Owners ask us about capital allowances on business vehicles every week. The rules affect tax relief on company cars and vans, cashflow, and whole-life costs. They also change with emissions policy, so the right choice this year may differ from last. For 2025/26, zero-emission cars bought new can still qualify for a 100% first-year allowance, while most other cars fall into 18% or 6% writing down pools depending on CO₂. Vans remain plant and machinery – so the annual investment allowance (AIA) usually applies. Getting this right helps you plan smarter fleet decisions and keep your tax bill predictable (HMRC, 2025; HMRC, 2024).
Why it matters now: ONS reported that business investment fell by 1.1% in Q2 2025 but remained 3.0% higher than a year earlier, a sign that capital spending decisions are being taken carefully in a mixed economy (ONS, 2025). Vehicle choices are often one of the bigger ticket items for SMEs. Pick the right route on capital allowances on business vehicles and you’ll protect profit, improve cashflow, and support your sustainability goals – all without tying up more cash than needed.
How capital allowances on business vehicles work
The starting point is ownership and classification. Cars do not qualify for AIA, full expensing or the 50% special rate allowance. Instead, you claim writing down allowances (WDAs) at either 18% (main pool) or 6% (special rate), based on CO₂. New, unused zero-emission cars can qualify for a 100% first-year allowance. Vans, lorries and trucks are not “cars” for capital allowance purposes, so they usually qualify for AIA – often delivering full relief in year one, subject to the AIA limit.
In short: cars sit outside AIA and full expensing; zero-emission new cars can be 100% deductible in year one; vans typically can use AIA.
Current 2025/26 rules at a glance
- Zero-emission new cars: 100% first-year allowance. Must be new and unused; second-hand electric cars do not qualify. Relief applies to expenditure from 1 April 2025 to 31 March 2026 for corporation tax, and to 5 April 2026 for income tax.
- Cars up to 50g/km CO₂: Main pool WDAs at 18% per year on a reducing balance.
Cars over 50g/km CO₂: Special rate WDAs at 6% per year on a reducing balance. - Vans, lorries, trucks: Generally eligible for AIA. This can give full year-one relief, subject to the AIA cap.
- Not eligible for AIA/full expensing: Cars are excluded from AIA and from the permanent full expensing regime.
These rules make capital allowances on business vehicles highly sensitive to emissions and whether the asset is a car or a van.
Choosing between car and van: Practical examples
Example 1 – petrol car at 120g/km CO₂: Purchase price £28,000. As a car above 50g/km, it goes into the special rate pool at 6%. Year-one WDA is £1,680. Relief is slower, so consider total cost of ownership and whether leasing gives better cashflow.
Example 2 – hybrid car at 35g/km CO₂: Purchase price £34,000. It sits in the main pool at 18%. Year-one WDA is £6,120. Relief is quicker than special rate, but still spread over years.
Example 3 – new electric car at 0g/km: Purchase price £38,000. If new and unused, the 100% first-year allowance gives full relief in year one, assuming qualifying use and no private restriction. If bought second-hand, it falls back to the main pool at 18%.
Example 4 – new van: Purchase price £30,000. As plant and machinery, you can usually claim AIA. Result: full relief in year one, subject to the AIA limit and business use.
Common pitfalls we see
- Private use by sole traders: Business proportion: Apply a just and reasonable restriction for private use if you’re a sole trader or partnership. Companies normally claim on the full cost, with benefit-in-kind rules handled separately.
- Second-hand EVs: FYA eligibility: Only new, unused zero-emission cars qualify for 100% FYA. Second-hand EVs do not; they go to the main pool at 18%.
- Misclassifying a vehicle: Van vs car: Crew cabs and car-derived vans can trip you up. For capital allowances on business vehicles, rely on HMRC definitions, not marketing labels.
- Assuming full expensing applies: Cars excluded: Full expensing is generous for qualifying plant, but cars are out. Plan accordingly.
- Forgetting accounts disclosure: Companies House filing: Vehicles are fixed assets and need correct note disclosures where applicable. Late filing penalties are avoidable, so plan ahead (Companies House, 2025).
Planning tips for digital, creative and media businesses
Production schedules, client deadlines and location work often drive vehicle needs. Build capital allowances on business vehicles into your procurement checklist:
- Total cost of ownership: Include corporation tax relief timing, Class 1A NIC on any benefits, insurance, servicing, and charging or fuel access.
- Model selection: A low-emission car in the main pool (18%) may beat a higher-emission model at 6% over a typical three- to four-year cycle. New zero-emission cars can be fully deductible in year one under FYA, which can materially improve year-one cashflow.
- Procurement timing: ONS data show investment momentum can shift quarter by quarter (ONS, 2025). If a major project is landing, align the purchase to when relief is most valuable for cashflow and rate of tax.
- Leasing vs buying: Leasing avoids capital allowances but the rentals are deductible subject to restriction rules. Buying can be better when FYA or AIA applies – particularly for a new zero-emission car or a van.
- Record-keeping: Keep CO₂ certificates, invoices, delivery dates and business use logs. You will need them if HMRC query your claim.
Capital allowances on business: How to avoid disputes
A few disciplined steps will limit risk:
- Asset evidence: Keep the V5C, invoice and spec sheet that proves CO₂ or zero-emission status.
- Pooling accuracy: Main vs special rate: Check the CO₂ threshold at purchase. From April 2021, the 50g/km split applies.
- FYA conditions: Demonstrate first ownership and date the car was brought into use to support the 100% claim window to 31 March/5 April 2026.
- Accounts checks: Make sure additions, disposals and depreciation policies are consistent with your Companies House filing.
- Forward look: The OBR expects the EV share of sales to keep rising, which affects residual values and tax policy risk (OBR, 2025). Build that into replacement cycles.
What to do next
Capital allowances on business vehicles can deliver meaningful year-one relief, especially for vans and new zero-emission cars. For most other cars, the 18% or 6% pools mean slower relief, so it pays to model ownership against leasing, and to time purchases when profits are higher. Keep a close eye on emissions thresholds, ensure pooling is correct, and line up your evidence so any HMRC questions are easy to answer. Finally, don’t overlook accounts disclosure – filing on time with accurate fixed asset notes avoids penalties and gives lenders a clearer picture of your position.
If you’re weighing up an EV for your team or a production van for a busy shoot schedule, we can run the numbers and build a simple forecast for capital allowances on business purchases across the next three years. Talk to us about capital allowances on business vehicles – we’ll help you choose the most tax-efficient route for your next car or van and improve cashflow. Get advice today.
