinely excluding private availability.

The test isn’t merely:

“I hardly use it privately.”

There needs to be a strong basis for saying that it is not available for private use.

Option 2 – Hire Purchase

Under a typical HP arrangement:

Deposit

↓

Monthly payments

↓

Ownership passes / is acquired under the agreement

For tax purposes, don’t simply put the whole HP repayment through as:

Motor expense

The capital part relates to the acquisition of the vehicle.

The relevant capital allowance treatment therefore needs considering.

The finance/interest element is treated separately.

For a qualifying new zero-emission vehicle, the capital allowance position can make HP particularly interesting because the tax relief may arise much more quickly than the corresponding cash payments.

Option 3 – PCP

PCP is popular because it can reduce the monthly payment.

Typically:

Deposit

↓

Monthly payments

↓

Large final / balloon payment

Then the customer can often:

pay the balloon and keep the vehicle;
hand it back;
or use any equity towards another car.

But:

PCP DOESN’T AUTOMATICALLY MEAN LEASE

The actual contractual terms matter.

Questions include:

Is ownership expected to transfer?
How significant is the purchase option?
Who carries residual-value risk?
Is this effectively financing an acquisition?
Or is it fundamentally a hire arrangement?

So I would always suggest giving the actual PCP agreement to your accountant rather than simply saying:

“It’s on PCP.”

Option 4 – Lease / Contract Hire

Suppose instead the business leases the vehicle.

For example:

Initial rental

£4,500

Monthly rental

£750 + VAT

Term

36 months

End

Car returned to leasing company.

The business isn’t normally claiming ordinary capital allowances on the car because it doesn’t own it.

Instead, it claims the relevant lease-rental expense.

For higher-emission leased cars, a tax restriction can apply to part of the rental cost.

Leasing Has an Important VAT Advantage

Buying and leasing can produce very different VAT outcomes.

Where a car is leased and used partly privately, the standard restriction generally blocks:

50% OF THE VAT ON THE LEASE RENTALS

meaning the remaining VAT may potentially be recovered subject to the normal rules.

That is often considerably better than buying an ordinary company car where purchase VAT is completely blocked.

So if the lease is:

£750 + £150 VAT

potentially:

£75

of the VAT may be recoverable under the normal 50% car-leasing restriction, assuming full business VAT recovery otherwise.

Don’t Treat Maintenance the Same as the Car Rental

If a lease invoice separately identifies:

maintenance;
servicing;
other charges,

those items can have different VAT consequences.

So don’t simply apply:

50% VAT RECOVERY

to everything on the invoice without checking what it relates to.

£50,000 Car – Buy vs HP vs PCP vs Lease

Issue	Cash	HP	PCP	Lease
Large upfront cash cost	High	Lower	Lower	Lower
Business ownership	Yes	Usually acquisition route	Depends on agreement	Usually no
Capital allowances	Yes	Potentially yes	Depends on substance	Usually not claimed by lessee
New EV 100% FYA	Potentially	Potentially	Depends on arrangement	Rental deduction instead
Finance cost	None	Yes	Yes	Included in rent
Purchase VAT with private use	Usually blocked	Usually blocked	Depends on structure	N/A as purchase
Lease VAT recovery	N/A	N/A	Depends	Normally 50% block
Company-car BIK	Yes	Yes	Yes	Yes
Residual-value risk	Business	Business	Contract dependent	Lessor
Own vehicle at end	Yes	Usually	Optional	No

The key point is:

FINANCE METHOD DOESN’T ELIMINATE BIK

If the company provides the car and it is available privately, changing the funding method generally doesn’t remove the company-car benefit.

Option 5 – Buy Personally and Claim Mileage

Sometimes the most tax-efficient company car is:

NO COMPANY CAR AT ALL

The director buys the vehicle personally.

Then the company reimburses qualifying business mileage.

For 2026/27 HMRC’s approved mileage rate for cars and vans is:

First 10,000 business miles

55p PER MILE

Over 10,000

25p PER MILE

At 10,000 business miles:

10,000 × 55p

£5,500

potentially reimbursable under the approved mileage regime.

And because it isn’t a company car:

NO COMPANY-CAR BIK

Limited Company vs Self-Employed

The position differs for a sole trader.

Issue	Limited Company	Self-Employed
Separate company owns car	Yes	No separate legal owner
Company-car BIK	Potentially yes	No BIK on proprietor
Private use	BIK consequence	Restricts business claim
Capital allowances	Company claims	Trader claims with private-use restriction
Personally owned mileage route	AMAP reimbursement	Simplified mileage may be available
First 10,000 miles 2026/27	55p	55p
VAT	Depends on use/transaction	Same broad VAT principles

A sole trader may therefore compare:

Actual vehicle costs + capital allowances

against:

Simplified mileage

subject to the relevant rules.

Again:

LIMITED COMPANY ≠ SELF-EMPLOYED

Salary Sacrifice – Does It Still Work for Cars?

Yes — but the rules are particularly favourable for low-emission cars.

Normally, the Optional Remuneration Arrangement rules can tax a benefit based on the higher of:

salary sacrificed; or
normal BIK value.

However, HMRC specifically excludes cars with CO₂ emissions of:

75g/km OR LESS

from those normal OpRA comparison rules.

They continue to be taxed under the normal company-car benefit calculation.

That means salary sacrifice can remain particularly attractive for electric cars.

For example:

Employee sacrifices

£600 monthly salary

in exchange for:

Electric company car

The taxable benefit can still be based on the normal EV company-car rules rather than simply taxing the £7,200 salary foregone.

But salary sacrifice must be a genuine contractual arrangement.

It needs to be put in place before the salary is earned, and employers need to consider:

National Minimum Wage;
pensionable pay;
statutory pay;
employment contracts;
employee leaving;
early termination;
insurance;
excess mileage.

It isn’t simply:

“We bought a car, so let’s retrospectively call it salary sacrifice.”

Personally Borrowing Money to Fund the Company Car?

This is another area where directors can accidentally blur the company/personal boundary.

Suppose the bank will only lend personally to the director.

The director borrows:

£50,000

personally and then puts the money into the company.

Don’t simply record the bank loan as:

Company car finance

The borrower is the individual.

The company and director are separate legal persons.

Usually, the accounting needs to reflect that the director has lent money to the company.

Could the Director Claim Tax Relief on Their Personal Interest?

Potentially.

Income Tax relief can be available where an individual borrows money and lends it to a qualifying close company for use wholly and exclusively in its business, subject to detailed eligibility conditions including the individual’s shareholding/working relationship and capital-recovery rules.

So before assuming the personal interest cost is simply lost:

CHECK QUALIFYING LOAN INTEREST RELIEF

Or Could the Company Pay the Director Interest?

Potentially.

If the director lends money to the company and charges it interest:

the interest can be a business expense for the company, subject to the usual rules;
it is personal taxable income for the director;
the company normally pays the interest net of 20% Income Tax;
and accounts for that tax quarterly using Form CT61.

This does not mean charging interest is always preferable to claiming personal qualifying-loan interest relief.

They are different structures.

The point is:

Decide what the financing arrangement actually is before putting the car through the accounts.

Private Fuel – Another Tax Charge

Company car and company fuel are separate benefits.

If the employer pays for private petrol or diesel and the employee does not fully reimburse it, a separate fuel benefit can arise.

This can be surprisingly expensive.

So:

“The company already owns the car, so it might as well pay for all my fuel.”

can be a costly assumption.

Always calculate the separate fuel-benefit position.

VAT on Fuel – Road Fuel Scale Charges

There is then a completely separate VAT issue.

Suppose a VAT-registered business pays for fuel, recovers input VAT, but the vehicle is also used privately.

One method of accounting for the private element is HMRC’s:

VAT ROAD FUEL SCALE CHARGE

The scale charge is determined by the vehicle’s CO₂ emissions and the VAT accounting period.

HMRC’s current scale applies from:

1 MAY 2026 TO 30 APRIL 2027

Examples for a 12-month VAT accounting period include:

CO₂ emissions	VAT-inclusive annual scale charge	VAT due
120g/km or less	£657	£109.50
150g/km	£1,314	£219.00
175g/km	£1,640	£273.33
200g/km	£1,971	£328.50
225g/km or more	£2,297	£382.83

The important thing is not to confuse:

Company-car fuel Benefit in Kind

with:

VAT road fuel scale charges

They are different tax regimes.

Pool Cars and “No Private Use”

A genuine pool car can avoid normal company-car BIK where all the statutory conditions are met.

But:

CALLING IT A POOL CAR DOESN’T MAKE IT ONE

Similarly, writing:

“No private use permitted.”

in a company policy is useful, but the actual behaviour must support it.

If the car is routinely:

taken home;
allocated to one director;
used at weekends;
available to family members,

the facts may undermine the label.

We will update our separate detailed guides to pool cars and no-private-use policies shortly.

Is It Actually a Car or a Van?

This question comes before much of the above.

HMRC’s tax treatment of cars and vans can differ materially.

This is particularly important for:

double-cab pickups;
crew vans;
combi vehicles;
vehicles with second rows of seats.

Don’t assume:

“The dealer calls it a commercial vehicle.”

means HMRC will necessarily treat it as a van for every tax.

That will be the subject of our next updated vehicle guide.

15 Questions to Answer Before Signing

Before buying or financing the vehicle, establish:

Is it a car or a van for tax?
Who should own it — company or individual?
New or second-hand?
Electric, hybrid, petrol or diesel?
CO₂ emissions?
Electric range if hybrid?
Relevant list price?
Actual purchase price?
Cash, HP, PCP or lease?
Is the business VAT registered?
How much business mileage?
How much private use?
What is the director’s marginal tax rate?
What is the company’s tax position?
What happens at the end of the agreement?

Only then can you properly answer:

WHICH OPTION IS BEST?

£50,000 Car – Broad Conclusions

NEW EV THROUGH LIMITED COMPANY

Often deserves serious consideration because of:

potentially 100% first-year capital allowance;
4% BIK for 2026/27;
business funding;
potentially attractive salary-sacrifice treatment.

SECOND-HAND EV

Still potentially attractive for BIK, but significantly slower capital allowances.

HIGH-EMISSION COMPANY CAR

Can become very expensive because of personal BIK.

HP

Potentially good where you want ownership but want to preserve cash flow.

PCP

Potentially attractive commercially, but the agreement needs reading before deciding its tax/accounting character.

LEASE

Can provide:

predictable cash costs;
no residual-value risk;
possible VAT recovery on rentals;
potentially deductible rentals.

PERSONAL OWNERSHIP

Should always be modelled, especially now that:

10,000 BUSINESS MILES = £5,500

under the 2026/27 approved mileage rate.

12 Common Car Tax Mistakes

Assuming every EV gets 100% first-year allowances.
Forgetting the difference between new and second-hand EVs.
Using purchase price instead of list price for BIK.
Treating all HP repayments as expenses.
Assuming all PCP agreements have identical tax treatment.
Assuming company payment means VAT is reclaimable.
Forgetting the normal 50% VAT block on leased-car rentals.
Ignoring company-car BIK because the car is “mainly business”.
Calling a director’s vehicle a pool car without meeting the conditions.
Forgetting the separate private-fuel benefit and VAT fuel rules.
Treating the director’s personal bank loan as though the company borrowed it.
Failing to compare everything with personal ownership + mileage.

Frequently Asked Questions

Can my company buy me a £50,000 car?

Yes, but whether it is tax-efficient depends on the car, finance, emissions and private use.

Does a new electric car get 100% tax relief?

A qualifying new and unused zero-emission car can currently qualify for a 100% first-year capital allowance.

What about a second-hand electric car?

It does not normally get that same 100% EV first-year allowance and instead falls into the main-rate capital allowance rules.

What is the EV company-car rate in 2026/27?

4%.

Can I claim VAT on a company car?

Usually not on a purchased car available for private use. Specific exceptions exist.

Can I claim VAT on a lease?

Where the standard car-leasing restriction applies, 50% of the VAT on the leasing charge is normally blocked.

Can PCP be claimed as a monthly expense?

Not automatically. The precise terms of the agreement need to be reviewed.

Can my company pay me mileage instead?

Yes, where you own the vehicle personally and make qualifying business journeys. The first 10,000 business miles are now 55p per mile for 2026/27.

Does electric-car salary sacrifice still work?

Yes. Cars emitting no more than 75g/km are excluded from the normal OpRA salary-foregone comparison and remain taxed under the normal company-car benefit rules.

What if I borrow personally and lend the money to my company?

Treat the personal loan and director-to-company loan as separate transactions. Qualifying loan interest relief and/or company-paid interest may need consideration depending on the circumstances.

Bicknell Business Advisers’ Car Decision

Before signing anything:

CAR OR VAN?

↓

COMPANY OR PERSONAL?

↓

NEW OR SECOND-HAND?

↓

EV / HYBRID / PETROL / DIESEL?

↓

CASH / HP / PCP / LEASE?

↓

CAPITAL ALLOWANCES OR RENTALS?

↓

VAT?

↓

PRIVATE USE + BIK?

↓

FUEL?

↓

55p MILEAGE ALTERNATIVE?

↓

END-OF-AGREEMENT POSITION?

Then:

BUY THE CAR

Bicknell Business Advisers’ Advice

The worst time to ask:

“What’s the best tax treatment?”

is after the car has already been bought.

The better approach is to send us:

vehicle quote;
list price;
CO₂ figure;
finance quotation;
PCP/HP agreement;
lease quote;
expected mileage;
estimated private use.

Then compare the options before signing.

For a £50,000 car, the tax difference between:

new EV,

second-hand EV,

high-emission company car,

lease,

and:

personally owned vehicle + mileage

can run into thousands of pounds.

How We Can Help

At Bicknell Business Advisers, we help company directors, business owners and the self-employed compare vehicle options before committing to the purchase.

We can review:

company vs personal ownership;
cash purchase;
Hire Purchase;
PCP;
leasing;
new vs second-hand EV;
petrol/diesel/hybrid;
Corporation Tax;
Income Tax;
capital allowances;
VAT;
Benefit in Kind;
salary sacrifice;
qualifying loan interest;
CT61 interest;
business mileage;
fuel; and
disposal/return of the vehicle.

For a substantial vehicle purchase, doing the calculation before signing the finance agreement can make a very significant difference.

About the Author

Should Your Limited Company Pay You Rent for a Home Office?

Tax, VAT, Planning, Capital Allowances and FRS 102 Explained

By Steve Bicknell FCMA, CGMA

If you run your limited company from home, you may already know about the familiar:

£6 per week / £312 per year

Homeworking reimbursement.

It is simple, potentially tax-free and involves very little administration.

But what if your company makes much greater use of your home?

Could you charge your company a commercial rent for using part of the property as an office?

Potentially, yes.

And the opportunity can go considerably further than simply replacing £312 with a larger payment.

Your company might also:

buy computers and office equipment;
claim capital allowances;
recover VAT where appropriate; and
obtain Corporation Tax relief on qualifying expenditure.

But creating a more formal home-office arrangement also introduces other questions:

Is the rent taxable personally?
What household costs can you claim?
Could it affect Private Residence Relief when you sell your home?
Does your mortgage lender need to agree?
Could business rates apply?
Do you need planning permission?
Would a Certificate of Lawfulness be useful?
What about insurance?
And, under the revised FRS 102 rules, does the home-office agreement need to appear on your company’s balance sheet as a lease?

That last point is particularly interesting because relatively few discussions of directors charging their companies home-office rent consider the new FRS 102 lease accounting rules.

The right question therefore isn’t simply:

“How much rent can I get out of my company?”

It is:

“What is the most tax-efficient and commercially sensible way for my company to use my home?”

Home Office Rent – Quick Answer

Yes. A director can potentially charge their limited company commercial rent for genuine business use of part of their home.

The company may obtain a Corporation Tax deduction.

The director normally reports the rent as property income and deducts allowable expenses when calculating the taxable profit.

But the arrangement can also affect:

VAT + CAPITAL ALLOWANCES + CGT + PLANNING + BUSINESS RATES + FRS 102

So it needs to be considered as a complete arrangement rather than simply another method of extracting cash.

£312 or Home-Office Rent?

Here’s the basic comparison:

	£312 Homeworking Reimbursement	Home-Office Rent
Potential amount	£312 p.a.	Potentially much higher
Tax on director	Potentially tax-free	Taxable property income
Corporation Tax deduction	Yes	Potentially yes
Household costs against rent	N/A	Potentially yes
Rental agreement	No	Advisable
Property income reporting	No	Potentially yes
CGT/PRR considerations	Minimal	Needs consideration
Planning/property issues	Usually limited	Potentially greater
FRS 102 lease issue	No	Potentially yes
Administration	Very low	Higher

For many directors, £312 wins on simplicity.

But where the company genuinely occupies valuable workspace within the home, a commercial rental arrangement may produce a significantly better overall result.

Who Should Consider Charging Their Company Rent?

This is most worth considering where:

you work predominantly from home;
your company genuinely uses a dedicated room or substantial workspace;
meaningful household costs relate to that use;
business equipment or records are stored there;
the company buys substantial office equipment; or
£312 bears little relationship to the actual commercial value of the facilities being provided.

If you occasionally answer emails from the kitchen table, a formal rental arrangement may be unnecessary.

Option 1 – Keep It Simple: £312 a Year

Where the relevant conditions are satisfied, the company can reimburse qualifying additional homeworking expenses.

HMRC’s guideline rate is:

£6 per week

or:

£26 per month

giving:

£312 per year

For many owner-managed companies this remains attractive:

Company: potential Corporation Tax deduction

Director: potentially £312 tax-free

Administration: minimal

And importantly:

No rent + no property income + no rental agreement

We’ve previously looked at this in:

HMRC Update: New Evidence Rules for £312 Working From Home Allowance

That article has been one of our most popular recent working-from-home tax guides.

But £312 is still only £312.

What if your company genuinely uses substantially more of your home?

Option 2 – Charge Your Company Commercial Rent

Suppose your company regularly uses one room within your house as its office.

You could potentially put an agreement in place allowing the company to use that space and pay you rent.

The rent should reflect:

GENUINE BUSINESS USE + A REASONABLE COMMERCIAL AMOUNT

The basic mechanics become:

YOUR COMPANY

Pays rent

↓

Potential Corporation Tax deduction

YOU

Receive property income

↓

Deduct qualifying expenses

↓

Pay Income Tax on the resulting property profit

This is fundamentally different from the £312 reimbursement.

Worked Example – £312 or £4,800 Rent?

Let’s use our fictional example:

Consultancy 4 Business Ltd

The director works predominantly from home and one room is regularly used for the company’s business.

After considering comparable local office space and the facilities being provided, a reasonable commercial rent is established at:

£400 per month

Annual rent:

£4,800

Suppose allowable household expenditure reasonably attributable to the arrangement amounts to:

£1,800

The personal property-income calculation is:

	Amount
Rent received	£4,800
Allowable expenses	(£1,800)
Property profit	£3,000

Now assume, purely for illustration, that Consultancy 4 Business Ltd obtains Corporation Tax relief at 25%.

Company tax saving:

£4,800 × 25% = £1,200

If the £3,000 property profit is taxed at the new 22% property basic rate from April 2027:

£3,000 × 22% = £660

Simplified tax difference:

£1,200 company tax saving

less

£660 personal tax

£540

before taking account of the wider circumstances.

This is deliberately simplified.

The actual result could be affected by:

the company’s Corporation Tax rate;
your other income;
property tax bands;
mortgage finance costs;
jointly owned property;
allowances;
dividends; and
your wider profit-extraction strategy.

But it demonstrates why this can be worth calculating.

Property Income Tax Changes From April 2027

There is another reason the numbers need modelling carefully.

From 6 April 2027, property income will have separate Income Tax rates of:

22%
42%
47%

in England, Wales and Northern Ireland.

So the relevant comparison isn’t simply:

£312 versus £4,800

It is:

COMPANY TAX SAVING versus PERSONAL PROPERTY TAX

How Much Rent Can You Charge?

Not:

“Whatever amount saves the most tax.”

The rent needs to be commercially supportable.

Relevant factors can include:

size of the workspace;
floor area;
facilities;
storage;
parking;
hours and days of use;
utilities provided;
broadband;
local office rents;
serviced-office alternatives; and
restrictions placed on you as homeowner.

Keep evidence.

That might include:

floor plan + local rental comparables + bills + calculation + written agreement

The target is:

REASONABLE + COMMERCIAL + EVIDENCED

How Do You Determine a Market Rent for a Home Office?

There is no HMRC table telling directors that a bedroom used as an office is worth £200, £300 or £500 per month.

The rent should instead be a reasonable commercial figure based on the space and facilities actually being provided to the company.

A sensible approach is to start by looking at comparable workspace in your area, such as:

small serviced offices;
individual office rooms;
coworking/private-office space;
small commercial units; and
similar workspace advertised locally.

Then adjust for the fact that a room within your home is not necessarily equivalent to a fully serviced commercial office.

Consider factors such as:

floor area;
location;
dedicated storage;
parking;
broadband and utilities;
access arrangements;
days and hours available to the company;
whether clients or staff can attend;
kitchen/toilet facilities; and
whether the room retains genuine domestic use.

For example, suppose comparable local office space costs £500 per month, but your company is only obtaining use of a room within your home, without independent access, reception facilities or exclusive 24-hour occupation.

A reasonable home-office rent might therefore be materially less than £500.

The important thing is to retain evidence showing how you arrived at the figure.

I would keep:

1. Local comparable rents

Screenshots or copies of local office and serviced-office advertisements.

2. Floor-area calculation

For example, the office represents 12% of the usable floor area of the house.

3. Facilities provided

Broadband, heating, electricity, furniture, parking and storage.

4. Restrictions on use

For example, no independent entrance, no client meetings or continuing domestic use.

5. A written calculation

Keep a short note with the rental agreement explaining why the agreed rent is commercially reasonable.

The aim is not to produce a formal RICS valuation for every spare bedroom.

It is to be able to demonstrate that the rent was arrived at commercially rather than simply being chosen to maximise a tax deduction.

Bicknell Business Advisers’ Tip: Review the rent periodically. A figure that was commercially reasonable when an agreement began may not remain appropriate indefinitely.

What Household Costs Can Be Considered?

Depending upon the circumstances, potentially relevant expenditure could include an appropriate share of:

electricity;
heating;
water;
council tax;
insurance;
broadband;
repairs;
cleaning; and
other appropriate household costs.

The method of apportionment needs to be reasonable.

You might consider:

ROOMS × FLOOR AREA × TIME USED

depending upon the circumstances.

Where a room has mixed use, both the business and private use need to be reflected.

Rent-a-Room Relief Doesn’t Normally Solve It

This is a common misconception.

The £7,500 Rent-a-Room Scheme relates to residential accommodation.

It doesn’t simply make business office rent paid by your company tax-free.

So:

“I’ll charge the company £7,500 and claim Rent-a-Room Relief.”

is generally not the answer for home-office accommodation.

Let the Company Equip the Office

This is an important additional opportunity.

Your company might require:

computers;
monitors;
printers;
desks;
chairs;
filing cabinets;
telephone equipment;
networking equipment; and
other business equipment.

Rather than buying everything personally from after-tax income, it may make more sense for the:

COMPANY TO BUY AND OWN THE EQUIPMENT

Capital Allowances on Home-Office Equipment

Qualifying expenditure on plant and machinery can potentially attract capital allowances.

Normal office equipment might include:

Computers

Monitors

Desks

Office chairs

Printers

Networking equipment

Depending upon the circumstances, the Annual Investment Allowance may provide 100% relief for qualifying expenditure.

But distinguish between:

EQUIPPING AN OFFICE

and:

BUILDING AN OFFICE

Buying a £2,000 computer is very different from spending £30,000 constructing a building in your garden.

That’s an important enough subject for a separate article:

Can Your Limited Company Pay for a Garden Office?

We’ll look at the tax, VAT, capital allowance, benefit-in-kind, CGT and planning issues separately.

VAT Can Make Company Purchases More Attractive

Suppose Consultancy 4 Business Ltd is VAT registered.

The company buys:

Item	Net	VAT
Computer	£2,000	£400
Monitors	£1,000	£200
Desk/equipment	£1,500	£300
Total	£4,500	£900

If the purchases relate properly to the company’s taxable business activities and the usual VAT recovery conditions are satisfied:

Potential VAT recovery = £900

There may then also be tax relief through capital allowances on qualifying expenditure.

The cleanest evidence trail is usually:

COMPANY PURCHASE → COMPANY INVOICE → COMPANY ASSET → BUSINESS USE

Where there is significant private use, VAT and benefit-in-kind implications require separate consideration.

Planning – Can You Actually Run the Business From Home?

This is one of the most easily overlooked issues.

Tax relief does not give you planning permission.

A home-office arrangement could make complete sense for:

Corporation Tax;
VAT;
property income; and
accounting

but still create a separate planning issue.

The broad question is:

Does the property remain primarily a home, or has the business activity materially changed its character?

When Could Planning Permission Become Relevant?

There isn’t a simple:

one room = fine

two rooms = planning application

rule.

It depends on the facts and degree of use.

Warning signs can include:

employees attending regularly;
customers visiting;
frequent commercial deliveries;
increased traffic;
parking problems;
signage;
noise;
substantial storage;
alterations;
unusual business hours; or
a significant part of the house ceasing to function domestically.

Compare these examples.

Example 1 – Professional Working From Home

One director.

Computer-based work.

No employees.

No clients visiting.

No signage.

No significant deliveries.

The property remains overwhelmingly a home.

Example 2 – Home Becoming Business Premises

Five employees attend every weekday.

Clients visit throughout the day.

Vans regularly make deliveries.

Several rooms are permanently offices.

There is signage and increased parking.

That is much more likely to require planning consideration.

What If You’re Unsure? Certificate of Lawfulness

Where you believe the proposed home-business use does not require express planning permission, but you want greater certainty, you may be able to apply for a:

Certificate of Lawfulness of Proposed Use or Development

often referred to as a:

Lawful Development Certificate

or:

CLOPUD

This isn’t the same as asking the council for planning permission.

Instead, you are effectively asking:

“Based on the proposed facts, would this use be lawful without a separate planning permission?”

If granted, the certificate can provide useful evidence of the planning position.

What Should the Certificate Application Explain?

A useful application may need to explain matters such as:

which part of the property will be used;
nature of the business;
number of people working there;
working hours;
whether clients visit;
deliveries;
parking;
signage;
noise;
storage;
alterations; and
whether the space remains capable of domestic use.

The important point is that the certificate relates to the facts actually described.

If you obtain confirmation based on:

One director, no staff, no customers

but the business later develops into:

Five employees and regular customer visits

you shouldn’t simply assume the original certificate covers the changed circumstances.

What About Neighbours and Planning Notices?

Lawful Development Certificates are sometimes confused with conventional planning applications.

There isn’t generally the same statutory neighbour-consultation process as for a normal planning application.

However, the planning authority can seek evidence from neighbours or other parties if it considers that information relevant to determining whether the proposed use is lawful.

So the important thing is to provide a clear and accurate description of the proposed activity.

Why Could a Certificate of Lawfulness Be Useful?

It can potentially help later when dealing with:

sale of the house;
purchaser’s solicitor;
mortgage lender;
neighbour complaint;
planning enquiry; or
possible enforcement concerns.

It may therefore be worth considering where the business use is more substantial than simply working occasionally from a spare room, but you believe it remains lawful without express planning permission.

Check Your Mortgage

Don’t forget the lender.

A residential mortgage could contain restrictions concerning:

business use;
commercial occupation;
leases or licences;
subletting;
alterations; or
granting rights over part of the property.

This becomes particularly relevant once you propose signing an agreement granting your company rights over the home.

Tax efficiency doesn’t override your mortgage conditions.

Check Your Insurance Too

Your household insurance may not automatically cover all business use.

Potential issues include:

company-owned computers;
stock;
equipment;
employees;
customers visiting; and
additional liability risks.

Make sure the insurer has enough information to ensure the appropriate cover remains in place.

Could Business Rates Apply?

Potentially.

A normal small home office does not automatically become separately rateable business premises.

But the risk increases where the area is clearly separated and used commercially.

Relevant factors could include:

exclusive business use;
physical alteration;
employees;
customers;
signage; and
separation from the domestic accommodation.

A useful general principle is:

MORE COMMERCIAL OCCUPATION = MORE PROPERTY CONSEQUENCES

Don’t Accidentally Create a CGT Problem

Private Residence Relief normally protects the gain on your main home.

But where part of the property is used exclusively for business, relief can potentially be restricted on that part.

That is why the agreement should reflect reality.

A room used:

Monday-Friday as an office and genuinely as a spare room at other times

may be very different from:

a permanently exclusive company office

The attached material similarly highlights the distinction between mixed use and exclusive business use for Private Residence Relief purposes.

Don’t manufacture artificial personal use.

But equally:

Don’t give the company more exclusive rights than it genuinely needs.

This matters for:

CGT + PLANNING + FRS 102

The New FRS 102 Home-Office Lease Issue

This is where I think the article becomes particularly distinctive.

For accounting periods beginning on or after:

1 JANUARY 2026

FRS 102 Section 20 introduced a substantially revised lessee-accounting model.

Previously, a straightforward operating lease might simply produce:

Profit & Loss Account

Rent expense

Balance Sheet

No corresponding lease asset or lease liability.

Under revised FRS 102, many qualifying leases are brought onto the lessee’s balance sheet.

The company may recognise:

RIGHT-OF-USE ASSET

and:

LEASE LIABILITY

The supporting accounting analysis identifies the same right-of-use model and replacement of straight rental expense with depreciation and interest for most FRS 102 lessee arrangements.

Calling It a Licence Doesn’t Necessarily Stop It Being a Lease

Suppose the document is headed:

Home Office Licence to Occupy

That doesn’t automatically determine the accounting treatment.

FRS 102 looks at the substance of the arrangement.

If your company obtains the right to control use of an identified asset for a period in exchange for consideration, the arrangement could contain a lease.

For example:

“The first-floor study measuring 14 square metres”

is much more clearly an identified asset than a general permission:

“The company may use suitable workspace somewhere within the house as available.”

The underlying analysis similarly notes that identifying and controlling a particular room can cause a home-office arrangement to fall within revised Section 20 even if the document is called a licence.

FRS 102 Worked Example – Consultancy 4 Business Ltd

Let’s use the same company.

Consultancy 4 Business Ltd enters into an arrangement for use of an identified room.

Assume:

Monthly payment

£400

Lease term

3 years

Number of payments

Total contractual payments:

£400 × 36 = £14,400

Now assume, purely for illustration:

Discount rate = 5% per annum

The precise rate would need to be determined under the requirements of FRS 102.

The present value of the payments is approximately:

£13,350

Assuming no material initial direct costs, incentives or prepayments, the opening accounting entry might therefore be approximately:

Debit

Right-of-use asset £13,350

Credit

Lease liability £13,350

Nothing about the monthly £400 cash payment has changed.

But the accounting has.

What Happens in Year One?

Assume the right-of-use asset is depreciated evenly over three years.

Opening ROU asset

£13,350

divided by:

3 years

gives approximate annual depreciation of:

£4,450

The lease liability also attracts interest.

Using our simplified 5% assumptions and monthly payments, first-year interest would be approximately:

£580

So instead of the Profit & Loss Account simply showing:

Rent expense £4,800

it may approximately show:

Year 1 charge	Amount
Depreciation	£4,450
Finance/interest expense	£580
Total approximate P&L charge	£5,030

Meanwhile, cash paid remains:

£4,800

This illustrates the front-loading effect of lease interest.

What Could Consultancy 4 Business Ltd’s Balance Sheet Show?

At commencement:

Right-of-use asset

£13,350

Lease liability

£13,350

After roughly one year:

ROU asset

£13,350

less depreciation £4,450

£8,900

The remaining lease liability might be approximately:

£9,130

depending on the exact amortisation calculation.

The accounts might therefore contain approximately:

Fixed / Non-Current Assets

Right-of-use property asset:

£8,900

Creditors – amounts falling due within one year

Lease liability:

approximately £4,400

Creditors – amounts falling due after more than one year

Lease liability:

approximately £4,700

The precise current/non-current split would come from the full lease amortisation schedule.

Same £400 a Month – Different Accounts

This is perhaps the simplest way of understanding the new rules.

	Old Operating Lease Treatment	Revised FRS 102
Cash rent paid	£4,800	£4,800
Rent expense	£4,800	—
Depreciation	—	~£4,450
Interest	—	~£580
Right-of-use asset	No	Yes
Lease liability	No	Yes
Rent reduces EBITDA	Yes	No

The cash flow hasn’t changed.

But:

THE PROFIT PRESENTATION AND BALANCE SHEET HAVE

Potential impacts can include:

higher reported assets;
higher liabilities;
changed EBITDA;
changed gearing;
increased finance costs; and
potentially altered lender covenant calculations.

For a very small home-office payment these figures may be immaterial.

For a larger director-owned company with a substantial multi-year arrangement, the issue deserves proper consideration.

Could a 12-Month Arrangement Be Simpler?

Potentially.

Revised FRS 102 includes a recognition exemption for qualifying:

SHORT-TERM LEASES

Broadly, where the relevant conditions are met and the exemption is elected, payments can continue to be recognised as expenses rather than creating a right-of-use asset and lease liability.

The supporting material identifies the exemption for qualifying leases with a term of 12 months or less.

But don’t create a fictional:

“12-month agreement renewed automatically forever”

simply to avoid lease accounting.

The actual rights and commercial substance need to support the accounting treatment.

What If the Company Uses FRS 105?

This distinction is very important.

Don’t automatically apply the revised FRS 102 lease model to every small owner-managed company.

Many micro-entities report under:

FRS 105

The accounting treatment can therefore be different.

The first question should always be:

FRS 102 OR FRS 105?

before calculating a right-of-use asset and lease liability.

There is another accounting point.

The director/homeowner and their own company are related parties.

A home-office rental arrangement therefore needs to be considered under the applicable related-party disclosure rules.

For FRS 102 entities, relevant matters can potentially include:

nature of the relationship;
amount paid;
outstanding balances;
lease terms; and
commitments.

The attached analysis identifies home-office rent as a related-party transaction and leases/commitments as potentially relevant disclosure matters.

Putting Everything Together

Consultancy 4 Business Ltd:

uses a room in the director’s home;
pays £400 per month;
is VAT registered;
buys its own office equipment;
and applies FRS 102.

Rent

£4,800 per year

Equipment

Computer/monitors:

£3,000 + £600 VAT

Furniture/equipment:

£1,500 + £300 VAT

Potential considerations include:

COMPANY

Home-office payment:

£4,800

Qualifying equipment expenditure:

£4,500

Potential VAT recovery:

£900

subject to the normal conditions.

DIRECTOR

Rental income:

£4,800

less qualifying expenditure.

CGT

Avoid unnecessary exclusive business rights where genuine domestic use continues.

PLANNING

Check whether the use remains incidental to residential occupation.

Consider a Certificate of Lawfulness where useful.

MORTGAGE

Check lender restrictions.

INSURANCE

Ensure business use and equipment are appropriately covered.

FRS 102

If the agreement constitutes a three-year lease:

approximately:

£13,350 opening ROU asset

and:

£13,350 opening lease liability

rather than simply £400 rent expense every month.

This is why the arrangement should be considered as:

ONE COMPLETE PACKAGE

12 Questions to Ask Before Charging Your Company Home-Office Rent

Does the company genuinely need the workspace?
What is a commercially supportable rent?
Who legally owns the home?
What household expenditure can be allocated?
Will genuine domestic use continue?
Should the company buy the office equipment?
Can capital allowances be claimed?
Can VAT be recovered?
Does planning permission need consideration?
Would a Certificate of Lawfulness provide useful certainty?
Have the mortgage and insurance conditions been checked?
Does revised FRS 102 lease accounting apply?

Frequently Asked Questions

Can my limited company pay me rent for a room in my home?

Potentially yes, where there is genuine business use and the amount is commercially supportable.

Is the rent tax-free?

No. It is generally property income, although qualifying expenses may reduce the taxable profit.

Is the £312 allowance simpler?

Yes. In many cases it is considerably simpler and involves much less administration.

Can my company buy the office computer, furniture and equipment?

Potentially yes. Qualifying expenditure can potentially attract capital allowances and, where appropriate, VAT recovery.

Will I lose Private Residence Relief?

Not necessarily. The particular CGT concern is exclusive business use of part of the home.

Do I need planning permission?

Not necessarily. Incidental homeworking may not amount to a material change of use, but more substantial commercial activity should be checked.

What is a Certificate of Lawfulness?

It can provide formal confirmation from the planning authority that the proposed use or development described in the application would be lawful.

Does a licence count as a lease under FRS 102?

Potentially. The accounting treatment depends upon the substance of the company’s rights rather than simply the title printed on the agreement.

Will the home-office arrangement appear on the balance sheet?

Where FRS 102 applies, the arrangement contains a lease and no recognition exemption is available, potentially yes.

Download Our Example Home Office Licence Agreement

If you’re considering charging your company rent, we’ve prepared an example Word template covering:

the workspace;
permitted company use;
genuine continuing domestic use;
rent;
household outgoings;
company equipment;
planning;
mortgage and insurance;
visitors and employees;
termination;
FRS 102 review; and
a pre-signing checklist.

[Download the Example Home Office Licence Agreement]

The template should be adapted to the circumstances. More substantial property rights or formal commercial occupation may require specific legal advice.

Bicknell Business Advisers’ Home Office Review

Before putting an arrangement in place:

USE → RENT → TAX → EQUIPMENT → VAT → PROPERTY → PLANNING → ACCOUNTING → AGREEMENT

USE

What does the company genuinely need?

RENT

What is the commercial value of the space and facilities?

TAX

What does the company save and what personal tax arises?

EQUIPMENT

What should the company purchase and own?

VAT

What input VAT can properly be recovered?

PROPERTY

Consider CGT, business rates, mortgage and insurance.

PLANNING

Does the use require permission or would a Certificate of Lawfulness provide useful certainty?

ACCOUNTING

FRS 102 or FRS 105?

Does the agreement contain a lease?

Does an exemption apply?

AGREEMENT

Only then document what has actually been agreed.

Bicknell Business Advisers’ Advice

The mistake is focusing only on:

“How much rent can I charge my company?”

A proper home-office review potentially involves:

CORPORATION TAX

↓

PERSONAL TAX

↓

VAT

↓

CAPITAL ALLOWANCES

↓

CGT

↓

PLANNING

↓

MORTGAGE / INSURANCE / BUSINESS RATES

↓

FRS 102

For some directors, the conclusion will be:

JUST CLAIM £312

For others, particularly where their company makes substantial genuine use of their home, a properly structured rental arrangement could be considerably more valuable.

The key is to calculate the whole position before signing the agreement.

How We Can Help

At Bicknell Business Advisers, we can help directors and owner-managed companies assess whether renting part of the home to the company makes financial and commercial sense.

We can assist with:

£312 versus rent calculations;
commercial rent calculations;
household-cost apportionments;
Corporation Tax;
property Income Tax;
VAT;
capital allowances;
CGT and Private Residence Relief;
FRS 102 lease assessment;
right-of-use asset calculations;
lease-liability schedules;
related-party accounting; and
home-office rental documentation.

Where specialist planning or property-law advice is required, those issues can be identified before documents are signed.

About the Author

How Landlords Can Legally Reduce Tax by Changing the Split of Rental Income

a couple saving tax on their property investment

A Complete Guide to Form 17, Deeds of Trust and Beneficial Ownership

If you own a rental property jointly with your spouse, civil partner or partner, you could be paying more Income Tax than necessary.

Many landlords assume rental income must always be split equally between the owners. In fact, the tax position depends on who owns the property, how it is owned and whether you are married or unmarried.

Since the abolition of the Furnished Holiday Letting (FHL) tax regime from 6 April 2025, understanding these rules has become even more important. Many former holiday-let owners who never previously needed to think about Form 17 may now need to review how their rental income is taxed.

The good news is that, with the right ownership structure and careful planning, many landlords can legitimately reduce their family’s overall tax bill.

The key is getting the ownership structure right before submitting tax returns.

Harry and Megan’s Story

Let’s start with a typical example.

Harry earns £130,000 a year and pays Income Tax at the additional rate.

Megan earns £22,000 and pays tax at the basic rate.

Together they own two buy-to-let properties producing rental profits of £30,000 a year.

They assume the profits must be split equally.

Many landlords do.

But depending on their circumstances, that may not be the most tax-efficient solution.

Whether they can change the split depends on one important question…

Are they married?

The answer completely changes the tax rules.

Could You Save Tax?

Decision Tree

Why Does This Matter?

Imagine rental profits of £30,000.

Owner	Equal Split	90/10 Split
Harry	£15,000	£3,000
Megan	£15,000	£27,000

The actual tax saving depends on each person’s wider tax position, but where the legislation allows a change in beneficial ownership, the family’s combined Income Tax liability could be significantly lower.

Of course, tax should never be the only consideration. Changing ownership may also affect Capital Gains Tax, Stamp Duty Land Tax and Inheritance Tax.

Married Couples and Civil Partners

This is where many landlords are surprised.

Most people assume that tax follows ownership.

For married couples, it often doesn’t.

Where spouses or civil partners live together, HMRC normally taxes income from jointly owned property 50:50, regardless of the actual beneficial ownership, unless the statutory exception applies.

For example:

Beneficial Ownership	HMRC Default Tax Position
Husband 90%	50%
Wife 10%	50%

Many landlords don’t discover this until after filing their tax returns.

Form 17 Explained

Fortunately, HMRC allows married couples and civil partners to be taxed according to their actual beneficial ownership.

This is done by submitting Form 17. https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

If you want to change the ownership split, the beneficial ownership must first be changed and properly documented — commonly using a Deed or Declaration of Trust. Married couples and civil partners then use Form 17 to ask HMRC to tax the rental income in those actual ownership proportions.

Form 17 does not create or change beneficial ownership. It tells HMRC to recognise unequal beneficial ownership that already exists. If you currently own the property 50:50 and want a 90:10 split, the ownership must be changed first and supported by appropriate evidence.

To use Form 17:

the property must genuinely be owned in unequal beneficial shares;
those shares must be supported by legal evidence, usually a Deed of Trust;
Form 17 must normally reach HMRC within 60 days of being signed.

⚠ Important

Form 17 does not change ownership.

It simply tells HMRC how you already own the property.

Many people get this the wrong way round.

The April 2025 FHL Changes

One of the biggest changes affecting landlords has received surprisingly little attention.

Until 5 April 2025, Furnished Holiday Lettings were taxed under a separate regime.

From 6 April 2025, that regime was abolished.

Former FHL properties are now generally taxed in the same way as other residential lettings.

For many married couples this means that, if they wish to be taxed other than 50:50, they will normally need:

unequal beneficial ownership; and
a valid Form 17 declaration.

If you owned an FHL before April 2025, now is a good time to review your ownership structure.

Unmarried Couples

The rules are completely different.

This catches many landlords out.

Unmarried couples cannot use Form 17.

Instead, HMRC taxes rental income according to the actual beneficial ownership.

Suppose Harry and Megan own a rental property.

Harry owns 80%.

Megan owns 20%.

The rental profits are normally taxed:

Harry – 80%
Megan – 20%

There is no Form 17.

No declaration is sent to HMRC.

The ownership simply needs to be properly documented.

What Is a Deed of Trust?

A Deed of Trust records the beneficial ownership of a property.

It is often used where co-owners wish to hold different ownership percentages.

For example:

50/50
80/20
90/10
99/1

A properly drafted Deed of Trust can provide the evidence HMRC expects where beneficial ownership is unequal.

However, it is far more than a tax document.

Changing beneficial ownership may also affect:

Capital Gains Tax
Inheritance Tax
Stamp Duty Land Tax
divorce settlements
entitlement to future sale proceeds

Professional advice should always be taken before changing ownership.

Don’t Forget Stamp Duty Land Tax

Many landlords overlook SDLT.

Where there is an outstanding mortgage, changing ownership percentages can sometimes trigger SDLT because one owner is treated as taking responsibility for a greater share of the mortgage debt.

This can arise even where no money changes hands.

It’s another reason why tax and legal advice should be taken before signing a Deed of Trust.

Seven Expensive Mistakes Landlords Make

❌ Assuming Form 17 changes ownership.

❌ Filing Form 17 without changing beneficial ownership.

❌ Missing the 60-day deadline.

❌ Assuming unmarried couples can use Form 17.

❌ Forgetting the FHL rules changed from April 2025.

❌ Ignoring SDLT implications.

❌ Downloading a template Deed of Trust from the internet without taking advice.

The Biggest Tax Mistakes Made by New Landlords – Steve J Bicknell Tel 01202 025252

Planning Opportunity

Sometimes changing the ownership percentages is the right answer.

Sometimes it isn’t.

If:

one owner pays additional-rate tax;
you’re planning to build a larger property portfolio; or
you’re buying more rental properties,

it may be worth considering whether holding future properties through a limited company would be more tax-efficient.

This isn’t the right solution for everyone, but reviewing the options before purchasing another property can avoid expensive restructuring later.

For more information, read our article:

Tax Benefits of Incorporating Your Property Portfolio https://stevejbicknell.com/2025/05/03/tax-benefits-of-incorporating-your-property-portfolio/

Married or Unmarried? At a Glance

Question	Married / Civil Partners	Unmarried Couples
Default tax split	50:50	Beneficial ownership
Form 17 available?	Yes	No
Deed of Trust useful?	Yes	Yes
Can ownership percentages differ?	Yes	Yes
SDLT implications possible?	Yes	Yes

Frequently Asked Questions

Can Form 17 be backdated?

No. HMRC requires the declaration to be submitted within the statutory time limit.

Can unmarried couples use Form 17?

No.

Does Form 17 change ownership?

No.

Does a Deed of Trust change ownership?

Yes, it records the beneficial ownership between the parties.

Can changing ownership trigger SDLT?

Yes, particularly where a mortgage exists.

How We Can Help

At Bicknell Business Advisers, we regularly advise landlords and property investors on:

Form 17
Beneficial ownership
Deeds of Trust
SDLT planning
Capital Gains Tax
Property ownership structures
Incorporation planning

The best time to seek advice is before ownership changes are made.

A short planning meeting today could save tax for many years to come.

About the Author

Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, SDLT, Capital Gains Tax and tax planning for landlords, developers and property investors throughout the UK.

HMRC Update: New Evidence Rules for £312 Working From Home Allowance (Effective 14 October 2024)

Directors and business owners who claim the £312 flat rate per year (£6 per week) for working from home should be aware of a key policy change from HMRC, effective 14 October 2024. Going forward, claims for this relief must be supported by a formal obligation to work from home, such as a clause in a service agreement, contract, or board resolution.

This change represents a shift from previous practice, where many directors and employees could claim the relief on a discretionary or informal basis. HMRC is now tightening its stance — and the lack of documented obligation will invalidate claims.

🔍 What’s Changed?

From 14 October 2024, HMRC will only accept P87 claims for homeworking expenses if there is written evidence that the employee or director is contractually required to work from home.

The key requirements include:

A written agreement (e.g., employment contract, service agreement, or board resolution).
A regular and frequent homeworking pattern, typically as a guide at least two days per week, though not necessarily on the same days. The days are not specified in Evidence required to claim PAYE (P87) employment expenses – GOV.UK
Voluntary or informal homeworking arrangements no longer qualify.

✅ What Does This Mean for Directors?

If you’re a limited company director working from home, you should:

Update your service agreement or contract to include a homeworking clause.
Pass a board resolution confirming the homeworking requirement.
Ensure the arrangement is regular and necessary for business purposes.
Retain all documentation as part of your company’s formal records.

✍️ Sample Wording for Compliance

To help you stay compliant, below is a model clause that can be included in a service agreement or board resolution:

📄 Homeworking Requirement – Example Clause

“The Company requires the Director to work from their home address at [insert address] for a minimum of [insert number] days per week. This arrangement is a condition of employment and is necessary for the proper performance of the Director’s duties. The Director’s home is deemed an official workplace for the purposes of fulfilling their role and responsibilities. The Company will review this arrangement annually, but it will remain in place unless varied in writing by mutual agreement. The Director must ensure that their homeworking environment is suitable for conducting business and agrees to be available and contactable during normal business hours on homeworking days.”

🗂️ Supporting Board Resolution – Example

“At a meeting of the Board of Directors held on [insert date], it was resolved that [Name of Director] is contractually required to work from home at least [insert number] days per week as part of their duties for the Company, with effect from [insert date]. This resolution is to be retained with the Company’s records as evidence of the homeworking requirement.”

💡 Claims Above £312?

If actual costs exceed the £6 per week flat rate, higher claims may be allowable, but these will require:

Strong supporting documentation, and
In some cases, pre-approval from HMRC.

🛠️ Next Steps

If you currently claim the flat rate and do not have documented homeworking requirements in place:

Review your existing contracts.
Draft a resolution or contract amendment now.
Contact Bicknell Business Advisers for assistance in formalising the arrangement.

Charging interest on a Directors’ Loan Account

When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.

A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.

In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?

Understanding interest on Directors’ Loan Accounts

Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.

Any interest paid re these DLAs will be deductible when calculating your company’s taxable profits. Because of this, it’s possible to achieve tax savings of up to 25%.
For the individual, a basic-rate taxpayer has a Personal Savings Allowance (PSA) of £1,000 and will pay 20% on the excess. So, paying interest is more tax-effective than declaring dividends. The PSA for a higher-rate taxpayer is £500.
The interest rate needs to be a commercial rate. In other words, the interest rate used must not exceed the rate you’d expect to see from a third-party lender.
Where interest is paid to an individual, basic rate tax needs to be deducted at source from any payment made to the director.
This tax is reportable to HM Revenue & Customs (HMRC) on a calendar-quarterly basis, with the amount deducted offset against tax due on the individual’s personal tax return. Where the company accounts are not drawn up to a calendar-quarter end, a fifth return is required up to the balance sheet date.
The company can take into account any interest due, but not paid, until up to twelve months later when calculating its own profits. However, the individual will only include as income any interest that’s actually been paid. Note though that ‘paid’ can include crediting to a DLA!. This can give a timing advantage.

Talk to us about maximising the tax benefits of your DLA

Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).

The reporting requirements for interest on DLAs are no walk in the park.

How do you pay interest to a director or individual lender? CT61 – Steve J Bicknell Tel 01202 025252

Are you missing out on Qualifying Interest Relief? – Steve J Bicknell Tel 01202 025252

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners – Steve J Bicknell Tel 01202 025252

Because of this, it’s a good idea to talk to us first, so we can make sure you have a workable system in place prior to making any payments. We can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.

Get in touch to talk about interest on your DLA.

steve@bicknells.net

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners

If you’re a director or shareholder of a UK company, it’s important to understand the tax consequences of s455 Directors Loan. Failure to comply with HMRC regulations can lead to penalties and additional tax liabilities. In this blog post, we will explore the tax implications of s455 Directors Loan, the rate of tax payable, when and how the tax is paid, reclaiming the tax, benefits in kind, board resolutions, bed and breakfasting loans, anti-avoidance rules, relief time period, and including relevant notes in micro accounts.

Understanding s455 Directors Loan:
S455 Directors Loan refers to money borrowed by a company director or shareholder from their company. If the loan is not repaid within 9 months following the end of the accounting period, it can incur tax implications for both the company and the director.
Rate of Tax Payable:
The rate of tax payable on s455 Directors Loan is currently set at 33.75% of the outstanding loan amount. This tax is paid by the company, not the individual director or shareholder.CTM61505 – Close companies: loans to participators and arrangements conferring benefit on participator: general – HMRC internal manual – GOV.UK (www.gov.uk)
When is Tax Payable?
The tax on s455 Directors Loan is typically due at the same time the company’s corporation tax is due – nine months and one day after the end of the accounting period in which the loan was made.
How is Tax Paid?
Tax payable on s455 Directors Loan is paid by including it as part of the company’s corporation tax liability, which is reported and paid through the Corporation Tax Return (CT600).
Reclaiming the Tax:
The tax paid on s455 Directors Loan can be reclaimed by the company after the loan has been repaid. LC Forms (hmrc.gov.uk)
Benefit in Kind on Directors Loan:
If the loan exceeds £10,000, the company may need to report it as a “benefit in kind” for the director. This means that the individual may be subject to personal income tax on the value of the loan unless the Director/Shareholder pays interest on the loan at least at the approved HMRC rate.
Board Resolution for Loans over £10,000:
To avoid the potential income tax implications of benefit in kind, a board resolution should be implemented authorising the director’s loan. This should be done before the loan is taken or within nine months of the company’s year end. A loan agreement is also recommended.
Bed and Breakfasting Loans:
To prevent circumventing the 9-month rule, bed and breakfasting occurs when the director repays the loan just before the end of the 9-month period and immediately takes out a new loan. Anti-avoidance rules are in place to discourage this practice. The key rules are the ’30 day rule’ and ‘intentions and arrangements rule’.
Anti-Avoidance Rules:
HMRC has anti-avoidance rules in place to prevent the abuse of s455 Directors Loan transactions. It is essential to ensure that all loans between directors/shareholders and their companies are conducted fairly and genuinely.
Relief Time Period – 9 Months:
The relief time period refers to the nine months following the end of a company’s accounting period. If the loan is repaid within this period, the tax paid on s455 Directors Loan can be reclaimed.
Including Notes in Micro Accounts:
Micro entities are required to prepare and submit detailed notes as part of their financial statements. It is important to include relevant notes regarding any outstanding s455 Directors Loan, as this will provide transparency during the tax assessment process.

Conclusion:
Understanding the tax consequences of s455 Directors Loan is crucial for UK business owners. By addressing the tax liabilities promptly, ensuring compliance with regulations, and seeking professional advice, companies can navigate this complex area of taxation efficiently. Stay informed, keep accurate records, and stay on top of your financial obligations to avoid any unnecessary penalties or additional tax liabilities.

steve@bicknells.net

The top tax-effective benefits for directors and employees

Offering benefits-in-kind to your staff is a great way to make your business an attractive place to work. And these benefits add even more value if they’re also either tax-effective or tax-free.

You can offer certain concessions that make benefits provided to your employees (including directors) either low-tax or no tax. To be clear, we’re talking here about general employee benefits, not higher-value items such as company cars or share options etc.

Under certain circumstances, these general benefits-in-kind (BiK) become taxable if they’re provided as part of a flexible salary sacrifice system. But let’s look at the kinds of benefits you can offer – and the avantages they have for your employees.

The top tax-effective benefits to offer your team

If you want to offer employee benefits, but don’t want these BiK to end up attracting significant tax penalties for the employee, there are several useful benefits to consider.

For example:

Gifts of £50 or under – gifts not exceeding £50 can be given to employees without any tax or National Insurance charges arising. The cost is tax-deductible by the company. The gift must not be related to any work achievements, must not be money, must not be a contractual entitlement and, for directors, the total must not exceed £300 per annum.
Annual staff functions – annual functions, such as the yearly Christmas party or team summer barbecue, can be given to employees, provided the total cost per person during the year doesn’t exceed £150 per guest, including VAT.
Work mobile phones – a single mobile telephone can be provided to each employee together with the associated line rental and call charges, with no personal tax charge for any private use.
Free staff meals – free meals can be provided on company premises or in a staff canteen, provided that it’s on a reasonable scale.
Employer pension scheme contributions – as an employer, you can contribute (sometimes, have to contribute) to employee pension funds, within certain annual and lifetime limits. Topping up your employee’s contributions helps to increase the overall benefit of the mandatory work pension scheme.
Life insurance cover – Death in Service cover can be provided for your employees, and will normally be tax free, both the insurance premiums paid and any claims paid.
Health and medical check-ups – one health-screening assessment and one medical checkup per annum can be provided to each employee. This doesn’t cover full medical insurance, and also doesn’t generally cover medical treatment.
Welfare counselling – counselling can be provided to your employees free of tax, but this doesn’t cover medical treatment, legal, tax or financial advice. However, debt counselling is covered.
Business mileage – where your employee uses their own car for business travel, that business mileage can be reimbursed at a rate of £0.45/mile for the first 10,000 miles in a tax year and £0.25/mile thereafter.
Home-working allowance – you can pay an allowance of £6/week (£26/month) to employees who are required to work from home.
Private gyms – gym facilities can be provided to your employees and their family members, as long as the gym premises are not available to the general public.
Staff suggestions – rewards for making innovative business suggestions can be paid free of tax, as long as the amount doesn’t exceed £25. If an employee’s suggestion is implemented, a further award, linked to a proportion of the financial benefit to the company, can be made, subject to a cap of £5,000.
Long-service awards – you can offer a long-service award to a member of staff after a minimum of 20 years’ service. There must be at least ten years between awards that are made and the award has to be articles rather than cash. The overall cost can’t exceed £50 per year of service.

You can find out more details on the many available employee benefits-in-kind on the Expenses and benefits: A-Z page on the HMRC site.

If you provide a range of attractive tax-effective benefits to your employees, this goes a long way to creating a more satisfied, happy and productive workforce.

Many of the rules around employee benefits are complex and difficult to calculate, so it’s well worth talking to us about your benefits plans and where we can offer advice. We can walk you through the available options and show you the tax implications for your team.

steve@bicknells.net

Factors to Consider When Determining Your Main Residence in the UK

When you own more than one home, deciding which one will be your main residence can have significant tax implications. In the UK, HM Revenue and Customs (HMRC) provides guidelines on how to determine your main residence for capital gains tax (CGT) purposes. In this blog post, we will discuss the factors you should consider and the process of nominating your main residence. Additionally, we’ll explore various scenarios where you might have a second home for work or as a holiday retreat, and provide case studies and examples to illustrate the concepts.

What is a Main Residence Election?
The HMRC’s main residence election allows you to nominate the property you consider your main residence for CGT purposes. It is crucial because it determines which property will be exempt from CGT when you sell it. There is no requirement for it to be the property you spend most time on.
Why Nominate a Main Residence?
Nominating a main residence is particularly beneficial if you own multiple properties. By designating one as your main residence, you can save on potential CGT liabilities when selling the other properties. The Nomination Election once made can be varied CG64510
HMRC CG64545 – Nine Factors to Identify Your Main Residence:
For a nomination to be accepted, HMRC considers several factors, including:

Length of occupation
Where your family resides
Degree of furnishing and personal belongings
Residency status for voting, car registration, etc.
Bills and correspondence addresses
Where your business is located (if applicable)
Schooling and medical registrations
Bank accounts and club memberships
Intention to return to the property

Having a Second Home for Work:
In some cases, you might own a second property near your workplace to avoid daily commuting. It is essential to consider whether this property qualifies as your main residence and how it impacts your taxation.
Having a Second Home as a Holiday Retreat:
If you own a second property primarily for recreational purposes, such as a vacation home, it is crucial to understand the implications of CGT. Determining which property is your main residence becomes vital to minimize potential tax liabilities.
Two-Year Election Deadline:
To nominate a property as your main residence, you must make the election within two years of acquiring a second property. Every time there is a change in combination of available residences in re-starts the clock, this could be triggered by renting out and re-occupying, but seek advice first.
Format for the Election:
While there is no specific format, you should provide sufficient information to convince HMRC that your nominated property should be considered your main residence. It is advisable to keep documentary evidence supporting your claim.

Conclusion:
Determining your main residence when you own multiple properties is a crucial decision that affects your tax liabilities. By considering the factors outlined by HMRC and making a nomination within the designated timeframe, you can minimize your CGT liabilities.

steve@bicknells.net

Maximizing Principle Private Residence Relief: Understanding Deemed Occupation and Qualified Absence

couple walking in the street carrying plants and boxes

Introduction

As a UK accountant, it’s crucial to guide clients on the various tax planning opportunities available. One such opportunity is Principle Private Residence (PPR) Relief, which provides tax benefits to individuals who sell their main residence. In this blog post, we will explore the concept of deemed occupation and qualified absences, including eligibility criteria and examples. So, let’s delve into the details!

Understanding Deemed Occupation

Under certain circumstances, an individual’s absence from their main residence can still be considered as occupation for tax purposes. This concept is known as deemed occupation. It allows individuals to claim PPR Relief even when they are not physically present in their property. Let’s explore the qualifying absences.

Absence Qualifying as Deemed Occupation

a. 3 Years for Any Reason: Individuals can claim deemed occupation for up to three years, regardless of the reason for their absence. It could be due to travel, work-related commitments, or simply personal circumstances.
b. 4 Years for Employment Elsewhere: If an individual is employed elsewhere and occupies the property sporadically during a four-year period, the absences can still qualify as deemed occupation.
c. Any Period Required to Work Abroad: Individuals who are required to work abroad can claim deemed occupation during their period away from their main residence.
d. Up to 2 Years at the Start of Ownership with Qualifying Delay: If there is a delay in occupying the property at the start of ownership due to qualifying reasons, individuals can claim deemed occupation for up to two years.

HMRC CG64555: Armed Forces

Special considerations apply to members of the armed forces. Under HMRC CG64555, individuals serving in the armed forces are entitled to claim deemed occupation even if they have not occupied the property for the qualifying period.

Letting During Qualified Absence

During a qualified absence, individuals may choose to let their property. In this case, they are still eligible for PPR Relief on the periods of deemed occupation.

CG65050 – Residence before/after period of absence

It is a condition of s223(3) TCGA92 that both before and after the period of absence there must be a time in which the dwelling-house was its owner’s only or main residence unless they were prevented from resuming residence as a consequence of their or their spouse or civil partner’s employment requiring them to live elsewhere. The periods of residence do not have to be immediately before and after the period of absence.

Examples of Absence Qualifying as Deemed Occupation

a. Sarah, an engineer, temporarily moves abroad to complete a project for four years. Her home remains vacant during this period. She can claim deemed occupation for the first three years.

b. John, a member of the armed forces, is posted overseas for three years. Although he does not occupy the property during this time, he is entitled to claim deemed occupation for the entire period.

Conclusion

Understanding the concept of deemed occupation and qualified absences is essential for maximizing Principle Private Residence Relief. By being aware of the eligibility criteria and utilizing these provisions effectively, individuals can ensure significant tax savings.

steve@bicknells.net

Bicknell Business Advisers Limited

40 Broadway Lane, Bournemouth

5.0 39 reviews

Pablo Alonso ★★★★★ 5 years ago
I have known Steve for a couple of years and he has always been very helpful. He is pro-active and very knowledgeable. His advice is certainly top and I completely recommend him
Steve Upton ★★★★★ 5 years ago
As is often the case, the most valuable business relationships are generated by word of mouth. Working as a Director of the Southern Electric Traction Group C.I.C in London, Bicknell Business Advisers Limited were recommended to me by a … More fellow business owner. I am truly grateful for that recommendation. I can honestly say that the guidance and support we have received from the team have been instrumental to our work and we would be in a considerably lesser position without them.
I haven't the words to fully express Bicknell's input, but perhaps the phrase "no question goes unanswered, no effort is spared" best sums up their approach to client support. I would wholeheartedly recommend Steve and his colleagues in any advisory capacity and am delighted that we have found such a professional, efficient and courteous company with which to do business.
Simon Clarke ★★★★★ 6 years ago
Where do I start? Steve, Kate, and their team are professional and tenacious. They go above and beyond to make sure you file correctly and file on time, as well as advising on anything financial. If you're looking for a top quality … More accountant, look no further, they're right here.
Izan Coomonte Suárez ★★★★★ 6 years ago
I would recommend Steve 100% to anyone! He's the best advisor and tax professional I've found in many years. As a Spanish citizen, he has helped me a lot not only become very efficient with my taxes but also understand how the … More UK Tax system works!
He is friendly, professional and delivers a lot of value to the people he works with.
Mutaz Qubbaj ★★★★★ 7 years ago
Steve and his team have been an invaluable asset to Squirrel as of day 1. They never cease to hit the mark when it comes to our accounting, payroll and R&D-related needs. The depth of knowledge and expertise to address the challenges … More of running a small business on the path to becoming a growing concern has exceeded expectations. The team is extremely approachable and willing to drill into the details with myself and members of my team at every opportunity.
Gill Alder ★★★★★ 6 years ago
I have known Steve Bicknell for around 20 years and have always found
him to be an extremely knowledgeable professional, with a down to earth
approach - always able to explain technical info in a way that is easy to understand.
I always … More recommend him to friends and business acquaintances and will continue to do so, as a person of integrity and professionalism.