If you run a marketing, digital, or creative agency in the UK and you use a van for business, you can claim capital allowances on vans to reduce your tax bill. The rules are generous, but they depend on your business structure, whether the van is new or second-hand, and how you use it.
This article explains exactly how capital allowances on vans work for agency founders. We cover full expensing, the annual investment allowance (AIA), writing-down allowances, and the practical steps to claim. We also flag the traps that catch agency owners out, particularly around private use and the cash basis.
What Are Capital Allowances on Vans?
Capital allowances let you deduct some or all of the value of a business asset from your profits before you pay tax [1]. For agency founders, the most common asset is a van used to transport equipment, stock, or materials to client sites, events, or shoots.
Unlike cars, vans are treated as plant and machinery for capital allowance purposes. That means they qualify for the most generous reliefs available. Motorcycles, lorries, vans and trucks are not considered cars, so they can be included in the annual investment allowance [2].
The key distinction is this: cars have strict CO2-based caps on capital allowances. Vans do not. You can claim 100% of the cost in the first year, provided you meet the conditions.
Full Expensing: The Best Option for Limited Companies
Full expensing allows a 100% first-year allowance for expenditure on new and unused plant and machinery, including vans, incurred between 1 April 2023 and 31 March 2026 [3]. If your agency is a limited company and you buy a brand new van, you can deduct the entire cost from your taxable profits in the year of purchase.
Here is a worked example. Your digital agency buys a new van for £32,000. Under full expensing, you deduct the full £32,000 from your profits. If your corporation tax rate is 19%, that saves you £6,080 in tax. If your profits push you into the 25% main rate, the saving is £8,000.
Full expensing is not available for expenditure on assets that are not new and unused, such as second-hand vans [3]. It is also only available for companies, not unincorporated businesses [3]. If you are a sole trader or partnership, you cannot use full expensing.
What Counts as a Van for Full Expensing?
HMRC defines a van as a commercial vehicle designed primarily for carrying goods. Most panel vans, crew vans, and pickup trucks with a payload over 1,000kg qualify. Double-cab pickups are trickier, HMRC has changed its position on these several times. If you are considering a double-cab pickup, check with your accountant before buying.
The 100% first-year allowance for new and unused plant and machinery applies to assets that are not cars, but vans are included [3]. So a standard Ford Transit, Mercedes Sprinter, or VW Transporter qualifies, provided it is new and unused.
Annual Investment Allowance (AIA): The Option for Second-Hand Vans and Sole Traders
If you buy a second-hand van, or if you are a sole trader or partnership, you cannot use full expensing. Instead, you use the annual investment allowance (AIA).
You can claim up to £1 million on certain plant and machinery under the annual investment allowance (AIA) [1]. For unincorporated businesses, the AIA provides a 100% allowance on most plant and machinery, including vans, up to a limit of £1 million per year [3].
That £1 million limit is more than enough for any agency van purchase. The AIA is temporary but has been extended repeatedly. As of 2025/26, it remains at £1 million.
Here is how it works for a sole trader agency founder. You buy a used van for £18,500. You claim the full £18,500 as an AIA deduction. If you are a basic rate taxpayer, that saves you £3,700 in income tax. If you are a higher rate taxpayer, the saving is £7,400.
AIA and Limited Companies
Limited companies can also use the AIA, but it is usually less beneficial than full expensing. Full expensing gives you 100% relief on new assets. The AIA also gives 100% relief, but it is a single annual pool. If you buy multiple assets in the same year, the AIA cap applies across all of them. Full expensing is uncapped for new assets.
In practice, most limited company agency founders use full expensing for new vans and the AIA for second-hand vans or other plant and machinery.
Writing-Down Allowances: When You Exceed the AIA
If your agency spends more than £1 million on plant and machinery in a single year, the excess goes into a pool and attracts writing-down allowances. For capital expenditure over the annual investment allowance, capital allowances are claimed as writing-down allowances, allowing you to claim 18% for the cost of most plant and machinery each year or 6% on special rate pool [2].
For a van, the rate is 18% per year on a reducing balance basis. So if you spend £1.2 million on assets, you claim £1 million under AIA and the remaining £200,000 attracts an 18% writing-down allowance of £36,000 in year one. The balance of £164,000 carries forward to the next year.
For most agency founders, this scenario is unlikely. A single van purchase of £30,000 to £50,000 fits comfortably within the AIA or full expensing limits.
Private Use of a Van: What Changes
If you use the van partly for private journeys, the capital allowance claim is restricted. You can only claim the business-use proportion.
Say you buy a new van for £28,000 through your limited company. You use it 80% for business and 20% for personal trips. Under full expensing, you claim 80% of £28,000, which is £22,400. The remaining 20% is disallowed because it relates to private use.
This is different from a car, where you pay a benefit-in-kind tax on private use. For vans, the benefit-in-kind rules are simpler. If you have any private use of a company van, you pay a fixed annual benefit charge of £3,960 (2025/26 rate) plus a £757 fuel charge if the company pays for private fuel. This is much lower than the car benefit charge, which can run into thousands more.
If you are a sole trader, private use is handled differently. You simply restrict the capital allowance claim to the business proportion. There is no benefit-in-kind charge because you are not an employee of your own business.
Cash Basis: The Trap for Sole Traders
If you are a sole trader or partnership and you use cash basis, you can only claim capital allowances on business cars [1]. That means you cannot claim capital allowances on vans under the cash basis.
Instead, you deduct the actual cost of the van as a business expense in the year you pay for it. This sounds similar, but there is a catch. Under the cash basis, you cannot claim capital allowances on any asset that has a useful life of more than two years, unless it is a car. Vans fall into this category.
If you are a sole trader using the cash basis, you can still deduct the van purchase price as a revenue expense, but you cannot use the AIA or full expensing. The deduction is simply the cost of the van in the year of purchase. This is often more straightforward, but you lose the ability to carry forward unused allowances.
Most agency sole traders use the traditional accruals basis, which gives them access to the AIA. If you are unsure which basis you use, check with your accountant or review your last tax return.
Electric Vans: Additional Incentives
Electric vans qualify for the same capital allowances as diesel or petrol vans. Full expensing applies to new electric vans bought by limited companies. The AIA applies to second-hand electric vans.
There is an additional benefit for electric vans. The benefit-in-kind charge for electric vans is nil for 2025/26. If your company provides an electric van with no private fuel, you pay zero benefit-in-kind tax. This makes electric vans extremely tax-efficient for agency founders who want a company van with private use.
The government has also confirmed that full expensing will apply to new electric vans until 31 March 2026. After that, the 40% first year allowance can be claimed for qualifying plant and machinery purchased after 1 January 2026 [1]. This rate applies to all new plant and machinery, not just electric vans.
How to Claim Capital Allowances on Vans
Claiming capital allowances on vans is straightforward, but you need to get the details right.
For limited companies: Include the van in your capital allowances computation as part of your corporation tax return (CT600). Your accountant will prepare this as part of your year-end accounts. If you use accounting software like Xero or QuickBooks, record the van as a fixed asset and your accountant will calculate the allowance.
For sole traders: Include the van in your self-assessment tax return (SA100). There is a specific section for capital allowances. Your accountant will handle this.
What you need to keep: The purchase invoice, proof of payment, and a record of business mileage if there is any private use. HMRC can ask for this if they open a compliance check.
If you are unsure about any of this, speak to your accountant. At Agency Founder Finance, we are ICAEW qualified accountants who work exclusively with agency founders. We handle capital allowance claims as part of our standard compliance work.
Common Mistakes Agency Founders Make
Here are the three most common errors we see.
1. Claiming capital allowances on a car thinking it is a van. Some vehicles, like SUV-style vans or double-cab pickups, sit in a grey area. HMRC has specific definitions. If you claim incorrectly, you could face a tax bill plus interest and penalties.
2. Forgetting to restrict for private use. If you use the van for personal trips and claim 100% of the cost, HMRC will disallow the private-use proportion. This is a common adjustment in compliance checks.
3. Using the cash basis and missing the AIA. As noted above, sole traders on the cash basis cannot claim capital allowances on vans. If you are on the cash basis and buy a van, you deduct the cost as a revenue expense, not as a capital allowance. Many sole traders miss this distinction and file incorrectly.
Should You Buy a Van Through Your Agency?
For most agency founders, buying a van through the business makes sense if you genuinely need it for business. The capital allowances are generous, and the benefit-in-kind charge for vans is much lower than for cars.
If you are a limited company, full expensing means you can deduct the full cost in year one. If you are a sole trader, the AIA gives you the same result. The tax saving is immediate and significant.
However, if the van is primarily for personal use with occasional business trips, you are better off buying it personally and claiming mileage. The benefit-in-kind charge on a van used mainly privately can still add up, and the capital allowance restriction reduces the benefit.
If you are considering a van purchase for your agency, talk to your accountant first. They can model the tax position based on your specific circumstances. At Agency Founder Finance, we help agency founders make these decisions every week.
Summary
Capital allowances on vans are one of the most straightforward tax reliefs available to agency founders. Limited companies can claim 100% full expensing on new vans. Sole traders and those buying second-hand vans can use the £1 million AIA. Writing-down allowances apply if you exceed the AIA limit.
The main traps are private use restrictions, the cash basis exclusion for sole traders, and misclassifying a car as a van. Avoid these, and you can save thousands in tax.
If you need help with your agency's tax position, get in touch. We work with marketing agencies, digital agencies, creative agencies, and all other agency types across the UK.
Sources
- gov.uk: Claim capital allowances: Overview - GOV.UK
- accaglobal.com: Maximising capital allowances relief - ACCA Global
- icaew.com: A lowdown on full expensing for SMEs - ICAEW.com