Do I get full tax relief for my car?

Do I get full tax relief for my car?

Your car is classed as capital expenditure for the purpose of obtaining income tax relief, and relief against your fee income is given in the form of capital allowances.  If you already own a car prior to commencing self employment, then you can bring it into your tax computation at its market value on commencement.

Cars are eligible for writing down allowances (WDAs).

Description of car What you can claim
New and unused, CO2 emissions are 75g/km or less (or car is electric) First year allowances
New and unused, CO2 emissions are between 75g/km and 130g/km Main rate allowances
Second hand, CO2 emissions are 130g/km or less (or car is electric) Main rate allowances
New or second hand, CO2 emissions are above 130g/km Special rate allowances

For cars purchased after 6 April 2015, these are given at a rate per year which depends on the CO2 emissions of the car, as follows:

  • New cars with a CO2 rating less than 75g/km are eligible for 100% allowances.
  • New cars with a CO2 rating between 75g/km and 130g/km get a 18% allowance.
  • Second hand cars with a CO2 rating less than 130g/km get an 18% allowance
  • For cars with a CO2 rating over 130g/km, an 8% allowance applies.

Allowances are given on a reducing balance basis, but the allowance is restricted for private use.

As an example, suppose you buy a car for £25,000 with a CO2 rating less that 130g/km (but more than 95g/km) and you use it two thirds of the time for business and the rest for private motoring.  The WDA in the first year is at 18% reduced by a third to exclude the private motoring, leaving a net allowance of £2,997.

Cars purchased before April 2015 will be subject to different thresholds to the example used above.

At any time the car will have what is known as a ‘written down value’ or WDV.  This is the cost of the car less the capital allowances which have been given (before the private use reduction).  If you sell or scrap the car for less than its WDV, you will obtain further allowances.  If you sell it for more than its WDV, you will have tax to pay on the excess.

Over your period of ownership of the car you do get full tax relief for the difference between the cost and sale proceeds of the car, subject to restriction for private use.

This answer was last checked May 2017. This answer is for general guidance only. It provides an outline, and may not include points which are important in your case. You should not rely on this answer without taking individual advice based on the full facts of your case. The information given was correct at the time of release.