Capital allowances on cars and CO2 emissions

Q: How does this work in practice?

Illustration only. A sole trader with a year ending 5 April 2027 buys two cars during the year and uses one for business only and the other 75% for business. A new electric car costing £40,000, business use only: 100% first year allowance of £40,000. A second hand petrol car costing £20,000 with emissions of 130g/km, 75% business use: single asset pool at the special rate. The writing down allowance is £1,200 (6% of £20,000), of which £900 is claimed. The pool carried forward is £18,800. Had the trader bought the second car through a company with no private use restriction, the full £1,200 would be claimed, but the director would face a benefit in kind charge.

Cars are kept out of the annual investment allowance, full expensing and the 40% first year allowance, so the allowance a business gets depends on the car’s CO2 emissions. For cars bought from April 2021, a new zero emission or electric car gets a 100% first year allowance until 31 March 2027 (companies) or 5 April 2027 (income tax), a car with emissions of 50g/km or less, or a second hand electric car, goes into the main pool at 14%, and anything above 50g/km goes into the special rate pool at 6%.

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What counts as a car for capital allowances?

Section 268A of the Capital Allowances Act 2001 defines a car as a mechanically propelled road vehicle other than a motorcycle, a vehicle of a construction primarily suited for carrying goods or burden of any description, or a vehicle of a type not commonly used as a private vehicle and unsuitable for such use (CA23510). How the business actually uses the vehicle is irrelevant; a vehicle capable of private use is a car even if it never leaves the yard on private business.

HMRC’s guidance at CA23510 and CA23511 adds some practical points:

vans, lorries and motorcycles are not cars, so they can qualify for the annual investment allowance and first year allowances;
a vehicle designed and marketed as a multipurpose vehicle is likely to be a car, following the 2020 Coca Cola case (Payne and others);
dual control driving school cars, emergency vehicles with fixed blue lights, and traditional black cab style hackney carriages are not cars;
for expenditure from 1 April 2025 (corporation tax) or 6 April 2025 (income tax), most double cab pick ups are treated as cars, even with a payload of one tonne or more, subject to a transitional rule for contracts made before those dates where the expenditure was incurred before 1 October 2025;
quadbikes that are road vehicles are cars, because they are not motorcycles.

Which allowances can a car not get?

GOV.UK confirms that cars do not qualify for the annual investment allowance, the super deduction or 50% special rate allowance, full expensing or the 50% first year allowance, or the 40% first year allowance. The only immediate relief for a car is the 100% first year allowance for new zero emission cars. Everything else is relieved through writing down allowances in the main pool or the special rate pool.

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How are cars bought now allocated?

The treatment depends on when the car was bought and its CO2 figure. For cars bought from April 2021, GOV.UK sets out:

Car	Allowance
New and unused, 0g/km CO2 or electric	100% first year allowance
Second hand electric car	Main rate pool
New or second hand, 50g/km or less	Main rate pool
New or second hand, over 50g/km	Special rate pool

The statutory basis is section 104AA, which defines a “main rate car” as one first registered before 1 March 2001, one with low CO2 emissions (registered on a qualifying emissions certificate and not over 50g/km), or one that is electrically propelled. Any other car is special rate expenditure. If a car has no emissions figure, GOV.UK says to use the special rate, or the main rate if it was registered before 1 March 2001.

The main rate of writing down allowance is 14% for chargeable periods beginning on or after 1 April 2026 for corporation tax and 6 April 2026 for income tax, down from 18%; a period straddling the change uses a hybrid rate. The special rate is 6%.

Which cars qualify for the 100% first year allowance?

Under section 45D and CA23153, the car must be unused and not second hand, first registered on or after 17 April 2002, and either electric or with CO2 emissions of not more than the limit, which has been 0g/km since 1 April 2021. The expenditure must be incurred by 31 March 2027 for corporation tax or 5 April 2027 for income tax, and must not be excluded by the general exclusions in section 46, the most important of which is that cars provided for leasing are excluded.

A hybrid does not qualify, because its internal combustion engine produces CO2. HMRC accepts that a car is still unused and not second hand if it has been driven a limited distance for testing, delivery, test drives or demonstration, or was pre registered to a dealer.

What about cars bought under earlier thresholds?

The emissions bands have tightened several times. GOV.UK’s table for earlier purchases is:

Bought	100% allowance if new and up to	Main rate if up to
April 2018 to April 2021	50g/km	110g/km
April 2015 to April 2018	75g/km	130g/km
April 2013 to April 2015	95g/km	130g/km
April 2009 to April 2013	110g/km	160g/km

Above the main rate threshold, the car went into the special rate pool. The threshold that applied when the car was bought stays with it, so an older car in the main pool does not move when the bands change. Balances on cars bought before April 2009 go into the main pool.

What if the car is also used privately?

For a sole trader or partner, a car with private use goes into its own single asset pool (CA23535 and CA27005). The writing down allowance is calculated at the main or special rate according to emissions and then reduced on a just and reasonable basis for the private use, but the full allowance is deducted from the pool balance. The same reduction applies to any 100% first year allowance and to the balancing adjustment on sale.

A company is in a different position. GOV.UK confirms that where a business provides a car for an employee or director, it claims capital allowances on the full cost, with no private use restriction. The private use is taxed on the employee instead as a benefit in kind; see company car tax and the car fuel benefit charge.

How does this work in practice?

Illustration only. A sole trader with a year ending 5 April 2027 buys two cars during the year and uses one for business only and the other 75% for business.

A new electric car costing £40,000, business use only: 100% first year allowance of £40,000.
A second hand petrol car costing £20,000 with emissions of 130g/km, 75% business use: single asset pool at the special rate. The writing down allowance is £1,200 (6% of £20,000), of which £900 is claimed. The pool carried forward is £18,800.

Had the trader bought the second car through a company with no private use restriction, the full £1,200 would be claimed, but the director would face a benefit in kind charge.

What happens when the car is sold?

For a car in the main or special rate pool, the sale proceeds, capped at the original cost under section 62, are deducted from the pool. No balancing allowance arises until the business ceases, so a car sold at a loss leaves the shortfall in the pool to be written down over time. For a car in a single asset pool because of private use, the sale is the final chargeable period, so there is a balancing allowance or charge, reduced for the private use over the period of ownership. A car that had the 100% allowance has no pool balance left, so its sale proceeds usually produce a balancing charge or reduce the pool. Cars cannot be short life assets, apart from certain hire cars for disabled people.

Are there simpler alternatives and common mistakes?

Sole traders and partnerships without company partners can use simplified mileage expenses instead of claiming capital allowances and running costs, but not for a vehicle they have already claimed for in another way. Under the cash basis, cars are the only assets on which capital allowances are still claimed.

Claiming the annual investment allowance on a car, or treating a double cab pick up bought since April 2025 as a van.
Claiming 100% on a hybrid or a used electric car.
Using the wrong emissions threshold for the purchase date, or guessing the figure instead of taking it from the V5C.
Restricting a company’s allowances for a director’s private use, or failing to restrict a sole trader’s.

Leased cars follow separate rules; see hire purchase vs leasing.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.