If you’re a sole trader and considering buying a vehicle through your business, there are many important tax considerations to be aware of.

1. Business vs Personal Use

You can only claim tax relief on the business portion of vehicle costs.

• 100% Business use: Full cost or mileage is allowable.
• Mixed use: You must apportion costs accurately between business and private use.

Please note that commuting to your regular place of work is NOT business use.

2. Two Main Methods to Claim Vehicle Expenses

A. Simplified Expenses (Mileage Method)

• Claim a flat rate per business mile:
  • 45p per mile for first 10,000 miles/year
  • 25p per mile after that

This method is easy to track, with no need to record individual vehicle costs
But you can’t also claim running costs (fuel, repairs, insurance) or capital allowances

You must keep a mileage log showing dates, journeys, and miles.

B. Actual Costs Method

• Claim a percentage of actual running costs, including:
  • Fuel
  • Insurance
  • Repairs/Maintenance
  • MOT
  • Road tax
  • Lease payments
  • Loan interest (if applicable)
• Plus, you can claim capital allowances on the vehicle itself.

This is potentially more generous if you have high costs and mostly business use
However there is more admin and record-keeping required

3. Capital Allowances (If Using Actual Costs Method)

You can claim capital allowances on the business portion of the vehicle cost:

Vehicle Type	CO₂ Emissions	Capital Allowance
Electric or 0g/km	0g/km	100% First Year Allowance (FYA)
Low Emission	≤ 50g/km	18% per year (main rate pool)
Higher Emission	> 50g/km	6% per year (special rate pool)

Cars don’t qualify for the Annual Investment Allowance (AIA), but vans and commercial vehicles often do.

4. Leased Vehicles

If you lease a vehicle:

• You can claim lease payments (business % only).
• For high-emission vehicles, part of the lease cost may be disallowed for tax.

5. VAT Considerations

If you’re VAT registered:

• VAT on cars is generally not reclaimable, unless the vehicle is used 100% for business — which HMRC strictly interprets.
• VAT on vans or commercial vehicles: Reclaimable to the extent of business use.
• You can reclaim VAT on fuel and running costs (business % only).

6. Electric Vehicles

EVs have tax advantages:

• 100% first-year allowance (if using actual cost method)
• Lower running costs

7. Changing Methods

Once you start using the simplified mileage method for a particular vehicle, you must continue using it for as long as you use that vehicle.

Tips:

• Keep accurate mileage logs
• Track business % use of all costs if using the actual method
• Choose the method that gives you the most tax-efficient outcome
• Consider going electric if buying a new vehicle