Is buying a car
tax deductible?

Not as an expense, but you can get relief. A car bought for the business is claimed through capital allowances, on the cash basis as well as traditional accounting, unless you use the simplified mileage rate for it (GOV.UK; business cars). The allowance depends on the car's CO2 emissions, and private use reduces it.

Buying a car is the one piece of equipment the cash basis does not let you simply expense. Instead, the cost goes through capital allowances, at a rate set by the car's emissions, reduced for private use. For many sole traders, the simplified mileage rate is the easier and more generous route, because it covers the car's cost and running costs in one figure.

Is buying a car tax deductible?

The HMRC rule

A car bought for the business is claimed through capital allowances, on the cash basis too, unless you use simplified expenses for it. The rule comes from Car, van and travel expenses, Capital allowances: business cars, Simplified expenses if you’re self-employed.

GOV.UK says that on traditional accounting you claim capital allowances when you buy a vehicle, and on the cash basis a car is claimed as a capital allowance too, as long as you are not using simplified expenses for it (travel expenses). The rate depends on the car: a new and unused car with zero CO2 emissions gets 100% first-year allowances; a car with emissions of 50g/km or less, or a second-hand electric car, goes in the main rate pool at 14% a year (18% before April 2026); a car over 50g/km goes in the special rate pool at 6% (business cars). Cars cannot use the Annual Investment Allowance.

When you can claim it

• Capital allowances on a car used in the business, on either accounting basis.
• A 100% first-year allowance on a new, unused zero-emission car.
• Writing down allowances each year on other cars, at 14% or 6% depending on emissions.
• Interest on a loan or hire purchase for the car, as a finance cost, for the business share.

When you cannot

• The full cost of a car as an expense in the year you buy it, even on the cash basis.
• The Annual Investment Allowance, which excludes cars.
• The private-use share of the allowances.
• Capital allowances on a car whose business use you claim at the mileage rate.

What to claim instead

The alternative to claiming the cost of a vehicle is the simplified mileage rate: 55p a mile for the first 10,000 business miles in 2026/27 (45p before 6 April 2026), then 25p (GOV.UK). It covers the vehicle's purchase, finance and running costs in one figure, so if you use it for a vehicle you do not also claim capital allowances, fuel, insurance or repairs for that vehicle.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is something you buy to keep. On traditional accounting that means capital allowances, where the item qualifies, rather than an expense. On the cash basis most equipment is an ordinary expense, but cars, land and buildings never are.
4. Is there a specific rule? For buying a car, the deciding rule is buying a car: a car bought for the business is claimed through capital allowances, on the cash basis too, unless you use simplified expenses for it.

Worked example: a new electric car and a petrol one

A consultant buys a new electric car for £30,000 and uses it 80% for business. The 100% first-year allowance covers the full cost, restricted to 80%, so she deducts £24,000 in the year of purchase. Had she bought a £30,000 petrol car emitting 120g/km, it would go in the special rate pool at 6%: £1,800 in the first year, restricted to 80%, £1,440.

Private use and single asset pools

A car used partly privately goes into its own single asset pool, and the allowances are calculated on the full cost and then reduced by the private-use percentage. If you sell the car later, a balancing allowance or charge squares up the difference between what you claimed and what the car actually cost you, again restricted for private use. Your accountant or software keeps the pool running from year to year.

Emissions decide the rate

Check the car's official CO2 figure before you buy, because it decides how quickly you get relief. Zero-emission new cars get everything in year one; low-emission cars get 14% a year on a reducing balance; higher-emission cars 6%. On a £30,000 car, that is the difference between £30,000 in year one and £1,800. A second-hand electric car goes in the main rate pool rather than getting the 100% allowance.

Mileage rate or capital allowances?

The mileage rate, 55p a mile for the first 10,000 business miles from 2026/27, covers the car's depreciation as well as running costs. For a modestly priced car doing average mileage it is usually the better claim, and much simpler. Capital allowances plus actual costs tend to win for an expensive car used heavily for business, especially a new electric one with the 100% allowance. Decide before your first claim, because the mileage rate cannot be dropped for that car once used.

Cars, vans and pick-ups

For tax, a car is any vehicle not primarily suited to carrying goods, not a motorcycle, and not of a type unsuitable for private use. Vans are not cars, so on the cash basis a van is an ordinary expense and on traditional accounting it can use the Annual Investment Allowance. Most double cab pick-ups bought from 6 April 2025 are treated as cars (CA23511).

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of buying a car belongs in car, van and travel expenses (SA103F box 20). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

Records to keep

Keep the purchase or finance agreement, every invoice for running costs, and a mileage log that shows business and total miles, so you can support the business percentage. For capital allowances, keep the date the vehicle was bought, its cost and, for a car, its CO2 emissions.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Claiming the whole cost of a car as an expense on the cash basis.
• Claiming the Annual Investment Allowance on a car.
• Claiming capital allowances and the mileage rate for the same car.

Related expenses

This item sits in the car, van and travel expenses category, alongside buying a van, car insurance, car leasing and PCP, car repairs and servicing, electric and hybrid cars, food and meals, fuel and hotels. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.