Providing a company car can give employees a convenient way to travel for work. It can also form part of an employee’s benefits package.
However, businesses need to understand what happens when employees use company cars for private journeys. Private use can affect tax, insurance and how a business manages its vehicles.
Whether you operate one company car or a larger fleet, understanding the rules can help you arrange suitable business vehicle insurance and manage your vehicles effectively.
What counts as private use of a company car?
Private use generally means using a company car for anything that is not business travel.
This includes ordinary journeys between an employee’s home and their permanent workplace. HM Revenue & Customs (HMRC) treats these journeys as private use for company car tax purposes.
Other examples of private use could include:
- Driving to the shops
- Taking the car on holiday
- Visiting friends or family
- Making personal appointments
- Using the vehicle for other non-business journeys
By contrast, business travel can include journeys that an employee makes as part of their duties, such as travelling between business premises or visiting customers.
The distinction matters because the tax treatment and insurance requirements can differ depending on how the vehicle is used.
Can employees use company cars privately?
Yes, a business can allow private use of a company car.
However, private use can create a company car tax liability for the employee. If an employer provides a company car that is available for private use, the employer generally needs to report the benefit to HMRC.
HMRC calculates the taxable value using factors such as the vehicle’s list price, CO₂ emissions and fuel type. Businesses can use HMRC’s company car tax calculator to help determine the taxable value.
The business may also need to pay Class 1A National Insurance on the value of the company car benefit.
Does commuting count as private use?
This is an important point for businesses.
Yes. Ordinary commuting generally counts as private use of a company car.
For example, if an employee drives their company car from home to their normal workplace each morning, HMRC treats that journey as private use. The same applies to the journey home.
Travel to a temporary workplace can be treated differently, depending on the circumstances.
Businesses should therefore avoid assuming that all journeys connected to work automatically count as business use.
What about company car insurance and private use?
Tax rules and insurance rules are separate, so businesses need to consider both.
If an employee can use a company car privately, the business should make sure its company car insurance provides the appropriate level of cover for that use.
When arranging business car insurance, insurers may need information about:
- Who drives the vehicle
- The type of business use
- Whether private use is permitted
- The expected annual mileage
- Where the vehicle is normally kept
- The vehicle itself
- The driving history of relevant drivers
Businesses should provide accurate information when arranging cover. If the way employees use the vehicle changes, the business should also check whether it needs to update its insurer.
Business.gov.uk states that businesses using vehicles as part of their operations need motor insurance and should update their insurance policies when they use vehicles for business purposes.
Can family members use a company car?
A business may allow an employee’s family or household members to use a company car, but this depends on the insurance policy and the company’s arrangements.
Businesses should not assume that a spouse, partner or other family member automatically has cover.
Before allowing another person to drive the vehicle, check the policy terms and any driver restrictions with the insurer or broker.
This can help prevent an employee from accidentally allowing an uninsured driver to use a company vehicle.
Can a company car be used for holidays?
A company car can potentially be used for private trips such as holidays if the business permits private use and the insurance policy provides the required cover.
However, businesses should consider whether their policy covers the intended use, particularly if the employee plans to drive the vehicle outside the UK.
The employee should check the company’s vehicle policy before taking a company car abroad. The business should also confirm any insurance requirements with its insurer.
What if the company car is only for business use?
Businesses can restrict a company car to business journeys.
HMRC states that cars available for business journeys only can be exempt from reporting and tax charges if the employer tells the employee not to use the vehicle privately and checks that they do not.
This means a business should not simply label a vehicle as “business use only” and assume that is enough.
It needs to have appropriate controls in place and ensure employees follow them.
Keeping records of vehicle use can help a business demonstrate how it manages company vehicles.
How can businesses manage private use?
Clear rules can make company car management easier.
Businesses should consider creating a written company vehicle policy that explains:
- Who can drive company cars
- Whether private use is permitted
- Whether family members can drive the vehicle
- Where employees can take the vehicle
- What happens if the vehicle travels abroad
- Who pays for private fuel
- What employees should do after an accident
- What happens when an employee leaves the business
Businesses should also review their insurance arrangements when they change vehicles, drivers or permitted use.
Company cars and private use: getting the balance right
Allowing private use can make a company car more attractive to employees, but it also creates additional considerations for businesses.
Private use can affect company car tax, while the permitted use of the vehicle can also affect the insurance cover the business needs.
The best approach is to consider the vehicle’s actual use rather than making assumptions.
Before providing a company car, establish who will drive it, what journeys they will make and whether private use will be permitted. Then discuss these details with your insurer or commercial insurance broker.
Taking this approach can help your business arrange suitable company car insurance, manage its vehicles effectively and avoid unnecessary confusion around private and business use.
Sources
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- GOV.UK: Calculate tax on employees’ company cars
- GOV.UK: Tell HMRC about an employee’s company car
- GOV.UK: Car benefit: meaning of private use and business travel
- GOV.UK: Expenses and benefits: company cars and fuel, what’s exempt
- GOV.UK: Cars and vans available for private use
- Business.gov.uk: Insuring your business
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