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Capital allowances

If your business buys assets such as equipment, machinery or vehicles, you may be able to claim capital allowances to reduce your taxable profits and the amount of tax you pay.

This guide explains what capital allowances are, which business purchases may qualify and the different types of allowance available.

What are capital allowances?

Capital allowances are a form of tax relief available when a business buys certain assets that it keeps and uses in the business.

Qualifying assets can include:

  • machinery and equipment;
  • computers and other business equipment; and
  • some business vehicles.

The amount and type of capital allowance you can claim depends on the asset and the circumstances of the business.

Unlike everyday business expenses, the cost of buying certain assets isn’t normally deducted directly from taxable profits as an expense. Instead, you may be able to claim capital allowances for some or all of the cost.

Capital allowances reduce your taxable profits, which can reduce the Income Tax or Corporation Tax your business has to pay.

When can capital allowances be claimed?

Capital allowances can generally be claimed when a business buys qualifying assets that it keeps and uses in the business. The type and amount of relief available depends on the asset and the capital allowance being claimed.

Some common examples are outlined below:

Buildings

You cannot normally claim plant and machinery allowances on the cost of land or a building itself. However, certain parts of a building may qualify, including integral features such as:

 

  • lifts and escalators;
  • electrical and lighting systems;
  • heating and hot and cold water systems;
  • air-conditioning and air-cooling systems; and
  • external solar shading.

A Structures and Buildings Allowance may also be available for qualifying expenditure on constructing, buying or renovating some non-residential buildings and structures.

Capital allowance rules for property can be complex, so consider seeking professional advice if your business is buying or carrying out significant work on business premises.

Computer equipment

Computers, laptops, servers and other IT equipment that are kept and used in the business will usually qualify as plant and machinery. Computer software can also qualify in certain circumstances.

Cars and other commercial vehicles

Cars used by the business may qualify for capital allowances. The type and amount of allowance available depends on factors including the car’s CO₂ emissions.

Commercial vehicles such as vans and lorries are generally treated as plant and machinery rather than cars, so different capital allowance rules can apply.

Machinery, equipment, fixtures and fittings etc

Machinery, tools, equipment and certain fixtures and fittings that are kept and used in the business will usually qualify for capital allowances.

Examples can include:

 

  • manufacturing equipment;
  • office furniture and equipment;
  • shelving and storage equipment;
  • fire alarm and CCTV systems; and
  • certain fitted kitchens and bathroom suites.
Buildings

You cannot normally claim plant and machinery allowances on the cost of land or a building itself. However, certain parts of a building may qualify, including integral features such as:

 

  • lifts and escalators;
  • electrical and lighting systems;
  • heating and hot and cold water systems;
  • air-conditioning and air-cooling systems; and
  • external solar shading.

A Structures and Buildings Allowance may also be available for qualifying expenditure on constructing, buying or renovating some non-residential buildings and structures.

Capital allowance rules for property can be complex, so consider seeking professional advice if your business is buying or carrying out significant work on business premises.

Computer equipment

Computers, laptops, servers and other IT equipment that are kept and used in the business will usually qualify as plant and machinery. Computer software can also qualify in certain circumstances.

Cars and other commercial vehicles

Cars used by the business may qualify for capital allowances. The type and amount of allowance available depends on factors including the car’s CO₂ emissions.

Commercial vehicles such as vans and lorries are generally treated as plant and machinery rather than cars, so different capital allowance rules can apply.

Machinery, equipment, fixtures and fittings etc

Machinery, tools, equipment and certain fixtures and fittings that are kept and used in the business will usually qualify for capital allowances.

Examples can include:

 

  • manufacturing equipment;
  • office furniture and equipment;
  • shelving and storage equipment;
  • fire alarm and CCTV systems; and
  • certain fitted kitchens and bathroom suites.

What types of capital allowance are available?

The type of capital allowance you can claim depends on the asset, when it was purchased and the type of business. The main allowances include the Annual Investment Allowance (AIA) and first-year allowances

  • The Annual Investment Allowance (AIA) allows businesses to deduct the full cost of most qualifying plant and machinery from their taxable profits in the accounting period in which it is purchased, up to the annual AIA limit. Most plant and machinery qualifies, including many items of equipment and integral features. Cars do not qualify for AIA, although some other business vehicles do.
  • Some qualifying expenditure can receive tax relief in the year it is purchased through a first-year allowance (FYA).

The allowances available depend on the type of asset and business. For example:

  • companies can claim full expensing on certain new and unused plant and machinery;
  • companies can claim a 50% first-year allowance on certain new special-rate plant and machinery;
  • a 40% first-year allowance is available to businesses for certain new and unused main-rate plant and machinery purchased from 1 January 2026; and
  • a 100% first-year allowance is available for certain qualifying assets, including new and unused zero-emission cars.

What are writing-down allowances?

If you don’t claim the full cost of an asset using AIA or a first-year allowance, you may be able to claim writing-down allowances (WDAs). These allow you to deduct a percentage of the remaining value from your taxable profits each year.

The rate depends on the type of asset and the capital allowance pool it belongs to. For example, there are different rates for main-rate and special-rate expenditure.

How do capital allowances work if I’m self-employed?

If you’re a sole trader or a member of an ordinary partnership, how you claim for the cost of business assets can depend on the accounting method you use.

If you use cash basis accounting, most equipment you buy and keep for the business is normally treated as a business expense rather than claimed through capital allowances. However, cars are treated differently, and you may be able to claim capital allowances on them.

If you use traditional accounting, you may be able to claim capital allowances on qualifying assets such as equipment, machinery and business vehicles.

If an asset is also used privately, the amount of capital allowances you can claim may need to be restricted to reflect its business use.

How do I claim a capital allowance?

Once you’ve worked out the capital allowances your business can claim, you normally claim them through your tax return:

The rules determine which accounting period an asset is treated as being purchased in. This will usually depend on when you entered into the contract and when payment became due. Different rules can apply to assets bought under hire purchase agreements or with extended payment terms.

You don’t always have to claim the maximum capital allowances available. Depending on your circumstances, you may choose to claim less or defer some relief to a later period.