Business Vehicle Tax Calculator
Compare the tax treatment of buying, finance leasing, and hire purchasing a business vehicle. Calculate capital allowances, deductible lease costs, and the impact of CO2 emissions on tax relief.
Frequently Asked Questions
What capital allowances apply to business cars?
Zero emission cars (0g/km CO2) qualify for 100% First Year Allowance. Cars with CO2 of 1–50g/km go into the main pool at 18% Writing Down Allowance. Cars with CO2 above 50g/km go into the special rate pool at 6% WDA. Vans and other commercial vehicles qualify for 100% Annual Investment Allowance.
Is there a CO2 restriction on leased cars?
Yes — if you lease a car with CO2 emissions above 50g/km, 15% of the lease payments are disallowed for Corporation Tax or income tax purposes. This restriction was introduced to encourage lower-emission fleet vehicles. There is no restriction for vans or cars with CO2 of 50g/km or below.
Should I buy or lease a business vehicle?
Depends on your situation: Outright purchase gives capital allowances upfront (excellent for zero-emission cars with 100% FYA). HP is treated like a purchase — the asset appears on the balance sheet with capital allowances. Operating leases give simple P&L deductions without balance sheet complexity. Finance leases require IFRS 16 treatment with the asset capitalised.
What Benefit in Kind applies to company cars?
If an employee uses a company car for private use, a Benefit in Kind (BIK) charge applies based on the car's list price and CO2 emissions. Zero-emission cars have a 2% BIK rate (rising gradually). High-emission cars can reach 37% BIK. The employee pays income tax on the BIK value; the employer pays Class 1A NIC at 13.8%.
Can I claim AIA on a car?
No — Annual Investment Allowance (AIA) specifically excludes cars. You must use the special pool (6% WDA) or main pool (18% WDA) for cars, depending on CO2. Only zero-emission cars and vans qualify for 100% FYA.
How is private use of a business vehicle treated?
For sole traders and partnerships: capital allowances are restricted to the business use percentage. Business running costs are similarly restricted. For company directors using a company car: the company gets full allowances, but the director pays income tax on the BIK value.
What is the difference between finance lease and operating lease?
Under IFRS 16 (for companies), both finance and operating leases are recognised on the balance sheet. However, for tax purposes: finance lease payments are split between capital repayment (not deductible) and interest (deductible). Operating lease rentals are fully deductible, subject to the CO2 restriction for high-emission cars.
Can a sole trader claim a car against tax?
Yes — sole traders (and self-employed) can claim capital allowances on a car based on CO2 emissions, restricted to the business use percentage. Alternatively, they can use the HMRC simplified expenses flat rate (currently 45p per mile for first 10,000 miles, then 25p), which covers all running costs and the capital cost.