Capital Allowances for Cars – What You Can Claim in 2025

Buying a car for business use? You may be eligible to claim capital allowances to reduce your taxable profits. But the rules for cars are different from other assets, especially when it comes to CO2 emissions and how the vehicle is used.

In this guide, we explain what capital allowances are available for cars in 2025, how to calculate them, and what you need to do to stay compliant with HMRC.

What Are Capital Allowances for Cars?

Capital allowances let you deduct part of the cost of a car used for business purposes from your profits before tax. You can't usually claim the Annual Investment Allowance (AIA) on cars, but you can use either:

• Writing Down Allowance (WDA) – claimed over several years
• First Year Allowance (FYA) – for qualifying low-emission or electric cars

You must own the car (not lease it) and use it for business to qualify.

Capital Allowance Rates for Cars (2025)

FYA is only available if the car is new and unused.

Example: Claiming WDA for a Car in 2025
You buy a petrol car with 120g/km CO2 emissions for £25,000 in March 2025.
This falls into the Special Rate Pool (6%).
Year 1 claim:
£25,000 × 6% = £1,500 deduction from profits
Year 2:
£23,500 × 6% = £1,410, and so on.

What About Electric Cars?

Electric cars qualify for 100% First Year Allowance in 2025. That means you can deduct the full cost from your profits in the year of purchase.

Example:
You buy a new electric car for £40,000.
You can claim £40,000 against your profits that year—if it's for business use.
This makes EVs incredibly tax-efficient for company directors and sole traders—especially when supported by expert business tax planning.

Buying a Car Through a Limited Company

If you buy the car through your limited company, capital allowances reduce corporation tax.

However:

• You must adjust for private use if the car isn't 100% business
• Directors using company cars may trigger Benefit in Kind (BiK) charges

Need help with the tax treatment for your vehicle? Speak to us about Corporation Tax planning.

What You Can't Claim

• Leased cars: You can't claim capital allowances, but lease costs are deductible
• Used electric cars: Do not qualify for 100% FYA—only new and unused do
• Personal use: You must reduce the claim proportionally

What Records Do You Need?

• Vehicle invoice
• Logbook or mileage tracker showing business use %
• Proof of ownership
• CO2 emissions certificate (e.g. V5C or manufacturer's spec)

We help clients prepare detailed vehicle schedules and ensure their WDA claims match their usage.

How YRF Accountants Can Help

We work with:

• Sole traders and landlords using personal vehicles
• Limited companies buying fleet or company cars
• Businesses investing in electric vehicles for tax efficiency

Our services cover:

• Calculating your capital allowances
• Advising on whether to buy or lease
• Ensuring HMRC-compliant vehicle records
• Providing expert tax planning and advisory

Need Advice on Capital Allowances?

Maximise your tax relief when purchasing vehicles for your business.

Book a consultation now: https://www.yrfaccountants.com/contact-us