How to claim capital allowances on cars as self-employed

As self-employed, you are entitled to a number of tax reliefs for businesses, including capital allowances on cars purchased to be used in your company. 

Capital allowances on cars enable businesses to get a deduction on the cost of purchasing a business vehicle. These deductions are often spread across the period of ownership. 

See below for everything you need to know about claiming capital allowances on cars as self-employed in the UK.

Types of business car capital allowances

There are two different types of capital allowances that you can choose to claim for a car being used in your business. You can either:

• Use writing down allowances to work out what capital allowance you can claim, or
• Use 100% first year allowance for zero-emissions or electric cars

Note: Business cars are not eligible for the annual investment allowance treatment, as per HMRC regulations.

The 100% first year allowances 

If you have purchased:

• A new and unused electric car, or 
• A zero-emissions car

Your business can qualify for enhanced capital allowances (a kind of 100% first year allowance). 

This means you’re allowed to deduct the total cost of your car from your profits before tax while filing your tax return.

Writing down allowances

Writing down allowances allow you to work out what percentage of the car’s value you can deduct from your profits annually. For cars, it’s either 18% or 6% and is largely dependent on their CO² emissions. Keep reading for more information. 

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How to claim

You can claim capital allowance on cars when filing your tax return, in a similar manner to claiming other business expenses regarding your profits before tax. 

If your car qualifies for writing down allowances, you need to work out which rate you can claim at. This is dependent on the CO² emissions of your car. 

Rates for cars 

To work out your writing down allowances, you need to figure out which of the following rates your car qualifies for. 
The rate indicates the percentage of the car’s value you can claim tax relief on, and is largely based on the year of purchase, whether the car is new or second hand, as well as its CO² emissions.

According to HMRC guidelines, there are 3 rates:

• 100% first year allowance (full value of the vehicle)
• The main rate of 18%
• The special rate of 6%

Most cars will fall into the main rate pool of 18%. The following table should help you figure out the rate pool of your car. 

Cars bought from April 2021 onwards

Note: If your car was purchased before April 2021, the "rates for cars" section on the HMRC webpage provides handy information on what you can claim on cars bought between April 2021 and April 2009 and before.

100% first year allowances vs. writing down allowances

Example: Steve is self-employed and wants to purchase a car to use in his delivery business. 

He is wondering how he can calculate capital allowances if he purchases a car to use solely for business, and what kind of capital allowance he may be able to write off the cost of the car.

Option 1: 100% first year allowance
If Steve buys a brand new electric or zero-emissions car worth £35,000, he will be able to claim the 100% first year allowance.

This means the full cost of his electric car (£35,000) can be written off against his taxable profits for that tax year.

Option 2: Writing down allowances (6% rate)
However, if Steve opts to purchase a car with CO² emissions of 50g/km or above, he will need to use writing down allowances when claiming capital allowances. With CO² emissions above 50g/km, the car would fall into the special rate pool of 6%. 

This means Steve can claim a capital allowance of £2,100 (£35,000 x 6%) for that taxable year.

Company cars used for personal use

If you are self-employed and have bought a car that’s used for both business and personal use, capital allowances are apportioned according to usage percentage, i.e. the ratio of annual business miles to total annual miles.

For example: Business A has purchased an eligible electric car costing £45,000. Their owner has confirmed with HMRC that the car is eligible for the 100% capital allowance. 

However, the car is being used for both business and personal driving. The business use of the car is approximately 70%. 

In this case, the capital allowances can be calculated as £31,500 (£45,000 @ 100% x 70%).

Rules for different vehicle types

Electric cars 

Most new and unused electric cars now qualify for the 100% first year allowance. In other words, you can deduct the full cost of the electric car from your profits before tax.

Hybrid cars

If you purchase a hybrid car, you can claim the main rate allowance of 18% if its CO² emissions are less than 50 g/km.

Vans

Businesses that purchase vans for business use only can also make use of the writing down allowances and rates to claim tax relief on their purchase. For electric vans, you may be able to enjoy a 100% tax write-off. 

Note: while business cars do not qualify for the annual investment allowance, commercial vans do qualify for annual investment allowance.

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