Buying a Vehicle Through a UK Business: 2025/26 Tax Rules Explained

Investing correctly in your business is key to growth

Purchasing a vehicle through your business can be a smart financial move, but it’s important to understand the tax implications and allowances available in the 2025/26 tax year. Whether you're considering a company car, a van, or an electric vehicle, different tax treatments apply depending on the type of vehicle and how it’s used.

1. Business vs. Personal Use: Key Considerations

Before purchasing a vehicle through your business, consider:

• Business Use: If the vehicle is used exclusively for business purposes, it may qualify for tax relief.

• Personal Use: If the vehicle is available for personal use, it will be subject to Benefit-in-Kind (BIK) tax, which varies based on CO2 emissions.

2. Tax Treatment for Different Vehicles

Company Cars

• Capital Allowances: Businesses can claim tax relief on company cars, but the amount depends on CO2 emissions:

  • Electric cars (0g/km CO2): Qualify for 100% first-year allowances, meaning businesses can deduct the full cost from taxable profits.

  • Low-emission cars (≤50g/km CO2): Eligible for 18% writing down allowance per year.

  • Higher-emission cars (>50g/km CO2): Only 6% writing down allowance per year.

• BIK Tax: Employees using company cars for personal use must pay Benefit-in-Kind tax, which is calculated based on CO2 emissions and the car’s list price.

Vans & Commercial Vehicles

• Annual Investment Allowance (AIA): Businesses can deduct 100% of the cost of vans and commercial vehicles in the year of purchase.

• VAT Reclaim: If the van is used solely for business, VAT can be reclaimed.

Electric Vehicles & Tax Benefits

• First-Year Allowances: Fully electric cars qualify for 100% first-year capital allowances.

• Lower BIK Rates: Electric vehicles have significantly lower Benefit-in-Kind tax rates, making them a tax-efficient choice.

3. Changes to Double-Cab Pickups (2025 Rule Update)

From April 2025, HMRC will treat double-cab pickup trucks as cars rather than commercial vehicles for tax purposes. This means:

• Higher BIK tax for employees using them personally.

• Reduced tax efficiency for businesses purchasing them.

• No full VAT reclaims on purchase.

Businesses considering a double-cab pickup should purchase before April 2025 to benefit from the current tax treatment.

4. Leasing vs. Buying: Which Is Better?

• Buying: Allows businesses to claim capital allowances and potentially reclaim VAT.

• Leasing: Monthly payments are tax-deductible, but businesses cannot claim capital allowances.

5. Final Thoughts

Purchasing a vehicle through your business can offer tax advantages, but it’s essential to choose the right type of vehicle and understand the latest tax rules. Electric vehicles remain the most tax-efficient option, while changes to double-cab pickups may impact business decisions.

Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.

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