Is car insurance
tax deductible?

Partly. Insurance for a vehicle used in the business is allowable, but only the business share if you also use it privately, and not at all if you use the mileage rate for that vehicle, which already covers insurance (GOV.UK; simplified expenses).

Insurance is one of the running costs you weigh up when choosing between actual costs and the mileage rate. On actual costs you claim the business share of the premium; on the flat rate it is already priced in. Either way, the policy itself needs to cover business use, which is a separate question from tax but just as important.

Is car insurance tax deductible?

The HMRC rule

Vehicle insurance, repairs, fuel, parking, hire, road tax and breakdown cover, fares and hotel rooms for business trips are allowable. Travel between home and work, non-business journeys, and fines are not. The rule comes from Car, van and travel expenses, Simplified expenses if you’re self-employed.

Vehicle insurance is on GOV.UK's list of allowable travel costs (travel expenses). Where the vehicle is also used privately, only the business part is allowable, on a reasonable basis such as business miles over total miles. The simplified mileage rate replaces the actual costs of buying and running a vehicle, including insurance, so you cannot claim both for the same vehicle (simplified expenses).

When you can claim it

• The business share of insurance for a car or motorcycle used for business and privately.
• All the insurance for a van or vehicle used only in the business.
• Insurance for a vehicle hired for business, for the business period.
• Goods in transit or tools-in-van cover, which is business insurance in its own right.

When you cannot

• Insurance for a vehicle whose business use you claim at the mileage rate.
• The private share of the premium for a vehicle also used personally.
• Insurance for a family car not used in the business.
• Excesses or uninsured losses from a crash on a private journey.

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 a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For car insurance, the deciding rule is business travel and vehicle running costs: vehicle insurance, repairs, fuel, parking, hire, road tax and breakdown cover, fares and hotel rooms for business trips are allowable. Travel between home and work, non-business journeys, and fines are not.

Worked example: a sales consultant’s car

A sales consultant pays £960 a year to insure her car, including business use. Her log shows 70% business miles, so she claims £672 (70% of £960) along with 70% of her fuel, servicing and road tax, and capital allowances on the car. Had she chosen the mileage rate instead, she would claim none of these and just multiply her business miles by 55p.

Business use cover

Standard social, domestic and pleasure policies do not cover driving for business, and many exclude it outright. Commuting cover is different again. If you drive to customers or carry goods, check the policy includes business use, and for deliveries or carrying passengers for payment, the specific hire-and-reward cover those need. An insurer can refuse a claim for an accident on an uninsured business journey, which is a far bigger cost than the premium difference.

Tools and goods in the vehicle

Tools-in-van cover and goods-in-transit insurance protect what you carry rather than the vehicle. They are business insurance in their own right, allowable in full, and are not covered by the mileage rate, because they are not a cost of running the vehicle. Record them under business insurance rather than vehicle costs.

When the premium straddles tax years

On the cash basis, the premium counts in the tax year you pay it. On traditional accounting, a premium covering months in two accounting periods is spread across them, so part of it may belong to next year. Monthly direct debits make the timing simple either way.

Choosing a method for the vehicle

For a modest car doing a few thousand business miles, the mileage rate usually beats actual costs because it covers depreciation as well as insurance. For a vehicle used almost entirely for business, or an expensive one, actual costs can be worth more. GOV.UK's simplified expenses checker compares the two. Decide before the first claim for that vehicle, because the flat rate, once used, stays.

Insurance for a vehicle you hire

If you hire a van for a job, any insurance you buy with the hire is part of the hire cost and allowable for that business use. Short-term cover to drive someone else’s vehicle on business follows the same rule. It is separate from the mileage rate, which only covers vehicles you use regularly, so a hire vehicle’s costs are claimed at actual cost.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of car insurance 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.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

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 insurance as well as the mileage rate for the same vehicle.
• Claiming the full premium for a car that is also used privately.
• Driving for business on a policy that does not cover business use.

Related expenses

This item sits in the car, van and travel expenses category, alongside buying a car, buying a van, 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.