Capital allowance
A capital allowance is tax relief on something you bought to keep and use in the business, such as a vehicle. Instead of deducting the whole cost in one year, you deduct a percentage of what is left each year.
Correct for the 2026/27 tax year. Last checked 12/09/2026.
A running cost is deducted the year you incur it. An asset is different, because you still own it at the end of the year, and capital allowances are how the tax system handles that.
What it means for your money
The important rule for drivers is that you cannot claim capital allowances on a vehicle and use the mileage rate for it. The mileage rate already includes the cost of the vehicle. Choosing one closes the other off for that vehicle.
Which is better depends on the mileage. High business mileage in a cheap car usually favours the mileage rate. Low mileage in an expensive van can favour actual costs plus capital allowances.
Where to read more
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