Pitfall with cars – No 2 – to lease or not to lease

Leasing a car through a company can seem like a cost-effective way to provide employees or directors with a vehicle. However, there are key company car lease tax pitfalls that businesses must be aware of. One common misconception is that recharging the lease cost to an employee or director removes the taxable benefit entirely. Unfortunately, this is not the case.

If a company leases a car and recharges the cost to an employee, the scale charge for a company car still applies. The best outcome is that the taxable benefit is reduced pound for pound by the amount reimbursed—but only if the arrangement is correctly structured.

Why Reimbursing the Lease Cost Doesn’t Remove the Tax Charge

Even if an employee fully reimburses the company for the cost of the lease, they will still be liable for a taxable benefit. This is because:

  • HMRC considers access to the car itself a benefit, not just the cost.
  • The Benefit-in-Kind (BIK) charge applies to company cars, even if costs are shared.
  • Only certain reimbursements reduce the taxable amount rather than eliminating it entirely.

This means that even with full reimbursement, a residual tax charge often remains. Without careful structuring, employees or directors could face unexpected tax bills.

How to Minimise Tax on a Company Car Lease

To avoid unnecessary tax charges, businesses should:

  1. Understand the Benefit-in-Kind rules – Company cars have fixed BIK rates based on emissions and list price.
  2. Explore alternative vehicle arrangements – In some cases, offering a mileage allowance or a personal lease may be more tax-efficient.
  3. Structure reimbursements correctly – Seek professional advice to ensure any reimbursements are applied in the most tax-effective way.

How We Can Help

Navigating company car lease tax pitfalls can be tricky, but our experts at Lewis Brownlee can help. We provide guidance on:

  • Tax-efficient company car policies
  • Minimising Benefit-in-Kind charges
  • Ensuring compliance with HMRC rules

If you’re considering a company car lease and want to structure it correctly, contact us today via our contact page for expert advice.

Understanding your options now can save you from costly tax surprises in the future.