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Capital Allowances

Claiming Tax Relief
on your Business Assets

Capital allowances let UK businesses claim tax relief on certain capital expenditure, such as equipment, machinery, and business vehicles. By claiming capital allowances, you can deduct part or all of the cost of qualifying assets from your taxable profits, helping to reduce your Corporation Tax bill.

This guide explains what capital allowances are, how they work, and which assets typically qualify, so you can make the most of the reliefs available to your business.

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What is Capital Allowance?

Capital allowance is a form of tax relief that lets UK businesses deduct the cost of certain capital assets from their taxable profits. Unlike everyday business expenses, which are deducted as running costs, capital allowances apply to longer-term purchases like equipment, machinery, business vehicles, and fixtures in buildings.

Claiming capital allowances helps spread the cost of these investments over time or, in some cases, lets you deduct the full amount in the year of purchase. This can significantly reduce your Corporation Tax bill and free up cash for reinvestment in your business.

Getting Started with Capital Allowances

Before you can claim, it’s important to understand the different types of capital allowances available and how they apply to various assets. From the Annual Investment Allowance (AIA) to First-Year Allowances and Writing Down Allowances, each offers different rates and rules. Knowing which one to use can help you maximise your tax relief and plan your business spending effectively.

Plant and machinery

The cost of purchasing capital equipment in a business is not a revenue tax deductible expense. However, tax relief is available on certain capital expenditure in the form of capital allowances.

Plant and machinery allowances may be available on items such as machines, equipment, furniture, certain fixtures in a building ('integral features'), computers, cars, vans and similar equipment used in a business.

There are special rules for cars and certain 'environmentally friendly' equipment.

Plant and machinery allowances may be available to owners of commercial property which is let out to a business.

The Annual Investment Allowances (AIA) gives a 100% write-off on most types of plant and machinery (but not cars) up to an annual limit.

Writing down allowances (WDA) are given for expenditure for which AIA is not, or cannot be, claimed.

A Structures and Buildings Allowance of 3% may be available for qualifying investments to construct new, or renovate old, non-residential structures and buildings.

AIA

The AIA may need to be shared between certain businesses under common ownership.

AIA limit - companies: £1,000,000

AIA limit - sole traders and partnerships: £1,000,000

Other plant and machinery allowances

Expenditure upon which AIA is not given/claimed will obtain relief through the 'Main rate pool' or the 'Special rate pool' rather than each item being dealt with separately.

The annual rate of WDA is 18% in the 'Main rate pool' and 6% in the 'Special rate pool'.

A 100% first year allowance (FYA) may be available on certain energy efficient plant and cars.

Other allowances

TypeAllowance
First Year Allowance (FYA) on certain plant, machinery and cars of 0 g/km (for cars purchased before 1 April 2026)100%
Corporation tax FYA ('full expensing') on certain new, unused plant and machinery100%
Corporation tax FYA on new, unused long-life assets, integral features of buildings, etc.50%

Cars

For expenditure incurred on cars, costs are generally allocated to one of the two plant and machinery pools.

AIA is not available on any car but a 100% FYA may be available on certain cars. To qualify for FYA, the car must be purchased new.

Cars acquired from April 2021:

Emissions (g/km)PoolAllowance
0Main rate100% FYA
≤ 50Main rate18% WDA
> 50Special rate6% WDA

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Who Qualifies for Capital Allowances - Accounting Wise

Who Qualifies for Capital Allowances?

Most UK businesses can claim capital allowances, provided they pay tax on their profits and have invested in qualifying assets. This includes:

Limited Companies
Companies registered in the UK and paying Corporation Tax can claim capital allowances on eligible business assets. It’s one of the main ways companies reduce their taxable profits and manage cash flow.

Sole Traders and Partnerships
Self-employed individuals and business partnerships can also claim capital allowances through their Self Assessment tax return. The relief helps offset profits, reducing the amount of Income Tax due.

Property Owners and Landlords
If you own commercial property, you may be able to claim capital allowances on certain fixtures and integral features within the building  like electrical systems or air conditioning  as well as on equipment used for business purposes.

Specific Sectors and Situations
Some sectors may have additional allowances available, like Enhanced Capital Allowances (ECAs) for energy-efficient equipment (note: many ECAs have been phased out but some reliefs still exist for specific investments). Research & Development (R&D) claims can sometimes overlap with capital allowances too, so it’s worth seeking advice if your business invests heavily in innovation.

Exclusions to Keep in Mind
Not every cost qualifies. For example, land, buildings (except certain fixtures), and items bought for non-business use don’t attract capital allowances. Also, if you lease assets rather than own them, you usually can’t claim.

How To Claim for Capital Allowances?

Claiming capital allowances is done through your business tax return. How you claim depends on your business structure:

Limited Companies
If you run a limited company, you claim capital allowances when you complete your Company Tax Return (CT600). You’ll include your claim in the Corporation Tax computation, showing how you’ve reduced your taxable profits by the amount of the allowances. It’s important to keep detailed records of what you’ve bought, when you bought it, and how much you paid.

Sole Traders and Partnerships
If you’re self-employed or in a partnership, you claim capital allowances through your Self Assessment tax return. You’ll enter the figures in the ‘capital allowances’ section of your tax return, usually alongside your annual business accounts.

What You’ll Need
To make a claim, you’ll need:

  • A clear list of assets purchased
  • Purchase dates and costs (including installation if relevant)
  • The type of allowance you’re claiming (AIA, First-Year Allowance, or Writing Down Allowance)
  • Calculations showing how you’ve worked out the claim

Keep Good Records
HMRC can ask for proof, so always keep invoices, receipts, and records showing how assets are used for business. If you sell or dispose of an asset, you may also need to make a balancing adjustment in future tax returns.

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Capital Allowances FAQs

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Capital allowances are tax reliefs that let businesses deduct the cost of certain capital assets from their taxable profits, reducing their tax bill.

Limited companies, sole traders, partnerships, and landlords who pay tax on business profits can usually claim capital allowances on qualifying assets.

You can claim on equipment, machinery, business vehicles (like vans and lorries), fixtures in buildings, and some integral features like heating or electrical systems.

Yes, but the rules are stricter. Cars have separate rates depending on their CO₂ emissions and whether they’re electric, low-emission, or standard.

The AIA lets you claim 100% tax relief on qualifying expenditure up to a set annual limit – currently £1 million (subject to change). It’s one of the fastest ways to write off asset costs.

FYAs give 100% relief in the year of purchase for certain assets, like new zero-emission cars or energy-efficient equipment. These are in addition to your AIA.

If you’ve used up your AIA or your assets don’t qualify for it, you can claim a percentage of the asset’s cost each year using Writing Down Allowances (WDAs).

You claim through your Company Tax Return (CT600) if you’re a company, or your Self Assessment if you’re self-employed or in a partnership. Keep accurate records and calculations.

If you own commercial property, you can claim on qualifying fixtures and integral features inside the building. Residential landlords have more limited options.

When you sell or dispose of an asset, you may need to make a balancing adjustment – adding or subtracting an amount from your tax calculation to reflect the sale value.

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