Capital allowances on a taxi in 2026/27

Short answer: if you drive an ordinary car on private hire, you choose one of two routes for each vehicle. Either you claim flat-rate mileage (55p a mile for the first 10,000 business miles in 2026/27, then 25p), or you claim your actual running costs plus capital allowances on the car. You cannot do both, and once you use mileage for a car you must stay on mileage while you use that car in the business. Cars get capital allowances at 14% a year (CO2 50g/km or less, or a second-hand EV), 6% a year (over 50g/km), or 100% in year one if the car is new, unused and zero-emission. A purpose-built black cab is different: it cannot use the mileage rate, and HMRC does not treat it as a "car" for capital allowances. Vehicle allowances are a year-end job, not part of each quarterly Making Tax Digital update.

This is operator guidance, not tax advice. Your drivers should confirm their own position with an accountant or HMRC. CabiSync is dispatch and compliance software, not tax software.

Why this matters now

Four things changed the maths for the 2026/27 tax year, which started on 6 April 2026.

1. The mileage rate went up. GOV.UK now lists 55p per mile for the first 10,000 business miles in 2026/27, up from 45p. The rate after 10,000 miles stays at 25p (GOV.UK simplified expenses: vehicles).
2. The main capital allowance rate went down. Main rate writing down allowances fell from 18% to 14% from 6 April 2026 for businesses that pay Income Tax (GOV.UK business cars; Finance Act 2026, section 28).
3. Diesel hit a record. RAC figures reported on 3 October 2026 put the UK average at 200.01p a litre. TaxiPoint worked that out at roughly 20p a mile for a 45mpg car and about 35.4p a mile for a TX4 in town (TaxiPoint).
4. Making Tax Digital is live for more drivers. Many drivers now ask whether they must work out vehicle relief every quarter. TaxNav, a commercial tax software firm writing in TaxiPoint on 5 October 2026, says no: quarterly updates carry income and expenses, and vehicle relief is dealt with at the end of the year (TaxiPoint / TaxNav).

Your drivers will ask your office about this. Most of the questions land on your desk because the evidence for a claim (fares, commission, job times and miles) sits in your booking and settlement records.

The problem we see in operator offices

Drivers lose money, or take on risk, in a few repeated ways:

• They still use 45p or 18% because that is what last year's spreadsheet said.
• They claim the mileage rate and fuel, insurance or repairs for the same car. Mileage already covers those.
• A PH driver in a saloon tries to claim the Annual Investment Allowance (AIA). Cars do not qualify for AIA.
• A black cab driver uses 55p a mile. Purpose-built black cabs are excluded from simplified expenses.
• Someone who got a vehicle grant claims allowances on the full price, not the price minus the grant.
• Drivers only keep bank payouts, so they cannot show gross fares or business miles when an accountant asks. We covered the gross-versus-net problem in our Making Tax Digital guide.

Your office cannot choose a method for a driver. You can make sure the records they need are easy to get, and stop your staff giving wrong figures.

The rules, with primary sources

1) Mileage (simplified expenses)

• Sole traders and partnerships with no company partners can use flat-rate mileage instead of the actual costs of buying and running a vehicle.
• The 2026/27 rates for cars and goods vehicles are 55p for the first 10,000 business miles and 25p after that.
• Mileage replaces insurance, repairs, servicing and fuel. You can still claim parking and other travel on top.
• You cannot use mileage for a vehicle you have already claimed capital allowances on, or expensed.
• Once you use mileage for a vehicle, you must keep using it while that vehicle is in the business.
• Cars designed for commercial use, such as black cabs and hackney carriages, cannot use simplified expenses.

Source: GOV.UK simplified expenses: vehicles. HMRC's BIM75005 repeats the rates and the black cab exclusion.

2) Capital allowances on a car

Under the rules for cars bought from April 2021 (GOV.UK business cars):

Cars do not qualify for the AIA or the 40% first-year allowance. The 100% first-year allowance for new zero-emission cars was extended to cars bought up to 5 April 2027 for Income Tax (Finance Act 2026, section 30; GOV.UK first-year allowances). As a sole trader, you also reduce the claim for any private use of the car.

Cash basis note. Cash basis is now the default for most sole traders. Under cash basis, a car still goes through capital allowances (unless you use mileage). Other vehicles are claimed as allowable expenses instead (GOV.UK self-employed travel expenses).

3) Purpose-built black cabs

HMRC's capital allowances manual lists "hackney carriages (traditional 'London black cab' type vehicles)" as vehicles that are not cars for plant and machinery allowances (HMRC CA23510). That means:

• no mileage rate, because GOV.UK excludes black cabs from simplified expenses;
• under traditional accounting, the purchase can qualify for the AIA instead of slow car rates, reduced for any private use;
• under cash basis, the purchase is claimed as an allowable expense, because it is not a "car".

Zero-emission black cab exception. For the 100% first-year allowance only, HMRC extends the definition of "car" to a traditional London black-cab type vehicle. A new, unused zero-emission purpose-built black cab can still take the 100% FYA if it meets the usual conditions (bought by 5 April 2027 for Income Tax), even though it is not a "car" for writing-down allowances or AIA (HMRC CA23153).

Watch the grey area. Many councils outside London license ordinary saloons or MPVs as hackney carriages. HMRC's test is the vehicle's construction and whether it is suitable for private use, not the licence on the door. An Octavia or Prius on a hackney plate may still be a "car". Drivers in that position should check with an accountant before picking a route.

4) Grants come off the cost

If a public body pays a grant towards a vehicle, the grant is deducted from the cost before allowances are worked out (HMRC CA14100). For example, Greater Manchester's Hackney Support Fund offers eligible GM hackney licence holders up to £12,560 towards a compliant replacement, and the separate PHV Support Fund offers up to £2,500 (TaxiPoint, 4 October 2026; DM News). A driver who gets either should claim relief on the net cost only.

5) Making Tax Digital timing

Quarterly MTD updates hold income and expense totals. Capital allowances are a year-end adjustment made when the driver finalises the tax return, so nobody needs to recalculate vehicle relief every three months (TaxNav, commercial tax software, via TaxiPoint). Drivers should confirm how their MTD software handles it.

Vehicle tax relief chooser (2026/27)

This is the table we give office staff so they stop guessing. It is a starting point for a driver's conversation with their accountant, not a ruling.

Worked example: David Khan, QuickRide Taxis

David drives for QuickRide Taxis and does 30,000 business miles in 2026/27. The figures below are the business share only. Insurance, repairs and vehicle prices are assumptions for illustration. Fuel uses TaxiPoint's figures at 200.01p diesel.

Option A: mileage, any ordinary car

• 10,000 miles × 55p = £5,500
• 20,000 miles × 25p = £5,000
• Total: £10,500, plus parking on top

Option B: actual costs, used diesel PH saloon bought for £15,000 (over 50g/km)

• Fuel: 30,000 × 20.2p = £6,060
• Insurance (assumed): £2,400
• Repairs, servicing and tyres (assumed): £1,800
• Writing down allowance: 6% × £15,000 = £900
• Total: £11,160

Actual costs beat mileage by £660 in year one for this car. But the choice is locked for the life of that car in the business, and next year depends on next year's fuel and repair bills. If the same car were 50g/km or less, the allowance line would be £2,100 (14%) instead of £900.

Option C: new electric car bought for £32,000 (assumed) before 6 April 2027

• 100% first-year allowance: up to £32,000 in year one, less any private use
• Plus actual charging, insurance and repairs
• Compare with mileage at £10,500

That year-one claim can be bigger than the profit. Losses and a later sale both need an accountant.

Option D: purpose-built black cab

• Mileage is not allowed
• Fuel at TaxiPoint's TX4 figure: 30,000 × 35.4p = £10,620
• Replacement cab at £40,000 (assumed) with a £12,560 GM Hackney Support Fund grant: relief is worked out on £27,440, not £40,000

Operator records checklist (tick before a driver's year end)

Give drivers what they need for either route. You are supplying evidence, not doing their tax.

A note on miles: drivers need their own business mileage record. Booking data helps them back it up, but it is not a full mileage log on its own, and unpaid miles to a pick-up will not show in fare totals. Tell drivers to keep a log or use an app that records every business mile.

Steps for your operator office this month

1. List your fleet by type. Mark each vehicle as PH car, purpose-built black cab, or saloon on a hackney plate. Add the CO2 figure from the V5C.
2. Brief drivers once. Send a short note: the 2026/27 rates, that the choice is per vehicle, and that black cabs cannot use mileage. Link this guide.
3. Fix your statements. Check that settlements show gross, deductions and net. If they do not, fix that before January.
4. Flag grants. Note which drivers had a council or combined authority grant, so they know to deduct it.
5. Tell MTD drivers what goes when. Income and expenses go in quarterly updates. Vehicle allowances wait for year end.
6. Point to the sources. GOV.UK and an accountant decide, not your control room.

Common mistakes

• Using 45p or 18% for 2026/27.
• Claiming mileage plus fuel, insurance or repairs for the same car.
• Claiming AIA on a PH saloon.
• Using 55p on a purpose-built black cab.
• Claiming allowances on the grant-funded part of a vehicle.
• Switching a car from mileage to actual costs halfway through its life.
• Assuming a hackney licence makes a saloon "not a car".
• Recalculating capital allowances every MTD quarter.
• Keeping no record of unpaid miles to pick-ups.

Related operations

• Making Tax Digital for taxi and private hire operators: gross fares, auto sign-up and clean exports.
• VAT on taxi fares for UK PHV operators: agent or principal, and why it changes your statements. VAT registration and full-fare rules for principals are covered in detail.
• Tax check codes: the HMRC check at licence renewal.
• Taxi MOT rules: repair and test costs drivers will want to evidence.
• Taxi driver recruitment: clear statements help you keep self-employed drivers.

FAQs

Can a black cab driver use the 55p mileage rate?

No. GOV.UK excludes cars designed for commercial use, such as black cabs and hackney carriages, from simplified expenses. Purpose-built black cabs use actual costs instead.

Can a PH driver claim the Annual Investment Allowance on a saloon?

No. GOV.UK says cars do not qualify for the AIA. A PH saloon gets 14% or 6% a year, or 100% if it is new, unused and zero-emission.

Do new electric cars still get 100% in 2026/27?

Yes, if the car is new and unused and bought by 5 April 2027 for Income Tax. A second-hand EV gets the 14% main rate.

Can a driver switch from mileage to actual costs?

Not for the same vehicle. Once you use mileage for a vehicle, you must keep using it while that vehicle is in the business. A driver can choose again when they change vehicle.

Do unpaid miles to a pick-up count as business miles?

They are usually part of business driving, but drivers need their own record of them. Travel between home and work is not claimable, so drivers should ask an accountant how the start and end of a shift count.

Does a grant reduce capital allowances?

Yes. HMRC says a grant towards qualifying expenditure is deducted first, so allowances are worked out on the net cost.

Do capital allowances go in every MTD quarterly update?

No. Quarterly updates hold income and expenses. Vehicle allowances are a year-end adjustment.

What to do next

• Tag every fleet vehicle as PH car, black cab or saloon hackney.
• Send drivers the 2026/27 rates and this guide.
• Check that statements show gross, deductions and net.
• Record any grant your office knows about.
• Remind drivers to keep their own business mileage log.

Need your money records checked?

If you want a second pair of eyes on whether your statements and job logs give drivers what they need, book a free 15-minute compliance review with CabiSync. We look at your exports and records. Your dispatch setup stays as it is.

Sources

1. GOV.UK, Simplified expenses if you're self-employed: vehicles. https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles
2. GOV.UK, Claim capital allowances: business cars. https://www.gov.uk/capital-allowances/business-cars
3. GOV.UK, Claim capital allowances: 100% first-year allowances. https://www.gov.uk/capital-allowances/first-year-allowances
4. GOV.UK, Expenses if you're self-employed: car, van and travel expenses. https://www.gov.uk/expenses-if-youre-self-employed/travel
5. HMRC Capital Allowances Manual CA23510, meaning of "car". https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23510
6. HMRC Capital Allowances Manual CA14100, contributions and grants. https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca14100
7. HMRC Capital Allowances Manual CA23153, 100% FYA for electric/zero-emission cars (extends to traditional black cabs). https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23153
8. HMRC Business Income Manual BIM75005, simplified expenses for vehicles. https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim75005
9. Finance Act 2026, sections 28 and 30. https://www.legislation.gov.uk/ukpga/2026/11/part/1/crossheading/capital-allowances-and-other-reliefs-for-businesses/enacted
10. TaxiPoint / TaxNav, 5 October 2026: vehicle relief and quarterly MTD updates. https://www.taxi-point.co.uk/post/bought-a-taxi-taxnav-explains-why-drivers-do-not-need-to-calculate-vehicle-tax-relief-every-three-m
11. TaxiPoint, 3 October 2026: record diesel prices and taxi costs. https://www.taxi-point.co.uk/post/panic-stations-at-the-petrol-stations-record-diesel-prices-put-taxi-and-private-hire-costs-under-se
12. TaxiPoint, 4 October 2026: Greater Manchester Hackney Support Fund and PHV Support Fund. https://www.taxi-point.co.uk/post/mayor-of-greater-manchester-takes-a-spin-in-electric-ford-maxicab-taxi-as-city-highlights-taxi-and-p
13. DM News: Greater Manchester opens £2 million Private Hire Vehicle Support Fund. https://dmnews.co.uk/greater-manchester-opens-2-million-private-hire-vehicle-support-fund/
14. TaxiPoint, 12 September 2026: gross fares vs net payouts under MTD. https://www.taxi-point.co.uk/post/1-000-in-fares-but-only-800-paid-out-the-making-tax-digital-issue-app-drivers-need-to-understand