Capital allowances on cars let UK businesses and sole traders deduct the cost of a vehicle from taxable profits over time. Unlike claiming the flat-rate mileage allowance, capital allowances apply to the actual purchase price — making them the relevant relief for limited companies and for sole traders who choose the actual costs method.
From April 2026, there are significant changes. The main-pool Writing Down Allowance drops from 18 % to 14 %, while the 100 % First Year Allowance for zero-emission cars has been extended by another year to April 2027. This guide walks through every rate, threshold, and planning point you need.
How Capital Allowances Work for Cars
When a business purchases a car outright, HMRC does not allow the full cost to be deducted as a business expense in one go. Instead, the expenditure is relieved over several years through capital allowances — specifically, Writing Down Allowances (WDAs) on a reducing-balance basis.
The rate of WDA depends on the car’s CO2 emissions. HMRC places each vehicle into one of three pools, each with its own annual percentage.
Cars are excluded from the Annual Investment Allowance (AIA) and full expensing. Those reliefs cover vans, lorries, and most other plant and machinery — but never cars. The only route to 100 % upfront relief is the First Year Allowance for zero-emission vehicles.
Capital Allowance Rates for Cars from April 2026
Here is the updated position for accounting periods beginning on or after 1 April 2026 (companies) or 6 April 2026 (unincorporated businesses):
| CO2 emissions | Pool | Allowance | Annual rate |
|---|---|---|---|
| 0 g/km (zero emission) | N/A — claimed in full | First Year Allowance (FYA) | 100 % |
| 1–50 g/km | Main rate pool | Writing Down Allowance | 14 % (was 18 %) |
| Over 50 g/km | Special rate pool | Writing Down Allowance | 6 % (unchanged) |
The reduction in the main-rate WDA from 18 % to 14 % was announced in the Autumn Budget 2025 and legislated in Finance Bill 2025-26. It applies to the entire main-pool balance — including expenditure incurred in earlier years when the 18 % rate was in force.
For businesses whose accounting period straddles 1 April 2026, HMRC applies a hybrid rate. For example, a company with a 31 December 2026 year-end would use roughly 4.4 % (90/365 at 18 %) plus 10.5 % (275/365 at 14 %), giving approximately 15 % for that transitional period.
100 % First Year Allowance for Electric Cars
The 100 % FYA remains the headline relief for zero-emission vehicles. It allows a business to deduct the full purchase cost in the year the car is bought — no spreading required.
This relief has been extended to 31 March 2027 for corporation tax purposes and 5 April 2027 for income tax purposes. It also covers expenditure on electric vehicle charge-points.
Key conditions
- The car must produce 0 g/km CO2 — fully electric only, not hybrid.
- It must be new and unused — second-hand EVs do not qualify for FYA.
- The purchase must be made before April 2027 to benefit from the current extension.
Worked example: limited company buys an EV
Your company purchases a new electric car for £44,000 in July 2026.
- FYA deduction in year 1: 100 % of £44,000 = £44,000
- Corporation tax saving at 25 %: £44,000 × 0.25 = £11,000 off your tax bill
The entire cost is relieved immediately. Compare that with a 14 % WDA on the main pool, where it would take roughly eight years to claim the same total relief.
If your company is considering an EV purchase, acting before April 2027 locks in this full deduction. After that date, zero-emission cars are expected to fall into the main pool at 14 %, drastically slowing the rate of relief. For a deeper look at the numbers, see our guide on buying an electric car through a limited company.
Main Pool at 14 %: What It Means for Low-Emission Cars
Cars emitting between 1 and 50 g/km — typically plug-in hybrids (PHEVs) — enter the main rate pool. From April 2026, the WDA on this pool falls to 14 % per year on the reducing balance.
Worked example: PHEV at 14 % WDA
A business buys a plug-in hybrid for £38,000 with CO2 emissions of 32 g/km.
| Year | Opening balance | WDA at 14 % | Closing balance |
|---|---|---|---|
| 1 | £38,000 | £5,320 | £32,680 |
| 2 | £32,680 | £4,575 | £28,105 |
| 3 | £28,105 | £3,935 | £24,170 |
| 4 | £24,170 | £3,384 | £20,786 |
| 5 | £20,786 | £2,910 | £17,876 |
After five years, only £20,124 of the original £38,000 has been claimed — about 53 %. Under the old 18 % rate, you would have claimed roughly 61 % over the same period. That difference of around £3,000 in deductions illustrates why the rate cut matters for anyone buying low-emission petrol or hybrid cars.
Main-pool cars are not ring-fenced individually. They sit alongside other main-rate plant and machinery, so if you have multiple assets in the pool the WDA applies to the combined balance.
Special Rate Pool at 6 %: High-Emission Cars
Cars emitting over 50 g/km are placed in the special rate pool, which carries a 6 % WDA. This rate has not changed and remains deliberately slow as a fiscal disincentive for higher-emission vehicles.
Worked example: petrol car at 6 % WDA
A sole trader buys a petrol car for £28,000 with CO2 emissions of 130 g/km. Business use is 80 %.
| Year | Opening balance | WDA at 6 % | Business portion (80 %) |
|---|---|---|---|
| 1 | £28,000 | £1,680 | £1,344 |
| 2 | £26,320 | £1,579 | £1,263 |
| 3 | £24,741 | £1,484 | £1,188 |
After three years, just £3,795 of tax relief has been claimed on a £28,000 car. At this pace, it takes well over a decade to recover most of the cost. This makes the tax case for choosing a lower-emission vehicle very clear.
Note for sole traders: the private-use restriction applies on top of the WDA rate. Limited companies do not restrict capital allowances for private use — instead, the director or employee is taxed via Benefit in Kind. See our company car tax 2026/27 guide for how BIK interacts with capital allowances.
Disposals, Record-Keeping, and Next Steps
When you sell a business-owned car, the proceeds reduce the relevant pool balance. If proceeds exceed the remaining balance, the excess becomes a balancing charge added back to taxable profits. This matters most for FYA cars: a company that claimed 100 % on a £44,000 EV and later sells it for £22,000 faces a £22,000 balancing charge — adding £5,500 (at 25 % CT) to its tax bill. Factor this into your cash-flow planning if you expect to part-exchange within a few years.
Whether you claim capital allowances or use the simplified mileage rate, HMRC expects accurate records of business journeys. Capital allowances sit within the actual-costs method, so you also need to track fuel, insurance, servicing, and the business-use percentage.
Tripbook makes this straightforward. The app records every business journey with GPS, calculates your business-use proportion automatically, and exports HMRC-ready reports. If you switch between vehicles or need to demonstrate business mileage to support your capital allowance claim, Tripbook keeps everything in one place.
For sole traders deciding between capital allowances and the flat-rate mileage method, see our comparison of actual costs vs the mileage rate. Both approaches require a reliable mileage log — and once you choose actual costs for a vehicle, you cannot switch back to simplified expenses for that same car.
Download Tripbook from the App Store and start building the mileage records your capital allowance claim needs — GPS tracking, digital exports, and cloud backup included.
Summary
Capital allowances on cars for 2026/27 at a glance:
- 100 % FYA for new zero-emission cars — claim the full cost upfront (extended to April 2027)
- 14 % WDA for cars emitting 1–50 g/km (main pool — down from 18 %)
- 6 % WDA for cars emitting over 50 g/km (special rate pool — unchanged)
- Cars are excluded from AIA and full expensing — WDA or FYA are the only routes
- Hybrid rate applies for accounting periods straddling April 2026
- Private-use restriction reduces sole trader claims; BIK applies for company cars instead
- Balancing charges arise when FYA cars are sold — plan your cash flow accordingly
