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We spoke with Anastasiya Kokonova, Capital Allowances Partner at RCK Partners, to explain how capital allowances on cars work in practice, which vehicles qualify for tax relief, how CO₂ emissions and vehicle type affect the level of allowance available, and how businesses can access tax relief when investing in company cars, electric vehicles, hybrids, and commercial vans.
Capital allowances on cars allow businesses to obtain tax relief on the cost of vehicles used for business purposes. Rather than deducting the full purchase cost as an expense, businesses claim tax relief through the capital allowances regime.
The amount and speed of relief available depends on factors such as the vehicle's CO₂ emissions, whether it is new or second-hand, and whether it is electric, hybrid or conventionally fuelled.
For many businesses, understanding the capital allowances available on company vehicles can generate significant tax savings and improve cash flow.
Yes. Companies and sole traders can generally claim capital allowances on cars used for business purposes.
However, unlike many other plant and machinery assets, cars do not qualify for Annual Investment Allowance (AIA) or Full Expensing.
Instead, relief is usually available through First Year Allowances for qualifying zero-emission cars or through Writing Down Allowances based on the vehicle's CO₂ emissions.
Where a vehicle is used partly for private purposes, additional rules may apply.
The rate of capital allowances available on cars is largely determined by the vehicle's CO₂ emissions.
Broadly:
As tax rates and thresholds can change over time, businesses should review the current rules when purchasing vehicles.
Yes. New and unused electric cars currently qualify for a 100% First Year Allowance.
This allows businesses to deduct the entire cost of the vehicle from taxable profits in the year of purchase, providing immediate tax relief.
Combined with lower running costs and environmental benefits, this makes electric vehicles one of the most tax-efficient options available to many businesses.
However, second-hand electric cars do not qualify for the 100% First Year Allowance and instead receive relief through Writing Down Allowances.
Yes. Hybrid vehicles can qualify for capital allowances, but they do not generally qualify for the 100% First Year Allowance available to qualifying zero-emission vehicles.
Instead, relief is usually obtained through Writing Down Allowances, with the applicable rate depending on the vehicle's CO₂ emissions.
The lower the emissions, the more favourable the capital allowances treatment is likely to be.
Businesses considering fleet investments should therefore assess both the commercial and tax implications of vehicle selection.
Yes. Vans are generally treated differently from cars for capital allowances purposes.
Most vans qualify as plant and machinery and may therefore be eligible for:
This often allows businesses to obtain significantly faster tax relief compared to cars.
For many businesses, vans represent one of the most tax-efficient vehicle purchases available.
The key difference is that vans are generally treated as plant and machinery, whereas cars are subject to their own specific capital allowances rules.
Cars are usually restricted to First Year Allowances or Writing Down Allowances depending on emissions.
Vans, however, can often qualify for Annual Investment Allowance or Full Expensing, allowing businesses to claim up to 100% tax relief immediately.
As a result, the timing of tax relief can be significantly more favourable for vans than for cars.
Yes. A car allowance and capital allowances are completely different concepts.
A car allowance is a payment made by an employer to an employee to help cover the costs of using a personal vehicle for work purposes.
Capital allowances, on the other hand, are a tax relief claimed by a business on the cost of purchasing qualifying vehicles.
While both relate to vehicles, they operate under entirely different tax rules and should not be confused.
Some of the most common missed opportunities include:
A detailed review can often identify additional tax relief that may otherwise be overlooked.
Businesses should consider tax relief at the procurement stage rather than after assets have been purchased.
Key considerations include:
With vehicle fleets often representing a significant capital investment, careful planning can substantially accelerate tax relief and improve overall returns.
Capital allowances on cars and commercial vehicles remain a key area of tax relief for UK businesses investing in company fleets. While cars are often subject to more restrictive rules than other assets, understanding how allowances are applied based on CO₂ emissions, vehicle type, and usage can significantly improve the timing and value of tax relief available.
By planning vehicle purchases carefully and ensuring allowances are correctly identified and claimed, businesses can avoid missed opportunities and make more tax-efficient investment decisions across cars, electric vehicles, hybrids, and vans.
At RCK Partners, we would be happy to support further discussions around how capital allowances may apply to your business.
For more information or to continue the conversation, click here.
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