A trade business buys vans, tools, plant and a pick-up, and the tax treatment of those four things is not one rule but several — some of which changed in 2025 and 2026. The vehicle question is the worst of it, because “van or car” has three separate legal definitions with three separate consequences, and they do not always give the same answer on the same vehicle.
Guide · Updated August 2026
The annual investment allowance gives 100% relief on most plant and machinery in the year you buy it. It has been £1,000,000 since 1 January 2019 and is confirmed at £1m for both 2025-26 and 2026-27. It is available to sole traders, partnerships and companies alike.
What is excluded: business cars; items owned for another purpose before being brought into the business; and items gifted to the business. It is reduced proportionately for short accounting periods — HMRC's own example is nine months giving 9/12 × £1,000,000 = £750,000.
One trap for people with more than one business. Sole traders and partnerships get one AIA per business unless the businesses are controlled by the same person and share premises or have similar activities, in which case they share one. Companies under common control get one AIA between them, full stop.
For the overwhelming majority of trade businesses, the AIA absorbs the entire year's capital spending and nothing else in this section changes the answer. Read on if your capital spend exceeds £1m, or if you are carrying a main pool.
A 100% first-year allowance on qualifying main-rate plant and machinery, uncapped. It was made permanent at Autumn Statement 2023, having previously been time-limited to 31 March 2026, and the associated 50% first-year allowance for special rate expenditure was made permanent at the same time.
It is restricted to companies within the charge to corporation tax. Unincorporated businesses cannot claim it and use the AIA instead, which delivers the same outcome up to £1m. The asset must be new and unused, and must not be a car, a gift, or bought to lease to someone else.
Announced at Budget 2025, with legislation in Finance Bill 2025-26. Two changes travel together and they pull in opposite directions.
| Change | Detail | From |
|---|---|---|
| New 40% first-year allowance on main-rate plant and machinery | Available to all businesses, not just companies — unincorporated businesses can claim. Second-hand assets excluded. Cars excluded. Overseas leasing excluded. | Expenditure incurred on or after 1 January 2026 |
| Main-rate writing-down allowance cut from 18% to 14% | Reducing balance. Hybrid rates apply for chargeable periods straddling commencement. | 1 April 2026 for corporation tax, 6 April 2026 for income tax |
AIA and full expensing are unchanged by this measure. So the practical reading for a trade business is: the 40% FYA matters if your annual capital spend exceeds £1m and you are outside full expensing; the WDA cut to 14% matters to everyone carrying a main pool, because relief on anything already in that pool now unwinds more slowly.
This is not one question. There are three separate legal definitions with three separate consequences, and a vehicle can land differently on each.
| If it is a car | If it is a van / goods vehicle | |
|---|---|---|
| Benefit in kind (ITEPA 2003) | Car benefit charge on list price × CO2 appropriate percentage; car fuel benefit multiplier £29,200 for 2026/27 | Flat van benefit charge £4,170; van fuel benefit £798; nil if private use is restricted or insignificant |
| VAT input tax | Blocked on purchase | Recoverable on a commercial vehicle, subject to business use |
| Capital allowances (CAA 2001) | No AIA, no full expensing — main or special rate pool WDA by emissions | AIA, full expensing and the 40% FYA all available |
The benefit-in-kind test now turns on the primary suitability of the vehicle's construction, following the Court of Appeal in Payne & Ors (Coca-Cola). It is not the VAT classification and it is not payload alone. HMRC stopped aligning its car and van definitions with the VAT definitions from 6 April 2025, so the three tests can now genuinely diverge on one vehicle.
This is the item most often reported wrongly, usually by collapsing two different transitional rules into one date. The change affects benefit in kind, capital allowances, and some deductions from business profits. The VAT treatment did not change.
Benefit in kind. From 6 April 2025 HMRC applies the primary suitability test. A double-cab pick-up is typically equally suited to conveying passengers and goods, so it has no predominant suitability — and most double-cab pick-ups are therefore classified as cars. The transitional rule: an employer that purchased, leased or ordered one before 6 April 2025 may keep the previous van treatment until the earlier of disposal, lease expiry, or 5 April 2029. Moving the vehicle between employees during that period does not break the protection. HMRC's own examples: purchased September 2025, car. Leased December 2024, old rules until lease expiry or April 2029. Ordered January 2025 but not delivered until September 2025 — old rules until April 2029, because the order date governs.
Capital allowances. HMRC no longer reads the CAA 2001 definition of "car" as excluding pick-ups with a payload of a tonne or more, so most double-cab pick-ups equally suited to passengers or goods are cars — meaning no AIA and no full expensing. Commencement: 1 April 2025 for corporation tax, 6 April 2025 for income tax. The transitional rule here is much shorter: where the expenditure arises from a contract entered into before commencement and is incurred on or after commencement but before 1 October 2025, the vehicle is still a goods vehicle.
Benefit in kind protection can last to 5 April 2029. The capital allowances protection ended on 1 October 2025. The same pick-up can therefore be a van for the driver's P11D and a car for the company's tax computation at the same time. If you have a pick-up on the books, that is worth checking rather than assuming.
Pick-ups with a payload under one tonne are unaffected — they were already cars, not being primarily constructed for conveying goods.
| Charge, 2026/27 | Amount |
|---|---|
| Van benefit charge — van capable of emitting CO2, available for private use | £4,170 |
| Van fuel benefit charge | £798 |
| Car fuel benefit multiplier | £29,200 |
Uprated by CPI from 6 April 2026, with Class 1A NIC at 15% due on top.
The exemption is the important part. There is no van benefit charge where private use is restricted to business travel plus insignificant private use — and unlike a car, ordinary commuting in a van does not by itself create a benefit. Home-to-work travel falls within the restricted private use condition. That is why a genuine work van driven home each night is normally tax-free, and precisely why the van-or-car classification carries so much weight: misclassify the vehicle and you lose an exemption, not just a rate.
| Rate | 2011/12 to 2025/26 | 2026/27 |
|---|---|---|
| Cars and vans, first 10,000 business miles | 45p | 55p |
| Cars and vans, each mile over 10,000 | 25p | 25p |
| Motorcycles | 24p | 24p |
| Bicycles | 20p | 20p |
From 6 April 2026, with retrospective effect, applying to both employee approved mileage allowance payments and the self-employed simplified mileage rates. The NIC relevant motoring expenditure disregard also rises to a flat 55p. This is the first change to the 45p rate since 2011/12.
A sole-trader electrician does 14,000 business miles in 2026/27 and uses simplified mileage rather than actual costs.
10,000 × 55p = £5,500, plus 4,000 × 25p = £1,000. Total deduction £6,500.
On the old 45p rate the same mileage gave £5,500. The increase is worth £1,000 of extra deduction — around £260 of tax and Class 4 NIC at the basic rate, and roughly £420 at the higher rate. Worth checking that your bookkeeping is on 55p, because software carrying 45p from a template will quietly under-claim it.
One decision point: you choose between simplified mileage and actual costs with capital allowances for a given vehicle, and you cannot switch back and forth on the same vehicle. For a high-mileage van bought outright, actual costs plus AIA is often better; for a lower-mileage vehicle with modest running costs, 55p is now considerably more attractive than 45p was.
Tools and plant are plant and machinery: AIA, or full expensing for a company buying new and unused. Under the cash basis, gov.uk's position is that cars are the exception on which capital allowances are still claimed, while all other items bought and kept for the business are claimed as allowable expenses in the normal way — so a van, tools and equipment are simply deducted. The cash basis is described by gov.uk as the standard way for a sole trader or partnership without corporate partners to record income and expenses. It cannot be used by a limited company, an LLP, or a partnership with a corporate partner.
Then there are the flat rate expenses, and one hard limitation on them: they are for employees only. The self-employed deduct actual cost and cannot use these figures.
| Occupation (employees only) | Annual flat rate |
|---|---|
| Joiners and carpenters | £140 |
| Plumbers, heating and pipe fitters | £120 |
| Electricians and electrical workers | £120 |
| Roofing felt and asphalt labourers | £80 |
| General labourers and navvies | £60 |
| All other building workers | £120 |
No receipts are needed. If the employer reimburses part of the cost that amount is deducted; if the employer pays all of it, no relief is due. Claimed online or at box 18 of the SA102. If you employ site staff, telling them these exist is a small kindness that costs you nothing — see trades payroll.
Which structure you are in changes several of the answers above, particularly full expensing and the cash basis. The structure guide and the vehicles and plant service page take that further.
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Usually yes. A van is plant and machinery, so the annual investment allowance gives 100% relief on the cost in the year of purchase, and the allowance is £1,000,000 for both 2025-26 and 2026-27. A company buying a new and unused van can alternatively use full expensing, which is uncapped and now permanent. From 1 January 2026 there is also a new 40% first-year allowance on main-rate plant and machinery available to unincorporated businesses as well as companies, though second-hand assets and cars are excluded from it. If you use the cash basis as a sole trader, the van is simply deducted as an allowable expense instead, because cars are the only item on which capital allowances are still claimed.
For most purposes it is now a car, but the dates differ by tax. For benefit in kind, HMRC has applied a primary suitability test since 6 April 2025, and because a double-cab is typically equally suited to passengers and goods it has no predominant suitability and is treated as a car. For capital allowances the same conclusion applies from 1 April 2025 for corporation tax and 6 April 2025 for income tax, meaning no annual investment allowance and no full expensing. The VAT treatment did not change. The two transitional rules also run to different dates: benefit in kind protection can last to 5 April 2029, capital allowances protection ended on 1 October 2025.
Normally no. There is no van benefit charge where private use is restricted to business travel plus insignificant private use, and unlike a car, ordinary commuting in a van does not by itself create a benefit — home-to-work travel falls inside the restricted private use condition. So a genuine work van driven home each night, used for work and not for the weekly shop or the school run, is usually tax-free. Where a van genuinely is available for private use the 2026/27 charge is £4,170, plus £798 if fuel for private use is provided, with Class 1A NIC at 15% due on top of both. This exemption is a large part of why the van-or-car classification matters so much.
55p per mile for the first 10,000 business miles in cars and vans, and 25p a mile above 10,000. Motorcycles remain 24p and bicycles 20p. The 55p rate applies from 6 April 2026 with retrospective effect and covers both employee approved mileage allowance payments and the self-employed simplified mileage rates — the first change to the 45p rate since 2011/12. On 14,000 business miles the deduction is £6,500 rather than the £5,500 the old rate gave, so £1,000 more relief, worth roughly £260 in tax and Class 4 NIC at the basic rate. Check your bookkeeping software is not still carrying 45p from a template.
No. The flat rate expenses for uniforms, work clothing and tools — £140 for joiners and carpenters, £120 for plumbers and electricians, £80 for roofing felt and asphalt labourers, £60 for general labourers, £120 for other building workers — are available to employees only. A self-employed tradesperson deducts the actual cost of tools and equipment instead, which is almost always worth substantially more than the flat rate anyway, either through the annual investment allowance or, on the cash basis, as an ordinary allowable expense. If you employ site staff, they can claim the relevant flat rate with no receipts, reduced by anything you already reimburse them.
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