Last updated: 14 October 2026
What capital allowances can your company claim on old and new cars?
It depends on each car’s CO2 emissions. A new electric car qualifies for a 100% first-year allowance until 31 March 2027. Other cars go into a pool and get writing down allowances: 14% a year (18% before April 2026) for cars with emissions of 50g/km or less, and 6% a year for cars above 50g/km. When you sell or part-exchange the old car, its sale value is deducted from the pool, which may create a balancing charge or allowance. Cars never qualify for the Annual Investment Allowance or full expensing.
Capital allowances on cars
| Car | Allowance |
| New electric (0g/km) | 100% first-year allowance |
| Used electric | 14% main pool |
| 1–50g/km | 14% main pool |
| Over 50g/km | 6% special rate pool |
| Car with private use by a sole trader | Single asset pool, restricted for private use |
Selling or part-exchanging the old car
- The sale proceeds or part-exchange value is deducted from the pool the car was in
- If the pool goes negative, there’s a balancing charge, which is taxable
- If the car was in a single asset pool (for example, a sole trader’s car with private use), you get a balancing allowance or charge on sale
- A company car with private use by an employee stays in the main or special rate pool; the private use is taxed as a benefit in kind instead
Example
Ashby Consulting Ltd sells a petrol car (140g/km) for £8,000 in 2026. The car was in the special rate pool, which has a balance of £14,000. The pool falls to £6,000, and the company claims 6% (£360) for the year. The same month, it buys a new electric car for £38,000 and claims a 100% first-year allowance, deducting the full £38,000 from profits.
Leasing instead of buying
If a car is leased, the company deducts the lease rentals instead. For cars over 50g/km, 15% of the rentals are disallowed.
Hire purchase
Cars bought on hire purchase qualify for capital allowances as if bought outright when the car is brought into use. The interest is deductible separately.
Vans and pickups
Vans qualify for the Annual Investment Allowance or full expensing. From April 2025, double cab pickups are treated as cars, whatever their payload, for capital allowances, benefit in kind and some deductions.
Benefit in kind
If directors or employees use the car privately, they pay benefit in kind tax based on the list price and CO2 rate, and the company pays Class 1A NIC at 15%. This is separate from capital allowances.
Common mistakes
- Claiming the Annual Investment Allowance on a car
- Claiming 100% on a used electric car that has had a previous owner
- Forgetting to deduct the part-exchange value of the old car from the pool
- Putting a petrol car over 50g/km in the main pool at 14%
Frequently asked questions
Can my company claim AIA on a car?
No, cars are excluded.
What about a used electric car?
It gets 14% a year, not 100%.
Does the cost limit apply?
No, there’s no limit on cost for capital allowances.
Can I claim VAT on the car?
Usually not if there’s private use.
Related: buying a car through your company, first-year allowances for zero-emission cars and double cab pickups as cars.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with capital allowances on company cars. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
