If you run a marketing, digital, or creative agency in the UK, the car you drive for business is a significant asset. How you claim tax relief on it depends on the type of car, its CO2 emissions, and when you bought it. The rules are changing from April 2026, so getting this right now matters.

This guide explains writing down allowances for cars in plain English. We'll cover the rates, the pools, electric vehicles, and what the upcoming changes mean for your agency's tax bill.

What is a Writing Down Allowance for Cars?

A writing down allowance is a type of capital allowance. It lets you deduct a percentage of the car's value from your profits each year, reducing your corporation tax or income tax bill [1].

For capital allowances purposes, a car is a vehicle suitable for private use that was not built for transporting goods [2]. Motorcycles bought before 6 April 2009 do not count as cars under these rules [2].

You cannot claim writing down allowances on cars if you use the cash basis for your sole trader or partnership accounts. In that case, you can only claim capital allowances on business cars [1]. Most limited company agencies will use accruals accounting, so this restriction rarely applies.

Main Rate vs Special Rate: Which Pool Does Your Car Go Into?

Cars are split into two pools for writing down allowances. The pool determines the rate at which you can claim relief.

Main Rate Pool (18% per year, reducing to 14% from April 2026)

Cars with CO2 emissions of 50g/km or less go into the main rate pool [3]. This includes most plug-in hybrid cars and all electric cars. The annual writing down allowance is 18% of the car's value on a reducing balance basis [2].

From 1 April 2026 for corporation tax and 6 April 2026 for income tax, this main rate will reduce to 14% [4]. That means slower tax relief on new main-rate cars bought after that date.

Special Rate Pool (6% per year)

Cars with CO2 emissions above 50g/km go into the special rate pool. The writing down allowance is 6% of the car's value each year on a reducing balance basis [2].

This covers most petrol and diesel cars, and older hybrids. The 6% rate is not changing in April 2026.

First-Year Allowances for Electric Cars

New and unused cars with CO2 emissions of 0g/km qualify for a 100% first-year allowance [2]. This means you can deduct the full cost of a brand-new electric car from your profits in the year you buy it.

This 100% allowance is extended to 31 March 2027 for corporation tax purposes and 5 April 2027 for income tax purposes [4]. If you are considering an electric car for your agency, buying before those dates gives you the most generous tax relief.

Chargepoints also qualify for 100% first-year allowances under the same extension [4].

What Changes From April 2026?

Several changes are coming that affect agency founders who use cars for business.

Main rate writing down allowance reduces from 18% to 14% from 1 April 2026 (corporation tax) and 6 April 2026 (income tax) [4]. This applies to cars in the main rate pool bought after those dates.

A new 40% first-year allowance for main-rate assets is introduced from 1 January 2026 [4]. This is designed to preserve the incentive to invest in lower-emission cars that do not qualify for the 100% electric car allowance.

Electric Vehicle Excise Duty (eVED) is introduced from April 2028 [4]. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars. Plug-in hybrids will pay a reduced rate equivalent to half the electric car rate [4].

Employee car-ownership schemes are delayed and will now be brought into benefit in kind rules from 6 April 2030, with transitional arrangements until April 2031 [4]. This affects any agency considering salary sacrifice car schemes for staff.

Worked Example: A 12-Person Digital Agency

Let's say you run a digital agency in Manchester's Northern Quarter. You buy a new electric car for £48,000 in June 2025. The car is used 100% for business (no private use).

Because it is a new electric car with 0g/km CO2, it qualifies for the 100% first-year allowance. You can deduct the full £48,000 from your profits in the 2025/26 tax year.

If your agency pays corporation tax at 19% (small profits rate), that saves you £9,120 in tax. If you pay at 25% (main rate), the saving is £12,000.

Now suppose you buy a used petrol car for £24,000 in June 2025. It has CO2 emissions of 120g/km, so it goes into the special rate pool. You claim 6% writing down allowance each year on the reducing balance.

Year 1: £24,000 x 6% = £1,440 allowance. Tax saving at 19% = £273.60.
Year 2: (£24,000 - £1,440) x 6% = £1,353.60 allowance. Tax saving = £257.18.
And so on, reducing each year.

The difference is stark. Electric cars give you immediate, full relief. Petrol and diesel cars give you slow, partial relief over many years.

How to Claim Writing Down Allowances

You claim writing down allowances in your company's corporation tax return (CT600) or your self-assessment tax return (SA100 for sole traders).

You need to keep records of the car's purchase cost, CO2 emissions, and date of purchase. Your accountant will need this information to calculate the correct pool and rate.

If you use accounting software like Xero or QuickBooks, your accountant can set up the fixed asset register to track the reducing balance automatically.

If an item qualifies for more than one capital allowance, you can choose which one to use [1]. For example, a new electric car qualifies for both the 100% first-year allowance and the main rate writing down allowance. You would choose the first-year allowance because it gives faster relief.

What About the Annual Investment Allowance?

The Annual Investment Allowance (AIA) lets you claim up to £1 million on certain plant and machinery in the year of purchase [1]. However, cars are specifically excluded from the AIA. You cannot use the AIA to claim relief on a car purchase.

This is why the writing down allowance rules and first-year allowances for electric cars are so important. They are the main routes for claiming tax relief on business cars.

Private Use of a Company Car

If you use a company car for both business and private journeys, you cannot claim capital allowances on the private use proportion. You must restrict your claim to the business use percentage.

You also need to report the private use benefit on form P11D. The benefit in kind charge is based on the car's list price and CO2 emissions. Electric cars currently have very low benefit in kind rates (2% in 2025/26), making them tax-efficient for both the company and the director.

Salary Sacrifice Car Schemes for Agency Staff

Some agencies offer salary sacrifice schemes where employees give up part of their salary in exchange for a company car. These schemes are popular for electric cars because of the low benefit in kind rates.

By law, a salary sacrifice must not take a worker's pay below the National Minimum Wage [5]. The employer must also deduct tax and National Insurance from the reduced salary [5].

If you are considering a salary sacrifice scheme for your agency, speak to your accountant first. The rules are detailed, and getting them wrong can create unexpected tax liabilities.

Planning Ahead: What Should Agency Founders Do Now?

If you are thinking about buying a car for your agency, consider these points:

  • Buy an electric car before April 2027 to benefit from the 100% first-year allowance. After that date, the rules may change.
  • Check your current car pool. If you have cars in the main rate pool, the rate drops from 18% to 14% in April 2026. The timing of purchases matters.
  • Review your agency's car policy. If you have multiple cars, consider whether switching to electric makes financial sense for your tax position.
  • Keep accurate records. CO2 emissions, purchase date, and business use percentage are all essential for correct claims.

As ICAEW qualified accountants, we work exclusively with agency founders. If your agency's car situation has changed in the last 12 months, or you are planning a purchase, ask your accountant before year-end. The difference between a 100% first-year allowance and a 6% writing down allowance is significant.

For more guidance on agency tax planning, see our tax and compliance articles or book a consultation with our team.

Sources

  1. aka.hmrc.gov.uk: Claim capital allowances: Overview - GOV.UK
  2. gov.uk: Claim capital allowances: Business cars - GOV.UK
  3. icaew.com: Winners and losers from capital allowances changes - ICAEW.com
  4. accaglobal.com: Capital allowances and electric car changes - ACCA Global
  5. acas.org.uk: Making and checking deductions - Deductions from pay and wages