Buying or Financing a Car as a Private Hire Driver: What Can You Claim?

The short answer

Yes, in most cases you can claim for your car as a private hire driver. How you claim depends on two things: the expense method you use, and the way you got the car.

There are two expense methods, and you choose one for each vehicle. You either claim a flat rate for every business mile, or you claim your actual running costs plus capital allowances on the car. You cannot use both for the same car.

This page covers the second method, claiming for the car itself. It explains how that works when you buy outright, use hire purchase, use PCP, or use a rent-to-buy deal.

Buying versus hiring: the question that decides it

The way HMRC treats your car comes down to one question. Are you the owner, or will you become the owner by the end of the agreement?

If the answer is yes, you are treated as the owner from the start. You can claim capital allowances on the full cost of the car straight away, even on amounts you have not paid yet.

If ownership is genuinely optional, and only at the car's market value at the end, the payments are treated as hire for the term. In that case there is no capital allowance until you actually buy the car, if you ever do.

This is not the same as asking whether you hand the car back. The test is how the agreement is structured, not how it ends.

The capital allowance rates for cars

Capital allowances let you deduct part of the cost of your car from your taxable profit. For cars, the rate depends on the car's CO2 emissions, and one of the rates changes from April 2026.

• Lower emission cars (CO2 of 50g/km or under): 18% a year for the 2025/26 tax year, dropping to 14% a year from 6 April 2026. This is a writing down allowance, claimed on a reducing balance.
• Higher emission cars (CO2 over 50g/km): 6% a year, unchanged. This is the special rate.
• New and unused electric cars: a 100% First Year Allowance, available until 5 April 2027. You deduct the full business-use cost in the year you buy it.

Cars do not qualify for the Annual Investment Allowance or full expensing. Those reliefs are for other equipment, not cars. HMRC publishes the rates for business cars on GOV.UK.

You only claim the business-use share. If you also use the car privately, work out the business percentage and apply it to the allowance. Keep a record of how you reached that figure.

How the main rate works in practice

Here is how the main rate applies to a £20,000 car bought in the 2025/26 tax year and used 90% for business. These figures are for illustration.

Each year the allowance is worked out on the reducing balance, so the amount falls over time. The cost of the car stays in your capital allowances pool until it is written down or you sell the car.

How each finance type is treated

Here is how each common way of getting a car is treated, assuming you use the actual costs method.

Buying the car outright

If you buy the car outright, you claim capital allowances on what you paid, restricted to your business-use share. The rate follows the CO2 bands above.

Hire purchase and conditional sale

On hire purchase, you are treated as if you bought the car outright. You claim capital allowances on the full cash price of the car from the start, even though you are still paying for it. The cash price is normally set out separately in the agreement, so that is the figure you use.

The interest, or finance charge, is separate. You claim that as a running cost, spread across the term rather than as part of the car's cost. There is more than one way to spread the interest across the years, so it is worth asking the finance company for a schedule showing the interest charged in each year.

Personal Contract Purchase (PCP)

PCP needs care, and a lot of online guidance gets it wrong. PCP is not simply hire purchase with a balloon payment.

Whether you get capital allowances depends on the optional final payment, the balloon. If the balloon is set clearly below the car's expected market value at the end, the deal works like hire purchase, and you can claim capital allowances from the start.

If the balloon is set at the expected market value, the deal is treated as hire for the term. You claim the payments as you make them, and capital allowances only arise if you later pay the balloon and take ownership.

The logic is whether you would lose out by handing the car back: if the balloon is below what the car is worth, walking away means giving up that value, so you are all but certain to buy and it counts as a purchase, whereas if the balloon matches the car's value, you lose nothing by walking away, so it stays a hire.

The only way to know is to read the agreement and compare the balloon with the expected market value. We review the agreement for every client taking on a new car, so the tax position is clear before they commit, not after.

Rent-to-buy

Rent-to-buy deals are common with private hire cars. In most cases the driver becomes the owner once all the payments are made, so the deal is, in substance, a conditional sale.

That means the car element qualifies for capital allowances. But there is a catch that almost no one explains, and it is covered in the next section.

Rent-to-buy: splitting the weekly payment

A rent-to-buy payment is one weekly figure that usually covers several different things. Only part of it relates to the cost of the car.

The car element is capital. You claim it through capital allowances. The rest of the payment covers services, and those are running costs you claim separately.

A weekly payment usually bundles in:

• The cost of the car, which is capital and claimed through capital allowances
• Insurance, which is a running cost
• Servicing and MOT, which are running costs
• Road tax, which is a running cost
• Your private hire licence, which is a running cost
• Breakdown cover, which is a running cost

Two mistakes are easy to make here. Claiming the whole weekly figure as one expense is wrong. Claiming capital allowances on the whole figure is also wrong.

Most rent-to-buy providers do not publish the split between the car and the services. They quote one weekly price. So you need to ask the provider for a written breakdown of what the payment covers.

If the provider will not give a breakdown, a reasonable split can still be made by establishing the car's value and treating the rest of the payment as services. It has to be done on a basis you can defend with evidence, because the burden is on you to justify it, and a weak split risks HMRC restricting the whole payment. Working this out for each client's agreement is part of the service.

The mileage method covers the car

Everything above assumes you claim your actual running costs and capital allowances. There is a simpler alternative: the flat mileage rate.

With the mileage method you claim a set amount for each business mile. For the 2025/26 tax year that is 45p a mile for the first 10,000 business miles, then 25p a mile. From 6 April 2026, for the 2026/27 tax year, the first-10,000-miles rate rises to 55p a mile, with the 25p rate above 10,000 miles unchanged. The flat rate is designed to cover the whole cost of running the car, including the car itself.

Rental, leasing or contract hire

Leasing, also called contract hire, works differently. You never own the car, so there are no capital allowances. Instead you claim the lease payments as a running cost, in the business-use proportion.

There are extra rules for leased cars, including a restriction for higher emission models. We cover leasing on our expenses page.

Common questions

This page explains how vehicle finance is treated for tax in general terms. The treatment that applies to you depends on the exact terms of your own agreement, and the rules described here are a simplified version of a more detailed test. Do not rely on this page alone to decide what to claim. Check your agreement and your own circumstances, or take advice, before you put a figure on your tax return.