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There are various ways of financing a car and this in itself can be a minefield, but from a tax relief point there are just two types of expenditure:


Here the business buys the car outright, whether that’s with cash or via a loan or hire purchase.  The company then claims capital allowances each year during the period of ownership, as well as claiming any finance costs as a tax-deductible expense.


This is when the business merely rents the car, and never actually owns it. This is usually referred to as a finance lease and here the business claims the leasing costs as a tax-deductible expense.

In both cases, the amount of tax relief claimed will depend on many factors, such as the list price when new, when you bought the car, its CO2 emissions and whether you are a limited company or not.

There is no “one-size-fits-all answer” and I hope you find this factsheet useful:

Business Motoring Tax Aspects 2018

As you can see from the illustrations in the factsheet, the tax relief on a “green car” can be more than double that of a higher CO2 car.

In next month’s newsletter, I’ll explain your personal tax position if you have a company car, or if you use your own car for business use.

In summary, tax on cars is very complex!  Before you commit to buying or leasing we need to take into consideration:

  • how much the company will save in corporation tax on the car (which is explained in this factsheet)
  • the total running costs of the car, including finance costs
  • your private use element
  • how much is it going to cost you in personal tax too.

It’s really important therefore that you talk to us once you have some car quotations.

We shouldn’t let tax wag the dog though – it’s no fun being blown around in a small “green car” if you do a thousand miles a week on the motorway.  That said, I think you’ll be surprised at how many vehicles are actually CO2 friendly.  Here’s a useful link for you which gives the CO2 emissions and running costs for all cars http://carfueldata.dft.gov.uk.