A Reddit post from a consultant with a full-time job raised a question that catches out a lot of side-hustlers and sole traders: can you use capital allowances to buy a new electric car for your business, and how do you prove the split between business and personal use? If you drive for Uber or Bolt, see our gig economy tax guide for how car expenses fit into the broader picture of platform-worker tax.
The poster earns consultancy income on top of their PAYE job, drives to meetings and admin errands, and estimates the car is used about 30% for business. They’d heard about capital allowances for electric cars but didn’t know what HMRC would require to prove the 30% split — or whether they could even claim at all.
The Reddit replies got most of the key points right but in a compressed, jargon-heavy way that’s hard to act on. Here’s the full picture, in order, so you can decide which method to use before you commit — because once you choose, you’re locked in.
The Two Methods — and Why You Must Choose
Sole traders have two completely different ways to claim vehicle costs against their business profits. You cannot mix them, and you cannot switch between them for the same vehicle.
Method 1: Flat mileage rate (simplified expenses)
You track your business miles and multiply by a fixed rate. The rate covers everything — fuel, insurance, road tax, MOT, servicing, repairs, depreciation, and the cost of buying the vehicle. You claim nothing else for the car.
According to HMRC’s simplified expenses guidance for vehicles, the rates for cars and vans are:
| Period | First 10,000 business miles | Above 10,000 business miles |
|---|---|---|
| 2025-26 (current) | 45p/mile | 25p/mile |
| From 6 April 2026 | 55p/mile | 25p/mile |
The increase to 55p was announced in the government’s mileage rates publication and takes effect retrospectively from 6 April 2026.
What you can’t claim separately when using this method: fuel, insurance, servicing, repairs, road tax, MOT, depreciation, or the purchase price of the car. The rate is designed to cover all of it. If you claim any of these as well, you’re double-counting.
Method 2: Actual costs plus capital allowances
You track all your actual running costs (fuel, insurance, servicing, etc.) and claim the business-use proportion. You also claim capital allowances on the purchase price of the car — again restricted to the business-use proportion.
This method involves more record-keeping but can give a larger deduction if your actual costs per mile exceed the flat rate.
The lock-in rule
This is the critical point the Reddit replies flagged: once you choose a method for a vehicle, you must stick with it for as long as you use that vehicle in your business. You can only switch when you replace the vehicle.
As HMRC’s Business Income Manual (BIM75005) states: “Once a business has adopted the mileage rate basis for a vehicle, it must be applied consistently from year to year for as long as the vehicle remains in the business. No actual expenditure or capital allowances can be claimed in relation to that vehicle. The business can only change to or from an ‘actual’ basis when a vehicle is replaced.”
This is why the decision matters. Get it wrong and you’re stuck with a suboptimal method for years.
Capital Allowances for Cars — Different Rules from Everything Else
If you’ve read our guide to claiming business expenses on a personal card, you’ll have seen that most equipment (computers, machinery, furniture) qualifies for the Annual Investment Allowance (AIA) — a full deduction of the cost in the year you buy it, up to £1 million.
Cars are excluded from the AIA. This is the first thing that trips people up. You cannot use AIA to deduct the full cost of a car in year one, no matter what kind of car it is. The HMRC capital allowances manual (CA23153) is explicit: “Cars do not qualify for annual investment allowance, super-deduction, full expensing or 50% first-year allowances.”
Instead, the capital allowance treatment of a car depends on its CO2 emissions and whether it’s new or second-hand:
| Car type | CO2 emissions | Capital allowance | Rate |
|---|---|---|---|
| New and unused, zero-emission | 0 g/km | First Year Allowance (FYA) | 100% in year one |
| Second-hand electric, or low-emission | 1-50 g/km | Writing Down Allowance (main pool) | 18% per year (14% from April 2026) |
| Higher emission | Over 50 g/km | Writing Down Allowance (special rate pool) | 6% per year |
The 100% FYA for new zero-emission cars
This is the one the Reddit poster was asking about. If you buy a brand new, unused, fully electric car, you can deduct 100% of the cost from your business profits in the year you buy it — but only the business-use proportion.
The conditions, per HMRC’s guidance and the Finance Act 2025, are:
- The car is unused and not second hand (pre-registered demonstrators don’t count)
- It has zero CO2 emissions (fully electric — hybrids don’t qualify because they have an internal combustion engine)
- It’s first registered on or after 17 April 2002
- The expenditure is incurred by 5 April 2027 for Income Tax purposes (extended by Finance Act 2025)
For the Reddit poster’s scenario — 30% business use, buying a new EV:
- If the car costs £30,000 and they use it 30% for business, the FYA is 100% × 30% = £9,000 deductible in year one
- The remaining £21,000 (the personal-use proportion) is not deductible
The private-use restriction: single asset pools
This is the detail that catches people out. When a car is used partly for business and partly for personal journeys, it cannot go in the main pool or the special rate pool. It must go in its own single asset pool, and the allowance is reduced to reflect private use.
According to HMRC’s helpsheet HS252: “Items of equipment, including cars, you use for both business and private purposes do not go into your main or special rate pool. Instead, you put the cost of each into its own single asset pool.”
The HMRC capital allowances manual (CA27005) explains the calculation: for FYA, you reduce the allowance on a “just and reasonable basis” taking account of the extent to which the car is used for non-business purposes. For writing down allowances, you calculate the full WDA and then reduce it by the private-use proportion.
In practice, this means:
- A new EV used 30% for business: FYA of 100% × 30% = 30% of the cost in year one
- A second-hand EV used 60% for business: WDA of 18% × 60% = 10.8% of the cost in year one
- A petrol car used 50% for business: WDA of 6% × 50% = 3% of the cost in year one
The single asset pool also means that when you eventually sell the car, there’s a balancing adjustment — a balancing allowance (extra deduction) or a balancing charge (amount added back to your profits) to reconcile the difference between the allowances claimed and the actual depreciation. This doesn’t happen with main pool assets.
How to Prove the Business-Use Percentage
This is the question the Reddit poster actually asked, and the answer is the same regardless of which method you use: track your mileage.
HMRC doesn’t require a specific format, but the record needs to be sufficient to demonstrate the business percentage if they ask. According to HMRC’s guidance on claiming capital allowances on business cars: “If you’re a sole trader or partnership and you also use your car outside your business, work out what you can claim based on the amount of business use.”
A sufficient mileage log includes:
- Date of each business journey
- Purpose of the journey (which client, which meeting, what errand)
- Start and end locations
- Miles driven
- Total annual mileage (from your odometer or MOT records — this gives the denominator for the business-use percentage)
You don’t need to log personal journeys individually. What you need is the total miles the car covered in the year (from the odometer) and the business miles (from your log). The business-use percentage is then: business miles ÷ total miles.
What counts as business mileage
- Driving to a client meeting, site visit, or consultancy engagement
- Driving between different business locations (e.g., between your office and a client’s office)
- Driving to purchase supplies or equipment for the business
- Driving to training courses or conferences related to your business
What does NOT count as business mileage
- Ordinary commuting to your regular workplace (including your full-time employer’s office, if you have one)
- Personal errands (shopping, school runs, social visits)
- Travel that’s not directly related to your self-employment work
For the Reddit poster — a consultant with a full-time job — this distinction matters. Driving to their PAYE employer’s office is commuting and not claimable. Driving to a consultancy client’s office is business mileage and claimable. The two must not be conflated.
Working at multiple sites for the same client
A more difficult scenario: what if you’re self-employed and work at multiple locations for the same client — say, a chain of shops — spending 80% of your time at one branch and 20% at others? Can you claim travel to all of them, none of them, or just some?
The answer depends on whether the 80% branch has become your base of operations. According to HMRC’s Business Income Manual (BIM37605), the cost of travelling from home to your regular place of work is not allowable because it has a “dual purpose” — one of the purposes of the journey is to allow you to live away from your workplace, which is a private choice. This applies even if you keep tools or business records at home.
The key test, established in Newsom v Robertson and explained in BIM37620, is whether your trade is itinerant — meaning you travel to different locations for a purely temporary purpose at each one, like a jobbing builder. If it is, travel from home to each site is allowable. If you have a regular base, travel from home to that base is not.
HMRC’s guidance on subcontractors (BIM37675) applies the same principle: where a subcontractor works at a single site and this is the normal pattern, that site is the business base and travel to it is disallowed. But where they work at two or more different sites during the year, travel to those sites is normally allowed.
For the self-employed artist working 80% of the time at one branch and 20% at others:
- Travel to the 80% branch — likely not allowable. This branch is effectively your regular workplace or base of operations. The 80% pattern makes it your base, not an itinerant worksite.
- Travel to the other 20% of branches — likely allowable. These are temporary or non-regular workplaces, similar to the itinerant trader travelling between sites.
- Parking at the 80% branch — follows the travel rule: if the travel isn’t allowable, the parking isn’t either. It’s part of the commute.
- Parking at the other branches — allowable, as part of an allowable business journey.
The split is based on the pattern of work, not the individual journey. If you started spending 50% of your time at each of two branches, neither would clearly be a “base” and travel to both would likely be allowable. The 80/20 split is what makes the 80% branch look like a regular workplace.
If in doubt, keep a mileage log that records which branch you drove to and why. The pattern will speak for itself. And if HMRC queries it, the question they’ll ask is whether the 80% branch is your base of operations — not whether you carry tools in your car.
Which Method Wins? The Break-Even Calculation
The decision between mileage rate and actual costs depends on your actual cost per business mile. Here’s how to work it out:
Step 1: Estimate your annual actual costs
Add up everything you spend on the car in a year:
- Fuel or electricity
- Insurance
- Servicing and repairs
- MOT
- Road tax (Vehicle Excise Duty)
- Depreciation (roughly: annual loss in value, or the capital allowance you’d claim)
Step 2: Divide by business miles
If your total annual costs are £6,000 and you drive 8,000 business miles, your actual cost per business mile is £6,000 ÷ 8,000 = 75p/mile.
Step 3: Compare to the flat rate
- If your actual cost per mile is above the flat rate (45p in 2025-26, 55p from April 2026), actual costs give you a bigger deduction
- If your actual cost per mile is below the flat rate, mileage rate gives you a bigger deduction and is much simpler
Typical scenarios
| Scenario | Actual cost per mile | Flat rate | Winner |
|---|---|---|---|
| New EV, low mileage, cheap insurance | ~15-25p | 45p | Mileage rate |
| Modern efficient petrol car, moderate mileage | ~25-35p | 45p | Mileage rate |
| Expensive car, high insurance, high mileage | ~50-70p | 45p | Actual costs |
| New EV claiming 100% FYA in year one | Very high in year 1 (full cost), low after | 45p | Actual costs (in year one only) |
The new EV FYA creates a special case: in the year of purchase, claiming 100% FYA on the business proportion of the cost will almost always beat the mileage rate, because you’re deducting a large chunk of the car’s price upfront. But in subsequent years, the mileage rate may win because your running costs drop to just electricity, insurance, and servicing — all low for an EV.
This is where the lock-in rule bites hardest. If you choose actual costs to get the FYA in year one, you’re stuck with actual costs for the life of the car — even if the mileage rate would have been better from year two onwards. Run both calculations for the expected life of the car, not just year one.
The Cash Basis Trap
One more wrinkle the Reddit replies flagged: capital allowances aren’t normally available if you use the cash basis of accounting. But there’s a specific exception for cars.
According to HMRC’s helpsheet HS252: “You cannot claim capital allowances if you use cash basis, there is an exception for expenditure on cars.”
So if you’re on the cash basis (which most sole traders with income under £150,000 are by default), you can still claim capital allowances on a car — including the 100% FYA for a new zero-emission car. But you cannot use the mileage rate for a vehicle on which you’ve claimed capital allowances, and vice versa.
If you’re not sure whether you’re on the cash basis or the accruals basis, check your most recent Self Assessment return — box 8.1 on the SA103F asks whether you’re using the cash basis.
The Full Decision for the Reddit Poster
For the consultant with 30% business use considering a new EV:
Option A: Mileage rate
- Simpler — track business miles only, multiply by 45p (or 55p from April 2026)
- No capital allowances, no actual cost tracking
- If they drive 3,000 business miles: deduction of £1,350 (at 45p) or £1,650 (at 55p)
- Best if the car is cheap to run (EVs usually are) and business mileage is modest
Option B: Actual costs + 100% FYA
- More complex — track all costs, track total and business mileage, single asset pool
- In year one: 30% of the car’s full cost deducted via FYA (e.g., £9,000 on a £30,000 car)
- Plus 30% of running costs each year
- Best if the car is expensive and the FYA deduction in year one is large
- But locked in for the car’s life — and from year two onwards, running costs alone may be lower than the mileage rate would give
The honest answer: for most sole traders with a side income and modest business mileage, the mileage rate is simpler and often better — especially with the increase to 55p from April 2026. The 100% FYA on a new EV is tempting in year one, but the lock-in rule means you need to look at the total picture over the car’s expected life, not just the first year. And if your consultancy income is modest (the poster mentioned it’s “on top of a full time job”), the extra deduction from capital allowances may not move the needle much if you’re already below the personal allowance on your total income.
If in doubt, run both calculations with realistic numbers for a 5-year period, or get an accountant to model it — the cost of the advice is likely less than the cost of choosing wrong.
The Bottom Line
- Cars are excluded from the AIA. You can’t deduct the full cost of any car in year one through AIA — only through the 100% FYA for new zero-emission cars.
- The 100% FYA for new EVs runs until 5 April 2027 for Income Tax. The car must be unused, fully electric (not hybrid), and you claim only the business-use proportion.
- Private use means a single asset pool. The allowance is reduced to reflect personal mileage, and you need a mileage log to prove the split.
- The mileage rate (45p/25p, rising to 55p/25p from April 2026) is the alternative. It covers all costs including depreciation, is far simpler, and is often better for EVs and low-mileage users.
- The choice is irrevocable for each vehicle. You can only switch when you replace the car. Run both calculations over the car’s expected life before committing.
- Cash basis users can still claim capital allowances on cars — it’s a specific exception — but can’t mix mileage rate and capital allowances on the same vehicle.
- Track your mileage either way. It’s the evidence HMRC will ask for, whether you’re proving the business-use percentage for capital allowances or counting miles for the flat rate.
Vehicle costs are one of nine levers for cutting your tax bill. For the full list — expenses, capital allowances, pensions, Gift Aid and the order to pull them in — see our reduce your Self Assessment tax bill hub.
For the broader choice between the £1,000 trading allowance and actual expenses, see our trading allowance vs expenses guide. For what records HMRC requires to substantiate any expense, see our guide to invoices and expense evidence. For the full list of what you can and can’t claim, see our allowable expenses for sole traders guide. For more practical record-keeping systems, browse the full shoebox method hub.