Quick answer
Buying a business vehicle is relieved through capital allowances: 100% in year one for a new zero-emission car, 14% a year for cars at 50g/km CO2 or less, 6% above that, and up to £1 million immediately for vans under the Annual Investment Allowance. Running costs are claimed at the business-use proportion. The alternative for cars is the flat-rate mileage method, which replaces both. VAT on buying a car is blocked for almost everyone.
Is a vehicle tax deductible in the UK?
Yes, but the purchase and the running belong to two different regimes. The purchase price is capital, so it is not an expense in the profit and loss; it is relieved through capital allowances instead. Running costs (fuel, insurance, servicing, repairs, road tax) are revenue expenses deductible at the business-use share. And the whole question disappears if you use the simplified mileage rate, because 55p per mile already includes buying and running the car.
The vehicle type matters more than anything else. Cars are singled out for restricted treatment: they are excluded from the Annual Investment Allowance and from full expensing, and their writing-down rate depends on CO2 emissions. Vans, lorries, and motorcycles count as ordinary plant and machinery, which makes them far more generous to buy.
How much can you claim?
For cars bought from April 2021 onward, the capital-allowance position by CO2 band:
| Car | Allowance |
|---|---|
| New and unused, zero emissions (electric) | 100% first-year allowance |
| New or used, CO2 of 50g/km or less | Main rate, 14% a year (18% before April 2026) |
| New or used, CO2 over 50g/km | Special rate, 6% a year |
The main-rate cut from 18% to 14% took effect in April 2026, so low-emission cars now take noticeably longer to write down. A second-hand electric car does not get the 100% first-year allowance; it goes into the main pool.
Worked example: a consultancy buys a £28,000 diesel estate emitting 120g/km. That is the 6% special rate, so the year-one claim is £1,680, with the remainder relieved slowly in later years. The same £28,000 spent on a new electric car deducts £28,000 in year one. Spent on a van, it is also fully deductible in year one via the Annual Investment Allowance, which covers up to £1 million of qualifying plant.
Sole traders with private use restrict the claim: 70% business use per the mileage log means 70% of the allowance and 70% of running costs.
VAT on vehicles
Input VAT on buying a car is blocked unless the car is used exclusively for business and demonstrably not available for private use; HMRC’s examples are taxis, driving-instruction cars, and self-drive hire fleets. Commercial vehicles do not carry the block, so a VAT-registered business reclaims the input VAT on a van in the normal way. On a used car, a reclaim is only ever possible where the sales invoice itself shows VAT. Fuel has its own three-option VAT regime, covered in the fuel guide.
Record-keeping requirements
Keep the purchase invoice, the CO2 figure evidence (the V5C or the manufacturer’s certificate), the finance agreement if any, and a contemporaneous mileage log establishing the business-use percentage. VAT records are kept at least 6 years, self-assessment records at least 5 years after the 31 January deadline. The capital-allowance computation itself should survive as long as the vehicle stays in the pool, because disposals years later still refer back to it.
How to claim, step by step
- Classify the vehicle: car or commercial. The V5C body type and payload settle most arguments.
- For a car, find the CO2 band and pick the right allowance rate; for a van, claim the cost against the Annual Investment Allowance.
- Restrict for private use if you are a sole trader or partner, using the mileage-log percentage.
- Enter the claim in the capital allowances boxes of the SA103 self-employment pages or the company tax return.
- Claim running costs separately at the business-use share, unless the vehicle is on the flat-rate mileage method.
- On disposal, bring the sale proceeds back into the computation; selling a pooled car above its written-down value claws relief back.
Common mistakes
- Claiming the Annual Investment Allowance on a car. Cars are excluded; only the CO2-banded rates apply.
- Mixing methods: claiming capital allowances and the 55p mileage rate on the same vehicle.
- Reclaiming VAT on a car that is available for private use. The block applies even if private use is minor.
- Forgetting the private-use restriction on both allowances and running costs.
- Using the pre-April-2026 18% main rate in a 2026-27 computation; it is now 14%.
Software that helps
- Dext captures the purchase invoice and running-cost receipts so the year-end computation starts complete.
- ExpenseFlow extracts vehicle invoices and running costs with frontier vision AI, flags vehicle spend as needing business-use apportionment rather than a full claim, and syncs the approved transactions to Xero or QuickBooks with documents attached.
- Xero itself holds the fixed-asset register where the vehicle’s cost, pool, and disposal history live.
FAQ
See the answered questions above for first-year allowances, van treatment, VAT on purchase, method exclusivity, and private use.
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