Can I claim car finance on my tax return?

Yes, you can claim car finance costs on your tax return if the vehicle is used for business purposes.

HMRC allows self-employed individuals and business owners to deduct certain car finance expenses from their taxable income. This can reduce your overall tax bill. But you must only claim the business-use portion of the costs.

You should speak to a qualified accountant before submitting your return. They’ll ensure you follow HMRC rules and avoid costly mistakes.

How much of my car payment is tax-deductible?

You can claim the business-use portion of your car finance payments as a tax deduction. To do this, you must first work out what percentage of your total mileage relates to business use. Then apply that percentage to the full amount you pay on your car finance each month.

Example:
You pay £300 per month to finance your car. Over the year, you track your mileage and find that 60% of your journeys are for business—such as visiting clients or attending meetings.
You then calculate 60% of £300:

£300 × 60% = £180

That means £180 of your monthly finance payment counts as a business expense. Over the course of a year, that adds up to £2,160 (£180 × 12) that you can deduct from your taxable income.

But you must keep clear and detailed records. That includes mileage logs, payment statements, and any related expenses. These will support your claim if HMRC requests evidence. An accountant can help you apply the right method and stay compliant.

When can you deduct car loan interest from your taxes?

Unlocking the potential of car loan interest deductions can bring welcome tax relief. This guide simplifies the eligibility criteria for you to claim tax relief on these deductions, ensuring you make informed decisions whether you're a business owner or an individual.

Are you self-employed?

If you're self-employed and use your car for business, you can usually deduct car loan interest from your tax return.
The car must support your business activities, such as travelling to client meetings or transporting equipment. You can deduct the business-use portion of the interest payments as a trading expense.
It doesn't matter if you’ve already paid for the car or you’re still financing it. What matters is how much of the use relates to your business. For example, if you use the car 70% for work, you can claim 70% of the interest costs.
Keep accurate records. Track your business mileage, store your loan statements, and log all finance charges. These records support your claim if HMRC asks for evidence.

Are you buying the car for personal use?

You can't claim car loan interest if you use the vehicle only for personal reasons.
HMRC only allows tax relief on finance costs linked to business activity. Personal use, such as commuting or family trips, doesn’t qualify as a business expense.
If the car has no business use at all, you can’t deduct any part of the loan interest. This rule applies no matter how much you pay or how long you finance the car.
If your situation seems unclear, speak to a tax adviser. They’ll help you avoid mistakes and make sure your tax return stays compliant.

Are you buying the car as a business expense?

If you buy the car for business use, you can usually deduct the interest from your taxable profits.
The vehicle must serve your business, such as travelling to job sites, meeting clients, or delivering goods. You can only claim the portion that matches your business use.
For example, if you drive 80% for work and 20% for personal use, you can claim 80% of the finance interest as a business expense. You must keep clear records of mileage, finance agreements, and interest charges.
If the car is registered as a company vehicle, different rules apply. You may need to use capital allowances and follow company car tax guidelines. Speak to your accountant to make sure you apply the right method and stay compliant with HMRC rules.

Are you buying the van for business purposes?

If you buy a van for business use, you can usually deduct the loan interest from your taxable profits.
HMRC treats vans used for business more favourably than cars. When you finance a van mainly for work, the interest on the loan counts as a business expense.
You may also claim the Annual Investment Allowance (AIA). This lets you deduct the full purchase price in the year you buy the van, as long as it qualifies as plant and machinery.
Keep detailed records of your loan agreement, interest charges, and business mileage. You’ll need these to support your claim if HMRC asks for proof.
Speak to an accountant to make sure you use the correct method and maximise the relief available for vans.

HMRC rules

These rules help you understand what you can claim, how to calculate it, and which methods to use. They cover capital allowances, interest deductions, personal use limits, and cars provided to employees.
If you follow HMRC’s guidelines, you can make accurate claims and reduce your business tax bill. And with the right approach, you stay compliant while making the most of your vehicle expenses.

1. Capital allowances

You can claim capital allowance on a car used for business
This means you subtract part of the car’s value from your profits before working out your tax bill. Doing this helps reduce the amount of tax you pay.
To qualify, the car must be used in your business and meet HMRC’s definition of a car. That means it must be suitable for private use and not designed mainly for carrying goods. Most standard cars fall into this category.
Keep clear records of your purchase price, usage, and CO₂ emissions. These details affect how much you can claim.

100% First-year allowances:

• New electric cars or 0g/km CO2 emissions (from April 2021)
• New electric cars or ≤50g/km CO2 emissions (Apr 2018 - Apr 2021)
• New electric cars or ≤75g/km CO2 emissions (Apr 2015 - Apr 2018)
• New electric cars or ≤95g/km CO2 emissions (Apr 2013 - Apr 2015)
• New electric cars or ≤110g/km CO2 emissions (Apr 2009 - Apr 2013)

Main rate allowances:

• Second-hand electric cars or ≤50g/km CO2 emissions (from April 2021)
• Second-hand electric cars or ≤110g/km CO2 emissions (Apr 2018 - Apr 2021)
• Second-hand cars or ≤130g/km CO2 emissions (Apr 2015 - Apr 2018)
• Second-hand cars or ≤130g/km CO2 emissions (Apr 2013 - Apr 2015)
• Second-hand cars or ≤160g/km CO2 emissions (Apr 2009 - Apr 2013)

Special rate allowances:

• New and second-hand cars >50g/km CO2 emissions (from April 2021)
• New and second-hand cars >110g/km CO2 emissions (Apr 2018 - Apr 2021)
• New and second-hand cars >130g/km CO2 emissions (Apr 2015 - Apr 2018)
• New and second-hand cars >130g/km CO2 emissions (Apr 2013 - Apr 2015)
• New and second-hand cars >160g/km CO2 emissions (Apr 2009 - Apr 2013)

2. Types of allowance

Once HMRC classifies your vehicle as a car, the type of allowance you can claim depends on its CO₂ emissions and purchase date.

These two factors determine the rate you apply when calculating your capital allowances. HMRC uses them to assign the car to one of three categories: first-year allowance, main rate, or special rate.

If the car has zero emissions, you may claim the full cost in the first year. If emissions are up to 50 g/km, you apply the main rate of 18%. Cars with higher emissions fall under the special rate, which allows 6% each year.

Use the UK Government’s online checker to confirm your car’s CO₂ emissions. Keep that figure with your purchase records, as it directly affects how much you can claim.

3. Declare personal use

If you use the car for both work and personal trips, you must adjust your claim to reflect only the business use.
This applies to both capital allowances and loan interest. HMRC expects a clear split between business and personal mileage. You must base your claims on that percentage.
Instead of estimating, track your mileage from the start. Use a logbook or digital tool to record each journey. The more accurate your records, the easier it is to support your claim and avoid problems later.
If you don’t declare personal use correctly, you risk overclaiming and drawing unwanted attention from HMRC.

4. Company car for employees

If you provide a car to an employee, you can usually claim capital allowances on the full cost.
This applies even if the employee uses the vehicle outside of work. But in such cases, HMRC may treat the car as a benefit-in-kind. That means your employee could pay tax on the value of the personal use.
You must report this benefit through PAYE and calculate the correct value using HMRC’s guidelines. The amount depends on the car’s list price and its CO₂ emissions.
You still claim capital allowances as the employer. But you must also handle the reporting and tax implications linked to employee benefits.

How to claim a car loan on taxes

If you acquire a vehicle through hire purchase, only the interest payments on the agreement are considered allowable company expenses.

The method for claiming car finance on your tax return hinges on your individual circumstances. Should uncertainty arise, consult HMRC guidelines or enlist the aid of a skilled accountant.

1. Sole traders usually claim capital allowances via their self-assessment tax return.
2. For those in a business partnership, completing a partnership tax return could be necessary.
3. Limited companies generally fill out a company tax return, which includes distinct capital allowance calculations

You claim car finance costs differently depending on your business structure and how you use the vehicle.

If you buy a car through hire purchase, you can usually claim the interest as a business expense. But only the interest—not the full repayment—qualifies for tax relief.

You claim capital allowances on the vehicle itself. The amount depends on the car’s CO₂ emissions, the purchase date, and how much you use it for business. Apply the correct rate and only claim the business-use portion.

The process varies by business type:

• Sole traders: Use your self-assessment tax return (SA100) to report interest and capital allowances.
• Partnerships: File through a partnership return (SA800), with each partner’s share recorded accordingly.
• Limited companies: Submit a company tax return (CT600), where capital allowance claims go through your corporation tax calculation.

Keep all supporting records, including your hire purchase agreement, loan interest summary, and business mileage log. And if you’re unsure, consult HMRC guidance or speak to your accountant before submitting your return.

How to reduce tax cost on car finance

Minimising your tax costs while financing a car is achievable with strategic steps. Let's explore how to do just that, incorporating the provided terms and phrases.

1. Opt for business use

Use the car mainly for work purposes. This opens the door to claim capital allowances and deduct loan interest. Make sure your usage meets HMRC’s definition of business use.

2. Keep accurate records

Track your mileage, loan interest, and business expenses. Good records support your claim and protect you if HMRC requests evidence.

3. Understand and claim capital allowances

Apply the right allowance rate based on CO₂ emissions and purchase date. These allowances let you deduct part of the car’s value from your taxable profits.

4. Choose wisely

Select a car with low or zero emissions. Electric vehicles may qualify for a 100% first-year allowance, giving you full tax relief upfront.

5. Separate personal use

Work out the percentage used for business. Only claim the portion that reflects actual business use, and back it up with mileage logs.

6. Seek professional help

Tax rules can be complex. An accountant can help you apply the correct method and avoid costly mistakes.

7. Use tax-efficient structures

Your tax position may vary depending on your setup. Compare the pros and cons of operating as a sole trader, partnership, or limited company.

8. Claim with confidence

When it’s time to submit your tax return, use your records to support your claims. This helps you avoid delays and ensures accuracy.

By following these steps, you can lower the tax cost of your car finance while staying fully compliant. And with tailored advice, you’ll make smarter business decisions and keep more of your earnings.