Capital allowances on cars can be complex, with rules depending on the vehicle’s CO₂ emissions, age and ownership. Understanding how to claim capital allowances correctly can reduce your taxable profits and your tax bill, but the legislation can feel buried in financial jargon.
If you’re unsure where you stand, our team at Six Forward is here to provide clarity and confidence in making decisions about your business cars.
Qualifying capital allowances on cars
A common misconception is that the type of fuel or make of car directly affects your capital allowances claim. In reality, it is the vehicle’s emissions and ownership that determine the rate at which relief is given.
Capital allowances are designed to encourage businesses to choose lower-emission vehicles and to purchase instead of leasing. Understanding the capital allowances purposes helps you see why certain cars qualify for tax relief and how your business can benefit.
Directors and employees cannot claim capital allowances on cars they own personally, even if used for business purposes.
Emissions, ownership, and private use
Ownership matters: to qualify for capital allowances, the vehicle must be purchased outright. Leasing or renting generally allows you to claim monthly lease payments as a business expense, but not capital allowances.
If you use a car for both business and private purposes, you must pro-rate the claim based on the proportion of business use versus personal use.
Capital allowances on electric cars
Electric vehicles enjoy the most generous allowances. If your business buys a brand-new, zero-emission electric car, you may be eligible for first-year allowances (FYAs). These allow you to deduct the full cost of the vehicle from taxable profits in the tax year of purchase.
For second-hand cars, or for vehicles with emissions above 0g/km, you cannot claim 100% FYAs. Instead, writing-down allowances are available. Typically, these have been given at 18% per year for low-emission cars, but this rate is reducing to 14% from April 2026, and a lower “hybrid” rate already applies for periods spanning 1st or 6th April this year.
Annual investment allowances (AIAs), which are available for most other assets, are never given for cars.
Capital allowances on low-emission cars
Hybrid, petrol, and diesel cars have stricter rules due to higher emissions. First-year allowances are not available, whether the car is new or second-hand. Writing-down allowances are calculated based on measurable emissions:
- Low-emission cars (not exceeding 50g/km CO₂), such as most plug-in hybrids, are added to the main rate pool and qualify for standard (18%/14%) WDAs.
- Cars with emissions exceeding 50g/km qualify for 6% WDAs in the special rate pool. This rate is not changing.
How Six Forward can help
At Six Forward, we understand the rules around capital allowances, including annual business miles, company cars, fully electric cars, and commercial vehicles. We can manage claims or review your taxable expenditure efficiently.
If you’re an accountant and want clear advice for your clients, or a review of your business cars to claim the qualifying capital allowances, book a free consultation call with our expert team.
