Company car vs personal car: What’s the best option for your organisation? 

Research shows that 4 in 5 businesses in the UK rely on personal vehicles for work-related travel. 

The rise of private vehicle use by employees, also known as the grey fleet, can indicate a shift from providing company cars as default. For some employees, having more freedom with the vehicle, as well as increased BiK rates could also be a deciding factor for switching to privately owned cars.

However, company cars still remain a significant part of the employment landscape in the UK. HMRC data show that around 840,000 employees received a company car in 2023/24. 

So, as a UK-based organisation, should you provide company cars or let your employees use their own cars for work? Or maybe provide a mix of both? 

With this guide, we hope to help you make an informed, strategic decision for your organisation’s preferred fleet management style. We’ll cover risks, compliance challenges, benefits, and disadvantages to company cars vs personal cars, breaking down the real costs and tax implications – especially when it comes to reimbursing mileage in either scenario. 

Company car vs personal car: The two fleet models explained 

Company cars (employer-owned)

The company car model may involve leasing or purchasing vehicles directly and usually includes insurance, servicing, and maintenance (covered by the employer). 

Organisations that choose company cars over a grey fleet, could be doing so for a number of reasons. You could consider this model, if: 

• A significant number of employees consistently log high mileage
• Your business must adhere to branding requirements, or you wish to boost brand visibility
• Standardisation and control are high priorities at your organisation

Personal cars (grey fleet)

A grey fleet refers to employees using their own vehicles – owned or personally leased –  for business journeys. 

Grey fleets are common in:

• Smaller or medium-sized enterprises
• Growing SMEs and owner-managed businesses 
• Healthcare and community services teams
• Construction and trades 
• Distributed or hybrid teams

Now, let’s break down the financial, compliance, and tax implications of both solutions, starting with mileage reimbursement models. 

Grey fleets, where employees get reimbursed for mileage, rely on per‑mile reimbursement (using HMRC mileage rates or custom rates) and sometimes car allowance. 

The company car model relies on fixed vehicle costs covered by the organisation, with business fuel often reimbursed using HMRC Advisory Fuel Rates or Electric Rates for EVs. 

Understanding this distinction up front makes the rest of the comparison far clearer. Below, we’ll guide you through different reimbursement methods, respectively, for grey fleets and company cars.

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Costs associated with grey fleets

Reimbursing mileage with the HMRC mileage rate 

Under HMRC’s Approved Mileage Allowance Payments (AMAPs), you can reimburse employees up to 45p per mile for the first 10,000 business miles per year, and 25p per mile thereafter, without triggering tax or National Insurance — provided records are compliant.

Read more: How to stay HMRC-compliant when managing a grey fleet

That rate is designed to be an estimate covering the average cost of vehicle expenses, such as:

• Fuel
• Wear and tear
• Maintenance and servicing
• Insurance
• Vehicle depreciation

It’s not a precise reflection of actual fuel costs, nor does it adapt to vehicle type, fuel efficiency, or driving patterns. However, for a team with relatively low mileage totals, the fixed rate provides cost transparency ahead of time, and can be cost-effective. The more driving, the higher the spend will become. 

Tracking mileage when using the per-mile rate

What’s important is that AMAPs are designed to be tax-free, but only if you can prove to tax authorities that mileage claims are accurate, reasonable, and strictly business-related. 

Capturing mileage consistently and close to the time of travel directly supports that, but it can be an added burden for the employee. Thankfully, with digital mileage tracking solutions, drivers can log miles automatically, avoiding reports based on guesswork or estimates that could trigger HMRC, and reducing the risk of inflated mileage you’ll have to cover. 

Providing a car allowance to cover vehicle expenses

As opposed to mileage reimbursement, car allowance is a scheme where you provide your employee with a fixed lump sum (usually as part of the salary) to cover business vehicle expenses. It’s often used as a less-admin-heavy alternative to company cars, thereby acting as a fixed-cost layer to the grey fleet model. 

The allowance is fully taxable, and paid out to cover expenses and maintenance on a car the employee already owns or leases, or used towards purchasing a new vehicle. 

Note: You can provide car allowance in combination with AMAPs, which tend to be lowered in that case. You may also opt out of the mileage reimbursement altogether, but your employee can then claim Mileage Allowance Relief (MAR) at tax time directly from HMRC.

Costs associated with company cars

Fixed leasing or purchasing expense

Instead of paying per mile, by providing the vehicle, the employer typically automatically covers:

• Lease or finance cost
• Insurance and breakdown cover
• Maintenance, servicing, and tyres

These costs are largely fixed, meaning they exist whether an employee drives 3,000 or 15,000 miles per year. Purchasing or even leasing the vehicle is a sizable up-front investment, especially if you’re thinking of building a larger fleet. 

Reimbursing business fuel with HMRC Advisory Fuel Rates (AFRs) 

When employees use company cars for business journeys, fuel is often reimbursed using the HMRC Advisory Fuel Rates (AFRs).

AFRs are updated quarterly, and vary by fuel type and engine size. For EVs, HMRC stipulates a separate home and public charging rate. 

These rates exist to cover fuel/charging expenses only, which means they scale with longer or more frequent journeys. 

Real-world cost estimate example: AMAPs vs car allowance vs company car

To help illustrate the expenses associated with each reimbursement method better, we’ve drafted an example. The employee profile will be the same for each calculation to strengthen the comparison. 

Note: All figures are costs covered solely by you as the employer

Employee profile 

Role: Surveyor
Annual business mileage: 12,000 miles
Vehicle type (where relevant): mid-size petrol car (e.g. VW Golf / Ford Focus equivalent)

Scenario 1: Grey fleet (personal car), mileage reimbursement using AMAPs

Assumptions

• HMRC AMAPs: 10,000 miles @ 45p, 2,000 miles @ 25p
• No car allowance
• No company-provided vehicle

In this scenario, you’ll essentially cover all running costs through the HMRC per-mile rate. There’s no fixed commitment assigned to the particular employee, but costs will scale or dip directly with mileage. 

Scenario 2: Grey fleet with car allowance + AMAPs combined

Assumptions

• Annual car allowance: £4,800 (£400/month)
• Mileage reimbursed with AMAPs (same as above)

As you can see, car allowance nearly doubles the employer cost here. In this scenario, the organisation carries full grey fleet compliance obligations and covers a fixed cost regardless of mileage. 

Low-mileage drivers may therefore be overpaid, while high-mileage drivers become expensive quickly. It’s worth noting, however, that car allowance is often seen as an attractive perk by employees. 

Scenario 3: Company car, acquired via leasing  

Assumptions

• Lease cost: £350/month → £4,200/year
• Insurance, servicing, tyres: £1,200/year
• Business fuel reimbursed using HMRC Advisory Fuel Rates (assuming 14p/mile as per current rates) 

(Benefit-in-Kind tax is employee’s obligation, therefore not included here)

Side-by-side cost comparison & summary

At 12,000 miles per year, AMAPs are the cheapest option. Car allowance is the most expensive here, as it adds a fixed cost without removing mileage spend. Company cars sit in the middle, and become more attractive as the mileage increases further. 

Where the crossover occurs

There is no universal mileage threshold in the company car vs personal car debate where running a grey fleet becomes more expensive than providing company cars – but certain patterns tend to push costs in that direction, and it’s evident in the scenarios above. 

At lower mileage (e.g. <6–10k miles/year)
AMAPs almost always the cheapest

At higher mileage (e.g. 11–20k+)
Company cars often become cost-competitive

With car allowance
Costs escalate fastest unless tightly controlled

How to set yourself up for success with a grey fleet

As the example calculation above illustrates, grey fleets can be the cheaper, simpler alternative to company cars – if and when managed correctly. 

You can make your grey fleet work better and fully take advantage of its flexibility if you prepare from the get-go. With clear guidance and a reliable mileage tracking process, you can control costs, maintain compliant documentation, and avoid last-minute corrections, all while keeping admin time-efficient and predictable. 

Automate admin tasks 

With an automatic solution in place when managing mileage for a grey fleet, you’ll avoid:

• Chasing drivers for missing or late mileage claims
• Reviewing journey details for accuracy and business purpose
• Correcting errors before payroll runs
• Handling resubmissions when claims are rejected

Individually, these tasks may seem minor. At scale, they become a recurring cost, especially in organisations with distributed teams or frequent short drives.

A mileage tracking app, like Driversnote Teams, can significantly reduce painstaking manual labour around tracking, logging, and reporting. 

Mileage inflation 

Mileage inflation doesn’t necessarily mean intentional fraud, as it’s often linked simply to the inaccuracy of pen-and-paper logging. But, it can lead to employees: 

• Estimating or rounding up distances instead of measuring routes as they go
• Reconstructing logs, weeks later, from memory
• Taking small private detours and unintentionally including them in the business mileage

When you’re in control of the per-mile payments through systematic tracking and reporting, you can avoid the small inaccuracies that would inevitably add up and increase your annual spend.

Driver and vehicle documentation checks

Grey fleets shift responsibility for vehicles onto employees, but not responsibility for compliance.

As the employer, you are still expected to ensure:

• Valid driving licences
• Insurance that covers business use
• MOTs and roadworthiness where applicable

Collecting, checking, and storing this documentation takes time. When it’s handled informally (e.g. via email or spreadsheets), it’s easy for checks to lapse or become inconsistent. Managing your grey fleet in a more structured manner will help alleviate those risks. 

Read more: Grey fleet risk management assessment checklist

Insurance gaps and duty-of-care exposure 

One of the most overlooked grey fleet risks is insurance. If an employee drives for work without appropriate business-use insurance, the consequences can include:

• Invalidated cover
• Employer liability
• Personal injury exposure

Identifying and preventing these gaps requires more than a written grey fleet policy – although that’s a great first step. It requires active, frequent verification of each employee driver's insurance coverage.

Comparison of tax implications 

Tax treatment is one of the most meaningful differences between using company cars vs personal cars. While both models can be tax-efficient, they carry different risks, triggers, and administrative requirements.

Company cars and Benefit-in-Kind tax

When an employer provides a car that is available for private use, HMRC generally treats this as a taxable Benefit-in-Kind (BiK) for the employee – also referred to as company car tax.

How company car tax works

BiK is calculated based on:

• The vehicle’s list price
• CO₂ emissions
• The BiK percentage for the tax year

The employee pays income tax on the benefit, while the organisation has to pay Class 1A National Insurance on the BiK value. 

BiK is based on availability, not mileage. Even if private use is limited, HMRC may still apply full BiK if the car is available for personal journeys.

Where tax risk can arise

• Assuming a car is “business-only” without evidence
• Unclear or unenforced restrictions on private use
• Poor documentation if HMRC challenges the availability

Grey fleet: Tax efficiency depends on mileage classification

For employees using their own vehicles, tax treatment centres on mileage reimbursements (AMAPs) rather than vehicle provision.

When correctly applied, these reimbursements can be tax-free for both you and your employees.

What makes grey fleets tax-efficient

• No Benefit-in-Kind on the vehicle
• No employer NIC on reimbursed mileage (within limits)
• Tax exposure scales with business use

What creates tax risk

• Inadequate mileage records
• Unclear business purpose
• Commuting or private journeys claimed as business mileage

If HMRC determines that mileage claims are unsupported or misclassified, reimbursements can be reclassified as taxable pay, triggering:

• PAYE liabilities
• Employer and employee National Insurance
• Penalties and interest

Thankfully, using automatic mileage software can support you in creating consistent mileage records, where business and personal use are clearly split and categorised. 

Car allowance

Car allowance sits within the grey fleet model, but introduces a different tax dynamic. The allowance itself is fully taxable income. From HMRC’s perspective, a car allowance is simply salary, it’s therefore: 

• Paid through payroll
• Subject to income tax and National Insurance
• Taxed regardless of how the car is used
• No mileage evidence required for the allowance itself

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