If you are running an SME in the UK, your vehicle is likely one of your largest overheads. Naturally, the question is: How much of that cost can I actually claw back from HMRC?

The answer has changed significantly for the 2025/26 and 2026/27 tax years. With the government’s aggressive push toward Net Zero, the rules for “writing off” a car now depend almost entirely on its tailpipe emissions and your business structure.

In this guide, we break down the latest capital allowance rates, the “Benefit-in-Kind” trap for directors, and why the “pickup truck loophole” has officially closed.

What Does “Writing Off” a Car Actually Mean?

In accounting terms, you don’t “write off” a car in one go unless it is a brand-new electric vehicle. Instead, you use Capital Allowances. This is a way of claiming tax relief on the “wear and tear” (depreciation) of the vehicle over several years.

Whether you can claim 100% in Year 1 or just 6% per year depends on the car’s CO2 emissions.

How to Claim Car Expenses as a Sole Trader

If you are self-employed, you have a choice. This choice is vital because once you pick a method for a vehicle, you must use it until you sell that car.

Method 1: Simplified Expenses (Mileage)

This is the “no-hassle” option. You don’t claim for the car’s purchase price or its repairs. Instead, you claim a flat rate for every business mile:

• 45p per mile for the first 10,000 miles.
• 25p per mile thereafter.

Why choose this? If you drive an older, fuel-efficient car, the 45p rate often covers more than the actual cost of running the vehicle.

Method 2: The Actual Costs Method

You claim for the car’s purchase (via Capital Allowances) plus fuel, insurance, and MOTs.

• The 2026 Catch: You must pro-rata everything. If your total car costs are £5,000, but you use the car 30% of the time for personal trips, you can only claim £3,500 (70%) as a business expense.

The 2026 Decision Matrix: Limited Company Directors

For Limited Company directors, the decision is more complex because of Benefit-in-Kind (BIK) tax. If the company buys the car, you save Corporation Tax, but you (the individual) may be hit with a personal tax bill if you use it for “private use” (including commuting).

2026/27 Tax Relief Comparison Table

*Note: For accounting periods starting April 2026, the Main Pool WDA rate reduces to 14% for most assets, though cars follow specific CO2-based pools.

Can I Write Off a Second-Hand Car?

Yes, but with a major limitation: You cannot claim the 100% First-Year Allowance on used cars, even if they are electric.

• A used EV goes into the Main Pool (18% relief per year).
• A used Petrol/Diesel car goes into either the 18% or 6% pool based on its emissions.

The “Pickup Truck” Warning: New Rules for 2025/26

For years, SMEs used double-cab pickups (like the Hilux or Ranger) as a “tax hack.” Because they had a 1-tonne payload, HMRC treated them as vans, allowing for 100% tax relief (AIA) and low BIK.

The Loophole is Gone:

From April 2025, HMRC reclassified these as cars.

• If you buy a pickup now, you can only claim 6% or 18% tax relief.
• Your personal tax (BIK) will jump from a few hundred pounds to potentially thousands per year.
• Grandfathering: If you already owned or leased your pickup before April 6, 2025, you can keep the “van” tax treatment until April 2029 (or until you sell it).

Can You Reclaim VAT on a Business Car?

This is the most common area where SMEs get into trouble with HMRC.

• Buying: You can only reclaim 100% of the VAT if the car is only used for business and is not available for private use (e.g., it is kept at the yard/office overnight).
• Leasing: You can usually reclaim 50% of the VAT on lease payments. This is a standard HMRC “block” to account for the fact that you will likely use the car for some personal trips.

How to Calculate “Business Use” for HMRC

If you are audited, “I use it mostly for work” won’t suffice. You need evidence.

• The Commuting Rule: Traveling from home to your regular office is private. It is not a business expense.
• The Solution: Use an automated mileage tracking app (like MileIQ or Tripcatcher). HMRC prefers digital records that show date, destination, purpose, and exact mileage.

FAQ about “can you write off a car as a business expense uk”

Can I claim 100% of a car’s cost in Year 1?

Only if the car is brand new and 100% electric. For any other car, you must spread the claim over many years using Writing Down Allowances (6% or 18%).

Is it better to lease or buy?

Leasing is often better for VAT-registered businesses because you can reclaim 50% of the VAT on the monthly payments. Buying is better if you want to own the asset and utilize the 100% First-Year Allowance for EVs.

Can I claim for my car’s insurance and MOT?

If you are a Sole Trader, you can claim the business-use percentage of these costs (Actual Costs method). If you use the Mileage method, these costs are already “included” in the 45p rate.

What is the BIK rate for electric cars in 2026?

The BIK rate for zero-emission cars is 4% for the 2026/27 tax year. It will rise to 5% in 2027/28.

Final Verdict: The Best Way to Write Off a Car in 2026

1. The EV Strategy: If your business has the cash, buy a new electric car. You wipe the entire cost off your taxable profits in Year 1, and your personal tax (BIK) remains minimal.
2. The Personal Ownership Strategy: If you prefer a petrol or diesel car, do not buy it through the company. Own it personally and charge the company 45p per mile. This avoids the 37% BIK tax which often costs more than the car is worth.

Next Steps for SME Owners:

• Check your car’s CO2 emissions on your V5C logbook.
• Download a mileage tracking app today; the “estimate” days are over.
• Consult your accountant before April to see if you should transition your vehicle out of the company to avoid the 2026 BIK hikes.