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Capital Allowances For Company Vans Explained
What Are Capital Allowances?
Capital allowances are the tax rules that determine how a business receives tax relief for the cost of buying a company car.
Unlike most day-to-day business expenses, the full cost of a company car cannot normally be deducted from profits immediately. Instead, tax relief is usually obtained through capital allowances.
The rate of relief depends on the vehicle's CO2 emissions and whether the car qualifies for a special first year allowance.
Current Capital Allowance Rates For Company Cars
For most businesses, company cars fall into one of three categories:
- 100% First Year Allowance (qualifying new zero-emission cars)
- Main Pool Writing Down Allowance (currently 14%)
- Special Rate Pool Writing Down Allowance (currently 6%)
The applicable treatment depends on the vehicle's emissions and the capital allowance rules applying at the date of purchase.
Electric Cars And 100% First Year Allowances
Qualifying new and unused electric company cars can currently benefit from 100% First Year Allowances.
This means the full qualifying cost of the vehicle can normally be deducted against taxable profits in the accounting period in which the vehicle is purchased.
For example, if a qualifying electric company car costs £30,000, the business may be able to claim tax relief on the full £30,000 immediately rather than spreading relief over several years.
Main Pool Writing Down Allowances
Where a company car does not qualify for 100% First Year Allowances, it may qualify for Main Pool Writing Down Allowances.
The current Main Pool rate is 14% per annum on a reducing balance basis.
This means that the allowance is calculated on the remaining tax written down value each year rather than the original purchase price.
Special Rate Pool Writing Down Allowances
Higher-emission company cars generally qualify for the Special Rate Pool.
The current Special Rate Pool rate is 6% per annum on a reducing balance basis.
As with the Main Pool, tax relief is spread over a number of years.
Worked Example: Main Pool Writing Down Allowance
Assume a company car costs £30,000 and qualifies for the Main Pool rate of 14%.
- Year 1: £30,000 × 14% = £4,200
- Year 2: £25,800 × 14% = £3,612
- Year 3: £22,188 × 14% = £3,106
- Year 4: £19,082 × 14% = £2,671
The tax relief reduces each year because the allowance is calculated on the remaining written down value.
What Happens When The Car Is Sold?
When a company car is sold, the sale proceeds are normally reflected within the relevant capital allowance pool.
The final tax outcome depends on the written down value of the pool and the amount received for the vehicle.
Company Cars And Corporation Tax Relief
Capital allowances reduce taxable profits.
For companies, this can reduce corporation tax liabilities. The timing of the relief can be just as important as the amount of relief available.
This is one reason why 100% First Year Allowances on electric company cars can be attractive to many businesses.
Company Cars And Vans Are Different
Different capital allowance rules apply to company vans.
Many vans qualify for different treatment, including Annual Investment Allowance and other plant and machinery rules.
For more information, see Capital Allowances For Company Vans.
Older Purchases And Historic Rates
Capital allowance rates and emission thresholds have changed over time.
If a vehicle was purchased several years ago, earlier rules may continue to affect the capital allowance treatment.
Businesses should always consider the rules that applied when the vehicle was acquired.
Related Company Car Tax Pages
- Company Car Tax Calculator
- Company Car Tax Explained
- How Company Car Tax Is Calculated
- Company Car Tax And Capital Allowances
Self-employed
Where a self-employed person uses a vehicle for both business and private journeys, capital allowances are normally restricted to the business-use proportion.
For example, if a qualifying electric car costs £30,000 and business use is 50%, the capital allowance claim would normally be restricted to £15,000.