Is Car Insurance Tax Deductible UK

Learn if car insurance is tax deductible in the UK for self employed workers, company directors and businesses.

Car insurance is an essential cost for anyone using a vehicle, but when that vehicle is used for business, many people want to know whether the insurance premiums are tax deductible. In the UK, the answer depends on your business structure, how the car is used, and how you claim your vehicle expenses.

In general, car insurance is tax deductible if it relates to a vehicle used wholly or partly for business purposes. However, there are specific rules on how to claim it, especially for sole traders, partnerships and limited companies. You also need to keep accurate records and, where necessary, apportion between personal and business use.

This article explains when car insurance is tax deductible, how to claim it correctly, and what to consider if you use your vehicle for both personal and business purposes.

Car Insurance for Sole Traders and Partnerships

If you are self employed and use your personal vehicle for business, you can claim a portion of your car insurance as an allowable expense. The key test is whether the cost is wholly and exclusively for the purpose of trade. Where there is mixed use, you must apportion accordingly.

For example:

  • You use your car 60 percent for business and 40 percent personally

  • Your annual car insurance premium is £600

  • You can claim £360 (60 percent) as a business expense in your Self Assessment return

In addition to car insurance, you can also claim:

  • Fuel

  • Repairs and servicing

  • MOT and road tax

  • Parking (not fines)

  • Breakdown cover

  • Lease or hire costs (if applicable)

These expenses must also be apportioned based on actual business use. You should keep a logbook or mileage record to support your claim.

Alternatively, if you opt for HMRC’s simplified expenses method, you can claim a flat rate per business mile (currently 45p for the first 10,000 miles, then 25p). This method includes insurance, fuel, servicing and depreciation, so you cannot claim insurance separately if using mileage.

Once you choose a method for a specific vehicle, you must stick with it for as long as you use that vehicle in your business.

Car Insurance for Limited Companies

If a car is owned or leased by a limited company, and used by a director or employee for business purposes, then car insurance is fully deductible for Corporation Tax. The company can also reclaim VAT on the insurance if applicable and not blocked under the policy type.

However, there are important tax implications if the vehicle is made available for personal use, even if only occasionally.

In that case:

  • The vehicle is classed as a company car

  • The user may be subject to benefit in kind (BIK) tax

  • The company must report the benefit via P11D or payroll

  • The company pays Class 1A National Insurance on the value of the benefit

The BIK charge is calculated based on the car’s list price and CO₂ emissions. The car insurance is still deductible for the company, but the personal use makes the overall arrangement less tax efficient.

If the car is strictly for business use only, and personal use is prohibited in writing (with no commuting, social or domestic use), the benefit in kind charge may not apply. In that case, car insurance and all related running costs remain fully tax deductible.

To remain compliant:

  • Keep a written agreement stating the vehicle is for business use only

  • Maintain a mileage log

  • Ensure the insurance policy reflects business-only use

  • Avoid incidental personal use that could trigger a tax liability

What If You Use a Personal Car for Company Work?

If you are a company director using your personal vehicle for business journeys (such as visiting clients or travelling to temporary work locations), the company should reimburse you using HMRC’s approved mileage rates. These are:

  • 45p per mile for the first 10,000 miles

  • 25p per mile thereafter

This covers fuel, wear and tear, insurance and other running costs. The mileage reimbursement is:

  • Tax free for the employee or director

  • Tax deductible for the company

  • Simple to record and manage

In this case, the company cannot reimburse your car insurance directly, because the car belongs to you personally. You also cannot claim the insurance separately through Self Assessment, as it is already covered by the mileage rate.

Car Insurance for Vans and Commercial Vehicles

If you operate a business that uses vans or commercial vehicles (such as couriers, tradespeople or mobile services), car insurance is usually tax deductible in full.

For sole traders:

  • If the van is used only for business, 100 percent of insurance is allowable

  • If the van is used partly for personal trips, apportionment is required

For limited companies:

  • Vans provided to employees for business use are deductible in full

  • If the van is available for private use, a van benefit charge may apply

  • Insurance and running costs remain allowable for Corporation Tax

Commercial vehicles are often treated more favourably than company cars for benefit in kind purposes, especially where private use is insignificant or restricted.

VAT on Car Insurance

Car insurance is generally exempt from VAT, so you cannot reclaim VAT on premiums, even if the car is used exclusively for business. This applies to both sole traders and limited companies.

However, if your insurer charges VAT on additional services (such as breakdown cover or administration fees), you may be able to reclaim VAT on those specific charges if the vehicle is used for business.

Always check your insurer’s invoice and ensure you do not include VAT where it is not applicable.

What Records Do You Need?

To claim car insurance as a deductible expense, you must keep:

  • A copy of the insurance policy

  • Proof of payment (e.g. bank statements or invoices)

  • A mileage log or usage record showing business use

  • Notes explaining how any apportionment was calculated

If you use multiple vehicles or switch between simplified and actual cost methods, keep records separately for each vehicle.

HMRC may request these records if they review your accounts or Self Assessment return.

Common Mistakes to Avoid

  • Claiming 100 percent of insurance for a vehicle with mixed personal and business use

  • Claiming insurance on a personal car when also using simplified mileage method

  • Forgetting to apportion fuel and other running costs

  • Not reporting company car use correctly for benefit in kind tax

  • Failing to record mileage to justify business percentage

HMRC expects business vehicle claims to be consistent, reasonable and supported by documentation. Mistakes can lead to disallowed expenses or additional tax and penalties.

Conclusion

Car insurance is tax deductible in the UK when the vehicle is used for business purposes. Sole traders and partnerships can claim a portion of insurance based on actual business use, or use HMRC’s mileage method if preferred. Limited companies can deduct insurance costs in full where vehicles are owned or leased by the company, though personal use may trigger additional tax obligations.

To stay compliant, make sure the business use of your vehicle is clearly recorded, apportion costs fairly where necessary and retain accurate records. If in doubt, seek advice from an accountant to ensure your claim is valid and your tax return is correct. Car insurance may be a routine cost, but when handled correctly, it plays a clear role in reducing your business tax bill.