Capital Allowances for Cars 2025/26 – Tax Relief for Business Vehicles

Capital Allowances for Cars 2025/26 – If your business buys a car, you may be able to claim tax relief through capital allowances.
The rules are different depending on the type of car, CO2 emissions, and how it’s used.

In this guide, Khoob Accountancy explains how capital allowances for cars 2025/26 work for companies,
sole traders, and partnerships.

Can You Claim Capital Allowances on Cars?

Yes, but cars are treated differently from other business equipment.
You can’t use the Annual Investment Allowance (AIA) for cars. This means you can’t claim 100% tax relief upfront—unless it’s an electric car.

If you use the cash basis for accounting, you also cannot deduct the full car cost in the year of purchase.

Electric Cars and 100% First-Year Allowance

If your business buys a new electric car, you can claim 100% tax relief in the first year.
This is only for new electric cars – not second-hand ones.

For second-hand electric cars, you must use writing down allowances instead.

Writing Down Allowances for Cars in 2025/26

If your car doesn’t qualify for the 100% allowance, you may claim tax relief over time using writing down allowances.
The rate depends on the car’s CO2 emissions:

• 18% rate for cars with CO2 emissions of 50g/km or less (including used electric cars)
• 6% rate for cars with emissions above 50g/km

Both new and used cars are eligible for these rates.

Private Use – Adjusting Capital Allowances

If you use the car for both business and personal reasons, you must adjust the allowance.
Only the business part qualifies.

For example, if 60% of your car use is for business, only 60% of the writing down allowance can be claimed.
The rest is private use and not allowed.

Simplified Car Expenses for Sole Traders and Partnerships

Instead of claiming capital allowances, sole traders and partnerships can use the
simplified expenses system. This is based on mileage:

• 45p per mile for the first 10,000 miles per year
• 25p per mile after that

If you use this method, you cannot also claim capital allowances. You must choose one or the other.

Companies cannot use simplified expenses. They must use capital allowances only.

Capital Allowance Tips from Khoob Accountancy

• Buy new electric cars to claim 100% relief in year one
• Track your car’s CO2 rating to apply the correct allowance rate
• Separate private and business use clearly in records
• Sole traders: consider mileage-based simplified expenses

Need Help with Capital Allowances for Cars 2025/26?

At Khoob Accountancy, we help you claim the right tax relief for cars 2025,
from electric vehicles to company cars.

Whether you’re working with accountants in Kensington, Barnet accountants,
or need a french speaking accountant in London, we’re here to help.

Contact us today for expert guidance on employment tax and payroll,
capital allowance claims, and virtual accounting services tailored to your needs.