By RAM Tracking on 28 Jan 2026
By Daniel Briggs, Marketing Director at RAM Tracking
If you provide company vehicles to your employees, understanding the difference between business and private use is essential. It affects your tax obligations, National Insurance contributions, and HMRC compliance.
This guide explains the UK tax rules for company cars and highlights how fleet managers can manage these requirements effectively.
Business vehicle use covers any journey directly related to your company operations. This includes travelling to client meetings, delivering goods to customers, visiting job sites, or transporting equipment between locations. When vehicles are used exclusively for business purposes, you can deduct associated running costs from your taxable income.
These legitimate business expenses typically include fuel, maintenance, insurance, road tax, and servicing costs. Keeping accurate records of business mileage helps you maximise tax deductions whilst staying compliant with HMRC regulations.
Private use refers to any personal journey in a company vehicle that isn't work-related. Common examples include the daily commute between home and work (which HMRC classes as private use), weekend shopping trips, family holidays, or personal errands during the working day.
Even short personal journeys count as private use. When employees use company vehicles for private purposes, it creates a benefit in kind that must be reported to HMRC.
Accurate reporting of business versus private vehicle use is a legal requirement in the UK. HM Revenue & Customs expects detailed records that distinguish between the two. Failing to maintain proper records can result in tax penalties, retrospective tax bills, and potential HMRC investigations.
When employees use company cars for private journeys, this creates a benefit in kind. You'll need to report this on P11D forms, and both your business and employees face tax implications. The more accurate your records, the more precisely you can calculate these liabilities.
Separating business and private mileage allows you to allocate costs accurately. This means you'll only claim tax relief on genuine business expenses, whilst ensuring employees contribute fairly towards personal use of company vehicles.
Employees using company cars for private journeys pay tax based on the vehicle's P11D value and CO2 emissions. HMRC calculates the taxable benefit using the car's list price (including factory-fitted options and VAT) multiplied by an appropriate percentage linked to emissions.
Lower-emission vehicles attract lower tax rates. For the 2024/25 tax year, fully electric vehicles faced a 2% benefit in kind rate, whilst high-emission petrol and diesel cars could attract rates exceeding 37%.
For the current 2025/26 tax year, electric vehicles now face a 3% BIK rate, with traditional combustion engine vehicles continuing to face higher rates based on their CO2 emissions.
This taxable benefit is added to the employee's income and taxed at their marginal rate.
If you provide fuel for private use, employees face an additional fuel benefit charge. HMRC sets a multiplier each tax year and applies the same CO2-based percentage as the car benefit.
Employees also pay Class 1 National Insurance contributions on company car benefits. These contributions are deducted through payroll alongside income tax throughout the year.
As an employer providing company cars, you'll pay Class 1A National Insurance contributions on the value of benefits in kind. The rate is currently 13.8% of the total benefit value, including both the car and fuel benefits if applicable.
Accurate tracking of private mileage helps you calculate these contributions correctly. Overpaying National Insurance impacts your bottom line, whilst underpaying risks penalties and interest charges from HMRC.
Modern vehicle tracking systems provide detailed journey records that make identifying business and private mileage straightforward. RAM Tracking's platform records every journey with start and end times, locations, and distances travelled, creating the detailed audit trail HMRC expects.
Fleet managers can quickly identify journeys made outside working hours or to non-business locations, generating automatic reports without manual journey logs. This streamlines P11D reporting and ensures accurate tax calculations for both company car and fuel benefits.
The system also helps you monitor overall fleet usage patterns, identifying vehicles with high private mileage so you can make informed decisions about your company car policy.
Separating business and private vehicle use isn't just about tax compliance. It gives you clearer insights into fleet costs, helps you make better decisions about company car policies, and ensures employees understand their tax obligations
Implementing fleet management software reduces administrative burden whilst improving accuracy. This protects your business from tax penalties and helps employees avoid unexpected tax bills.
Ready to simplify your tax reporting and ensure HMRC compliance? Contact us for your free no-obligation quote to see how we can give you complete mileage visibility, accurate calculations, and peace of mind.
Does commuting count as business or private use?
HMRC treats commuting between home and your normal place of work as private use, even though you're travelling for work purposes.
What records do I need to keep for HMRC?
You should maintain detailed journey logs showing dates, destinations, mileage, and journey purposes. Electronic records from vehicle tracking systems are acceptable to HMRC.
Can employees pay for private use instead of paying benefit in kind tax?
Yes, employees can make private fuel payments to cover personal mileage. This must be calculated using HMRC's approved mileage rates and paid before the tax year ends.
How long must I keep vehicle mileage records?
HMRC requires businesses to retain records for at least six years from the end of the relevant tax year.
Daniel Briggs is the Marketing Director at RAM Tracking, with almost 3 years of experience in the Field Service SaaS space and a deep understanding of what fleet managers need for both fleet tracking and job management.
His expertise spans fleet optimisation, driver behaviour management, and technology solutions that deliver measurable business results.
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