When it comes to capital allowances, cars play by a slightly different set of rules—and if you’re running a business, it’s worth knowing the details to make sure you’re claiming the right relief.
Whether you’re a sole trader, part of a partnership, or running a limited company, understanding how capital allowances apply to cars can save you money—and help you make better choices when buying a vehicle for work.
Let’s break it all down.
No Annual Investment Allowance (AIA) for Cars
First things first: cars don’t qualify for the Annual Investment Allowance (AIA). While vans and other types of equipment can be written off fully in the year of purchase (as long as you’re within your £1 million AIA limit), cars are excluded from this.
So, unless the car qualifies for a first-year allowance, you won’t be able to claim 100% relief right away.
No Full Expensing or 50% First-Year Allowance Either
For limited companies, you might’ve heard about full expensing or the 50% first-year allowance for plant and machinery. Unfortunately, these don’t apply to cars either—unless we’re talking electric (more on that below).
100% First-Year Allowance for New Electric Cars
Here’s the good news: if you’re buying a brand-new electric car, you can claim 100% of the cost as a first-year allowance. That means you can deduct the full amount from your profits in the same year you buy it.
But be aware:
- It must be a new electric car (not second-hand)
- This is available to both sole traders and companies
For second-hand electric cars, you’ll need to claim writing down allowances instead.
Writing Down Allowances (WDAs)
If your car doesn’t qualify for a first-year allowance (or you’re not using the simplified mileage method as a sole trader), you’ll be claiming writing down allowances. The rate depends on the car’s CO₂ emissions:
- 18% (main rate): for new or used cars with CO₂ emissions of 50g/km or less (this includes second-hand electric vehicles)
- 6% (special rate): for new or used cars with CO₂ emissions over 50g/km
Remember, these allowances apply each year on a reducing balance basis—so the relief is spread over time.
Private Use? Time to Adjust
If you’re a sole trader or partner using your car for both business and personal journeys, you can’t claim the full allowance.
Let’s say you use your car 60% for business and 40% for personal trips. In this case, you’d only be able to claim 60% of the writing down allowance—the rest is considered personal use and isn’t deductible.
Simplified Expenses for Sole Traders and Partnerships
If you’d rather not deal with writing down allowances, you’ve got another option: simplified expenses.
This method lets you claim based on business mileage:
- 45p per mile for the first 10,000 business miles in the tax year
- 25p per mile after that
It’s simple, clean, and great for sole traders or partnerships who don’t want to keep track of capital allowances. But it’s one or the other—you can’t use simplified expenses and claim capital allowances on the same car.
Companies can’t use simplified expenses—they’ll need to stick with capital allowances.
Ready to Make the Most of Your Car Costs?
Whether you’re buying your first electric car for the business or wondering whether mileage claims are better for you, the way you treat car expenses can make a big difference to your tax bill.
Got questions about what works best for your business? We’re here to help. Contact Jon or the team today for friendly, expert advice on getting it right from the start.
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