When you buy a vehicle for business use, you may be able to claim capital allowances — a form of tax relief that lets you deduct part or all of the vehicle’s cost from your taxable profits. However, the rules differ significantly between cars and vans, especially if you're using cash basis accounting.

 

 What Are Capital Allowances?

Capital allowances apply to long-term business assets — like vehicles, equipment, and machinery — that are used in your business. Instead of claiming the full cost as a regular expense, you deduct a portion of the asset’s value over time, depending on the type of allowance and the asset’s characteristics.

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Rules for purchasing a CAR:

Cars are treated as capital assets and must be claimed through capital allowances, not as direct expenses. The amount you can claim depends on the car’s CO₂ emissions:

• 100% First-Year Allowance: Only available for new, unused electric cars with zero emissions

• 18% Writing Down Allowance: For cars with emissions up to 50g/km

• 6% Writing Down Allowance: For cars with emissions over 50g/km

Important notes:​

• If the car is used partly for personal reasons, you must apportion the claim based on business use

• You cannot use simplified mileage rates if you’ve claimed capital allowances for the car

• On disposal, you may need to calculate a balancing charge or allowance

 

Rules for purchasing a VAN

Vans and other goods vehicles are treated more generously:

• You can claim the full cost of the van as a business expense under cash basis accounting

• If the van is used partly for personal purposes, you must adjust the claim proportionally

• You can choose between actual costs or simplified mileage rates, but not both

 

Summary: Cars vs Vans – Key Differences

• Cars: Must use capital allowances; limited to 6% or 18% per year unless electric

• Vans: Can be fully expensed 

• Cannot use mileage flat rate claims if capital allowances are used; 

 

Why It Matters

Understanding the difference helps you:

• Maximise your tax relief

• Stay compliant with HMRC rules

• Choose the right method for your business accounting

• Avoid common pitfalls when purchasing vehicles

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We are aware that the rules may confusing at times, therefore we are always available to have a quick chat and discuss your circumstances. If you need additional help understanding capital allowances, you can get in touch.