Can you write a car off as a business expense in the UK? 

In the UK, you can write a car off as a business expense as long as it’s for business. How much you can deduct (or "write off"), and how you do it, depends on whether you're a sole trader, a partnership, or a limited company. 

The car’s fuel type (electric, diesel, or petrol), purchase date, condition (brand new or second-hand), and CO2 emissions also affect how much you can claim.

In this article, we'll discuss how to write a car off as a business expense in the UK. We'll look at two deduction methods you can use — capital allowances and simplified expenses — along with a way to see which one is best for you. 

We'll even talk briefly about how employees can claim some car expenses back on their tax return, depending on whether they own the vehicle or if the company has provided one.

What’s considered a car for tax purposes?

Before we get started, let’s define what a “car” is for tax purposes:

• Something that most people use privately and is suitable for that purpose
• Not a goods transport vehicle (e.g. a lorry, van, or truck)*
• Not a motorcycle

*Note: Sole traders can use a mileage-based, flat rate deduction method called simplified expenses, which covers goods vehicles and motorcycles. However, this article will focus solely on cars.

How to write off a car for a business in the UK

There are several ways to do a car tax write-off in the UK, commonly referred to as deductions or claiming expenses. 

How to claim a car purchase as a sole trader or partnership

If you’re a sole trader or in a partnership with another person, you can deduct your car purchase costs in two ways: using simplified expenses or with capital allowances. You can only use one method per vehicle.

Simplified Expenses

With simplified expenses, you calculate your yearly costs using a flat rate for mileage instead of the actual price figure. Here are the rates:

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

Let’s say you’ve driven 12,500 miles during one accounting year. Your calculation will be:

£0.45 x 10,000 = £4,500

£0.25 x 2,500 = £625

£4,500 + £625 = £4,625

£4,625 is what you’ll claim on your tax return.

You can’t use simplified expenses if you previously used capital allowances to deduct your car expenses. On the other hand, you must keep using the flat rate (for as long as you use that car for your business) once you use the simplified expenses method for one vehicle.

Capital allowances

Instead of simplified expenses, you can claim the cost of your car purchase as a capital allowance. You can do this as long as you’re using traditional accounting, which is when you report the income or expense on the day you sent the invoice or received a bill. If you’re reporting the income or expense on the day you got paid or settled the bill (also known as cash basis accounting), you can only use capital allowance if you’re not already using simplified expenses.

There are three allowance rates you can use, depending on your car’s purchase date, whether it was new or second-hand, fuel type (electric or diesel/petrol), and its CO2 emissions:

• 100% of the car’s value as a first-year allowance

• • New and unused electric car (from April 2009 onwards)
  • New and unused car with 0g/km CO2 emissions (from April 2021 onwards)
  • New or used car with 50g/km or less CO2 emissions (between April 2018 to April 2021)
  • New or used car with 75g/km or less CO2 emissions (between April 2015 to April 2018)
  • New or used car with 95g/km or less CO2 emissions (between April 2013 to April 2015)
  • New or used car with 110g/km or less CO2 emissions (between April 2009 to April 2013)

• 18% of the car’s value as a main-rate allowance

• • Second-hand electric car (from April 2009 onwards)
  • New or used car with 50g/km or less CO2 emissions (from April 2021 onwards)
  • New or used car with 110g/km or less CO2 emissions (between April 2018 to April 2021)
  • New or used car with 130g/km or less CO2 emissions (between April 2013 to April 2018)
  • New or used car with 160g/km or less CO2 emissions (between April 2009 to April 2013)
  • Any car with an emissions figure purchased before April 2009

• 6% of the car’s value as a special rate allowance

• New or used car with over 50g/km CO2 emissions (from April 2021 onwards)
• New or used car with over 110g/km CO2 emissions (between April 2018 to April 2021)
• New or used car with over 130g/km CO2 emissions (between April 2013 to April 2018)
• New or used car with over 160g/km CO2 emissions (between April 2009 to April 2013)
• Any car without an emissions figure purchased before April 2009

The Vehicle Certification Agency can help you find your car’s emissions figure.

Cars purchased before April 2021 were subject to different CO2 thresholds for capital allowances, as listed above. However, for cars purchased on or after 1 April 2021, the simplified thresholds are:

• 100% allowance for new electric vehicles (0g/km)
• 18% allowance for vehicles with up to 50g/km CO2 emissions
• 6% allowance for vehicles with over 50g/km CO2 emissions

Can I claim car expenses as a sole trader?

Aside from the car purchase price, you can claim the following expenses incurred during business trips as a sole trader:

• Car insurance
• Vehicle repairs and servicing
• Fuel costs
• Parking fees
• Vehicle tax
• Breakdown cover costs

However, you cannot claim any fines and penalty fees you get while using your car for business.

You can also use a flat rate for mileage (also known as simplified expenses) instead of calculating the actual costs of running your vehicle. Every accounting year, you can claim 45p per mile for the first 10,000 miles, and 25p per mile beyond the initial 10,000 miles.

Use the HMRC’s simplified expenses checker to see which calculation method is better for you.

How to claim a car purchase as a limited company

You can only use capital allowances to claim your car’s purchase price as a limited company. This lets you deduct some or all of your car’s value from your profits before you pay tax. 

Like sole traders, you can use 100% first-year allowance, 18% main-rate allowance, or 6% special-rate allowance for your car. Although cars are classified as plant and machinery, they are specifically excluded from claiming full expensing, the 50% first-year allowance, the super-deduction, and the Annual Investment Allowance (AIA). Capital allowances are the only method available.

The same conditions apply when deciding which allowance rate your car qualifies for, so check the HMRC capital allowances page to see which one applies to you. However, as a general rule:

• Brand-new electric and fuel-based cars with no CO2 emissions are eligible for the 100% first-year allowance, regardless of the purchase date
• Second-hand electric cars qualify for the 18% main-rate allowance, regardless of the purchase date
• Brand-new and second-hand fuel-based cars can be claimed from the main or special-rate allowance, depending on their CO2 emissions level.
• The CO2 emissions level requirements vary depending on your car’s purchase date.
• Cars with known emissions figures purchased before April 2009 use the main-rate allowance. Use the special-rate allowance if the car doesn’t have an emissions figure.
• Cars registered before March 2001 only use the main-rate allowance.

Can I write a car off as an employee?

If you’re an employee and use a car for work, you can’t claim capital allowance for its purchase price. Instead, you can claim some operating costs back, depending on whether you own the car or if your employer provided one.

If you use your own car for work, you’ll claim using the approved mileage rate of 45p for the first 10,000 business miles for the tax year, and 25p beyond the initial 10,000 miles. This doesn’t include your normal commute to a permanent workplace. However, travel to a temporary workplace — such as a short-term client site — may qualify as business mileage.

On the other hand, you can claim business-related fuel and electricity costs if your employer has provided you with a company car. If your employer reimburses you for these costs (but not enough to cover how much you actually spent), you can claim the difference on your tax return.

Regardless of how you claim car-related expenses on your tax return, you must keep a detailed log for every business trip. Your logs must have the following information:

• Date and reason for the journey
• Postcode for the start point of your journey
• Postcode for the endpoint of your journey

You can use the HMRC tool to check if you can claim your business journeys on your tax return, and how to do it.

Can I deduct monthly payments if I bought a car on finance?

If you buy a car on finance, you may be able to deduct some or all of the payments from your tax return. Here’s how:

• If you’re self-employed or in a partnership:
• You can claim the leasing payments for cars on lease
• You can claim the interest payments for cars on hire purchase and finance agreements
• Note: If you also use the car for personal use, you can only claim the portion that applies to your business use.
• If you have a limited company:
• You can claim the interest payments for cars on hire purchase or bought with a loan
• Use the car’s purchase price to claim capital allowance and deduct it from your profits.

How do I claim business car expenses if I also use it privately?

You need to determine what percentage of your usage is for business and how much is for personal use. Then, deduct your personal use percentage from your business use percentage to determine how much you can claim on your tax return. This is part of your writing down allowances, and HMRC has specific guidance on how to do this based on what asset pool you have.

What if I sell the car after claiming it as a business expense?

If you eventually sell your car after previously claiming it, you must add the proceeds to your calculations for the accounting period in which you sold it. There are different ways of adding the car’s value to your calculation, based on how you originally claimed it. HMRC has guidance on how to do this, or you can contact them directly if you’re unsure.

Quickfire summary: How to write off a car for a business in the UK?

In the UK, you can write off a car as a business expense by claiming its purchase price, fuel costs, insurance, repairs, and servicing costs on your tax return. How you claim these expenses depends on whether you’re a sole trader, in a partnership, or running a limited company. Your car’s fuel type, whether it’s new or second-hand, and its CO2 emissions also affect how much you can claim.

There are two ways to deduct a car’s purchase price: simplified expenses and capital allowances. Simplified expenses use a flat rate per mile of 45p for the first 10,000 miles and 25p for each mile after that. Once you choose this method for your car, you must stick with it for as long as you use this car for business. Sole traders and those in a partnership can use this method if they haven’t already claimed capital allowances.

Meanwhile, capital allowances let you claim a percentage of your car’s value based on its emissions level, fuel type, and whether it’s new or used. You can claim 100% as a first-year allowance, 18% as the main rate, or 6% as the special rate. Limited companies, along with sole traders, can use this method.