Buying a car for your business? Did you know some cars allow you to claim the full cost against your taxable profits in the first year? That’s thanks to the UK’s 100% first-year capital allowances (FYA). But not every car qualifies – here’s what you need to know.
What Are Capital Allowances?
Capital allowances let businesses claim tax relief on certain purchases, like cars, vans, or equipment. Instead of spreading the cost over several years, you may be able to write off the full cost in the year of purchase.
For cars, the government prioritizes low-emission vehicles. The greener your car, the bigger your tax break.
Which Cars Qualify in the UK?
To qualify for 100% capital allowances, a car must be low or zero-emission. Here’s a simple guide:
| Car Type | CO₂ Emissions (g/km) | Capital Allowance Rate |
|---|---|---|
| Electric cars | 0 | 100% FYA |
| Plug-in hybrid (PHEV) | Up to 50 | 100% FYA |
| Petrol/diesel | Over 50 | Writing down allowance: 18% or 6% per year |
Tip: Fully electric cars always qualify. Plug-in hybrids qualify if emissions are 50 g/km or less. Most petrol or diesel cars don’t qualify for the full allowance.
Examples of Cars That Typically Qualify
| Model | Type | CO₂ Emissions (g/km) | Notes |
|---|---|---|---|
| Tesla Model 3 | Electric | 0 | Fully electric, zero emissions |
| Nissan Leaf | Electric | 0 | Popular electric hatchback |
| BMW iX3 | Electric | 0 | Fully electric SUV |
| Toyota Prius Plug-in | PHEV | 22 | Plug-in hybrid under 50 g/km |
| Mitsubishi Outlander PHEV | PHEV | 46 | Plug-in hybrid under 50 g/km |
Always check the official CO₂ rating to confirm eligibility.
Important Considerations
Leasing vs Buying: Capital allowances generally apply to purchased vehicles, not leased cars.
CO₂ Ratings Update: Government thresholds can change – check HMRC guidance.
Business Use Only: You can only claim on cars used for business purposes; personal use may reduce the allowance.
How to Claim 100% Capital Allowances
Record the purchase in your company accounts.
Include the cost in your corporation tax computation under capital allowances.
Submit your tax return – the full cost reduces taxable profits immediately.
Why It Matters
Choosing the right car can save your business thousands in tax while supporting sustainability goals. Electric and low-emission plug-in hybrids are particularly attractive for maximizing first-year allowances.
For UK businesses, the 100% first-year capital allowance is a smart incentive. Focus on electric and ultra-low-emission cars, check the CO₂ ratings, and ensure the car is primarily for business use. The right choice can reduce your tax bill and support a greener fleet.
