Capital allowances · UK guide · Updated May 2026
Capital allowances UK explained: AIA, first year allowances, and how to reduce your tax bill.
Written by Iftikhar Rashid FCCA. Figures current for 2026/27.
What are capital allowances?
Capital allowances let UK businesses deduct the cost of capital assets — equipment, machinery, vehicles — from taxable profit. The Annual Investment Allowance (AIA) provides 100% first-year deduction on qualifying plant and machinery up to the £1,000,000 AIA limit. This means buying a qualifying piece of equipment in a tax year can reduce your taxable profit — and therefore your tax bill — by the full cost in that year. See gov.uk/capital-allowances.
Types of capital allowance
| Type | Rate | What it covers |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% in year of purchase, up to £1,000,000 | Most plant and machinery. The main relief for small businesses. |
| Full Expensing (main pool) | 100% first-year allowance | New plant and machinery for limited companies. Permanent since April 2023. |
| Writing-Down Allowance — main pool | 18% per year of remaining pool value | Assets that don't qualify for AIA/full expensing, or after AIA is used up. |
| Writing-Down Allowance — special rate pool | 6% per year | Integral features (heating, lighting, electrical systems), thermal insulation, long-life assets. |
| First Year Allowance — zero-emission cars | 100% | New zero-emission cars purchased by businesses. |
| Small Pools Allowance | 100% if pool value below £1,000 | Write off small remaining pool balances in full. |
Source: gov.uk/capital-allowances.
What qualifies for capital allowances
Usually qualifies
- ✓Computers and IT equipment
- ✓Office furniture and fixtures
- ✓Manufacturing machinery
- ✓Commercial vehicles (vans, trucks)
- ✓Tools and instruments
- ✓Zero and low-emission cars (special rules)
- ✓Certain building fixtures (integral features)
Does NOT qualify
- ✕Land
- ✕Buildings (though some fixtures within may qualify)
- ✕Non-business assets
- ✕Assets acquired for lease to others (different rules)
- ✕Cars above emissions thresholds (WDA only, no AIA)
FAQs
What are capital allowances?
Capital allowances are tax reliefs that allow UK businesses to deduct the cost of capital assets — equipment, machinery, vehicles, fixtures — from taxable profit. Unlike revenue expenses (which are deducted in full in the year incurred), capital expenditure is usually deducted over time through capital allowances. The main mechanism is the Annual Investment Allowance (AIA), which provides 100% first-year relief on most qualifying purchases up to £1,000,000 a year.
What is the Annual Investment Allowance (AIA)?
The Annual Investment Allowance provides 100% first-year deduction on qualifying plant and machinery purchased by UK businesses. This means you can deduct the full cost of qualifying equipment from taxable profit in the year of purchase. The AIA limit is £1,000,000 per year and has been made permanent. Most small and medium businesses can claim the full cost of equipment in year one.
What qualifies as plant and machinery for capital allowances?
Plant and machinery is broadly defined. Qualifying items include: computers and office equipment, manufacturing machinery, commercial vehicles, forklifts, tools and instruments, fixtures and fittings (integral features may differ), and certain building alterations. What does not qualify: land, buildings themselves (though some fixtures may qualify separately), cars (different rules apply), and assets used partly for non-business purposes (apportionment may be needed).
Are cars included in capital allowances?
Cars have different capital allowance rules. They are not included in the AIA. Instead, cars qualify for writing-down allowances — a percentage of the remaining value deducted each year. The rate depends on the car's CO2 emissions. New zero-emission cars qualify for a 100% first-year allowance (extended to 31 March 2026). See gov.uk/capital-allowances-for-cars.
What are writing-down allowances?
Writing-down allowances (WDAs) are the standard mechanism for claiming capital allowances on assets that don't qualify for AIA (like cars), or once AIA has been used up. Assets are pooled together and a fixed percentage of the pool value is deducted each year: 18% per year for the main pool, 6% per year for the special rate pool.
How do I claim capital allowances?
Capital allowances are claimed on your CT600 corporation tax return (for companies) or self-assessment (for sole traders and partnerships). Your accountant calculates the allowances and includes them in the return. Proper record-keeping of asset purchases is essential — cost, date of purchase, and business use proportion. Deadlines for amending a return to include a missed allowance are limited.
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