🚗 Motor Car Taxation Guide for UK Businesses & Individuals

Understanding motor vehicle taxation can help businesses save money and stay compliant with HMRC regulations. Below are the key aspects to consider when purchasing, leasing, or using a company car.

📌 No Claim for Annual Investment Allowance (AIA) on Motor Cars

Many businesses assume they can claim Annual Investment Allowance (AIA) on motor cars, but this is not allowed. Instead, businesses must claim capital allowances:

• 100% First-Year Allowance (FYA) – For new electric cars or those emitting ≤95g CO₂/km.
• 18% Writing Down Allowance (WDA) – For cars emitting 96-130g CO₂/km (Main Pool).
• 8% Writing Down Allowance (WDA) – For cars emitting >130g CO₂/km (Special Rate Pool).

📌 Learn more about capital allowances.

👥 Difference Between Sole Traders and Company Directors

Tax treatment differs depending on how you use the car:

✔ Self-Employed (Sole Traders & Partnerships)

• Claim tax relief based on business mileage percentage.
• No Benefit-in-Kind (BIK) charge as the car is personally owned.
• Option to use simplified mileage rates (45p per mile for the first 10,000 miles, 25p thereafter). More on simplified expenses.

✔ Company Directors & Employees

• The company claims capital allowances, but employees face BIK tax charges. BIK tax guide here.
• If fuel is provided for personal use, fuel benefit tax applies.
• Running costs are deductible, but private use creates taxable benefits.

📢 VAT Block on Leased Cars with Private Use

VAT recovery rules vary based on whether the car is purchased or leased:

• Purchased Cars – VAT can only be reclaimed if the car is 100% for business use.
• Leased Cars – If there is any private use, only 50% of VAT on lease payments can be reclaimed.
• Fuel VAT – Businesses can reclaim VAT on fuel, but must apply HMRC fuel scale charges if private use is involved.

💡 Summary of Key Points

• 🚗 No AIA on cars – Capital allowances apply based on CO₂ emissions.
• 👤 Sole traders claim business-use proportion, no BIK tax.
• 🏢 Company directors pay tax on company cars for private use.
• 💰 50% VAT block on leased cars with private use.
• ⚡ Fuel VAT reclaimable, but fuel scale charge applies.

By understanding these rules, businesses can make tax-efficient decisions when acquiring company vehicles.

📞 Need Expert Advice?

Our team at MSA Accountants specializes in business taxation and vehicle tax planning. Contact us today for tailored advice!