Capital allowances explained
How to claim tax relief on business equipment purchases using Annual Investment Allowance, writing-down allowances and first-year allowances.
Quick answer
Capital allowances let you deduct the cost of business equipment from taxable profits. The Annual Investment Allowance (AIA) gives 100% deduction in year one for up to £1 million of qualifying equipment. Costs above this get writing-down allowances: 18% per year for most items, 6% for long-life assets. Electric vehicles get 100% first-year allowances regardless of cost.1
What are capital allowances
When you buy equipment for your business that you'll keep for multiple years (computers, machinery, vehicles), you cannot expense the full cost immediately. Instead, you claim capital allowances: tax relief spread over time.1
Capital allowances apply to assets with enduring value. Day-to-day costs like stationery, software subscriptions or consumables are expensed immediately (not subject to capital allowances).
Annual Investment Allowance (AIA)
For 2026-27, AIA lets you deduct 100% of qualifying equipment costs up to £1 million in the year you buy it.1 This covers most business equipment:
- Computers, laptops, tablets, servers
- Office furniture and equipment
- Machinery and tools
- Commercial vehicles and vans
- Fixtures and fittings
If you buy £30,000 of equipment, you claim £30,000 in year one. No need to spread it over multiple years.
AIA does not apply to cars (separate rules) or items bought for resale.
Writing-down allowances
Equipment costs above the £1 million AIA threshold go into a writing-down allowance pool. You claim a percentage each year on a reducing balance:1
- Main pool (18% per year): most plant and machinery
- Special rate pool (6% per year): long-life assets, thermal insulation, integral building features
Example: £200,000 in the main pool. Year one claim: £36,000 (18%). Remaining pool: £164,000. Year two claim: £29,520 (18% of £164,000). And so on.
First-year allowances for zero-emission vehicles
New electric cars and zero-emission vans qualify for 100% first-year allowances regardless of cost.2 This runs separately from AIA. If you buy a £50,000 electric van, you claim the full £50,000 without using any of your £1 million AIA.
Hybrid vehicles do not qualify. Only fully electric or hydrogen vehicles get 100% first-year allowances.
Cars and special rules
Cars (except zero-emission) do not qualify for AIA. Instead:1
- New cars with CO2 emissions up to 50 g/km: 18% writing-down allowance (main pool)
- Cars with CO2 emissions over 50 g/km: 6% writing-down allowance (special rate pool)
Most diesel and petrol cars fall into the 6% pool. This means slow tax relief spread over many years.
How to claim
Sole traders claim capital allowances on Self Assessment (SA103F). Enter the equipment cost in the capital allowances section and HMRC calculates the deduction based on AIA and WDA rates.
Limited companies claim capital allowances on the Corporation Tax return (CT600). The company's accountant handles this.
- AIA limit 2026-27
- £1,000,000
- Main pool rate
- 18% per year
- Electric vehicle relief
- 100% year one