Selling Your Private Hire Car: What It Means for Tax

When you sell your private hire car, the tax effect depends on one past decision: how you claimed for that car. If you used the flat mileage rate, the sale usually changes nothing on your return. If you claimed capital allowances, the sale can add to your taxable profit or reduce it, sometimes by thousands of pounds, so run the numbers before you agree a price.

Key takeaways

• The method you used for the old car decides whether the sale touches your tax return.
• Capital allowance users compare the sale price with the car's remaining tax value.
• A new electric car with a 100% allowance can produce a large taxable figure when you sell it.
• A part-exchange, or an insurance payout on a write-off, counts as a disposal too.
• Replacing the car is your chance to choose a new method.

What is a balancing charge?

Capital allowances give you tax relief on a car over time. A balancing charge is the correction made when you sell it for more than the tax value still remaining, because you have effectively had more relief than the car really cost you. The excess is added to your profit. A balancing allowance is the opposite: you sold for less than the remaining value, so you get extra relief.

Start by working out which group you are in

Dig out your last return or ask your accountant, then find yourself in this table.

The rules come from two places. GOV.UK confirms you cannot use flat rates for a vehicle once you have claimed capital allowances on it, and you must stay on flat rates for as long as you use that car for your business. For 2026 to 2027 the car rate is 55p a mile for the first 10,000 miles, then 25p. The business cars page sets out the allowance rates by emissions: currently 14% main rate for cars up to 50g/km, 6% special rate above that, and 100% first-year allowance for new electric cars. Check the page for cars bought in earlier years or for any change to the first-year rules.

Worked examples: same driver, three outcomes

Illustrative examples. "Tariq" is an invented private hire driver with 80% business use. All figures are made up to show the mechanics.

A. Sale above tax value. Tariq bought a petrol hybrid and claimed writing down allowances. At the start of the tax year the remaining value is £11,000. He sells for £13,000. Difference: £2,000. Business share at 80%: £1,600 is added to his taxable profit.

B. Sale below tax value. Same car, but he sells for £9,000. The £2,000 shortfall, at 80%, gives a £1,600 balancing allowance, which reduces his profit.

C. New electric car. Tariq bought a new electric car for £30,000 and claimed the 100% first-year allowance on his 80% business share: £24,000 of relief. The tax value is now nil. He sells for £18,000. The balancing charge is £18,000 × 80% = £14,400, all in a single tax year. If he has not set money aside, that is the unpleasant surprise, particularly in a year with a higher income.

Under the flat mileage method, none of this happens. Those same sale prices would normally not appear on his return at all. That is one trade-off of a mileage claim: less detail and no end-of-life adjustment. Our guide to mileage vs actual costs compares the two methods for ongoing costs. Check the mileage rate shown there against the GOV.UK page linked above, as the rate changed in April 2026.

What to do before you sell or part-exchange

1. Find how you claimed for this car on your last return.
2. If you claimed capital allowances, get the remaining tax value from your records or your accountant.
3. Agree your business use percentage. It must match your records, not a guess.
4. Estimate the balancing figure at your likely sale price. Set aside money for any tax.
5. Think about timing. A sale just before or after 5 April falls in a different tax year, though you should not let this override a sensible commercial decision.
6. Get a dealer invoice showing the part-exchange value and the new car price as separate figures.
7. Before you buy, choose a method for the new car, using realistic mileage.
8. Update your records, and tell your accountant the dates.

How it reaches your tax return

A balancing charge or allowance is part of working out your profit for the tax year of the sale. If you are in Making Tax Digital for Income Tax, it is an annual adjustment rather than a routine sales or expense line, so make sure it is not lost between your quarterly updates and your final return. A car with private use is normally kept separate from other business assets for this calculation, which is why the 80% in the examples applies only to that car.

Common mistakes

• Treating the sale money as trip income. It is not fares. It only affects tax through the calculation above.
• Using the cash paid on a part-exchange. The trade-in value is the number you need.
• Switching method on the same car. You can only change when the vehicle is replaced, as HMRC's manual says.
• Assuming a loss is always relievable. Under the flat rate, a drop in the car's value is already covered by the mileage rate.
• Inflating business use to boost relief. The percentage needs to reflect your real mileage records, and it works both ways on sale.
• Forgetting a lease is different. See our guide to lease and rental tax.

Thinking of changing cars? We can model the tax first. Our private hire driver accounting costs from £249 a year. Contact us before you sign the deal.