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If your business buys equipment, a van or fits out a commercial space, you can’t simply knock the cost off your profits the way you would with rent or wages. Depreciation isn’t an allowable deduction for tax. Capital allowances are how the relief actually reaches you, and getting the claim right can shave a meaningful amount off your tax bill.
The rules have moved a lot in recent years, and a couple more changes land in April 2026. IBISS & CO this guide covers which capital allowances are worth knowing about for the 2025/26 tax year, who can claim them, the current rates, and how to put the claim through to HMRC.
What is capital allowances?
A capital allowance lets you deduct some or all of the cost of a business asset from your taxable profits. The asset has to be something you keep and use in the business rather than sell on, which is why it’s treated as capital spending rather than a running cost. HMRC sets out the qualifying categories in its overview of capital allowances. If you want the full background on the definition and history, we cover that separately in our guide to what capital allowances are. Here we’re focused on the practical side: what you can claim now, and how.
Who can claim
Most businesses that pay UK tax on their profits can claim, including:
- Sole traders and partnerships paying Income Tax
- Limited companies paying Corporation Tax
- Employees who buy their own tools or equipment for work (often overlooked, but a builder buying their own tools can claim, usually through a P87 or Self Assessment)
There’s one catch worth flagging if you use the cash basis. Sole traders and partners who prepare accounts on the cash basis generally can only claim capital allowances on cars; most other kit is simply treated as a business expense instead. And a partnership that has a company as one of its members can’t claim the Annual Investment Allowance.
The allowances you'll actually use
There are several capital allowances on the statute book, but in day-to-day practice most claims come down to four: the Annual Investment Allowance, full expensing, first year allowances and writing down allowances. Here’s where each one fits, with the 2025/26 rates.
| Allowance | Rate | Who it’s for | Notes |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% up to £1,000,000 | Companies, sole traders, partnerships | Permanent £1m limit. Covers most plant and machinery. Not cars. |
| Full expensing | 100% main pool | Companies only | No upper limit. New and unused plant and machinery only. Not cars. |
| 50% first year allowance (SR allowance) | 50% special rate | Companies only | For new special rate assets such as integral features. |
| Writing down allowance, main pool | 18% | All businesses | Reducing balance. Falls to 14% from April 2026. |
| Writing down allowance, special rate pool | 6% | All businesses | Reducing balance. Integral features, long-life assets, higher-emission cars. |
Annual Investment Allowance (AIA)
The AIA gives you 100% relief on qualifying spending in the year you buy the asset, up to £1 million, as confirmed in HMRC’s Annual Investment Allowance guidance. That limit is now permanent, which removes the planning headache businesses used to have when it bounced around from one year to the next.
For most small and medium businesses the AIA does the heavy lifting. If your annual capital spend sits below £1 million, you can usually write the whole lot off straight away. It applies to plant and machinery, computer equipment, office furniture, commercial vehicles such as vans, and the integral features of a building. Cars are the notable exclusion.
Full expensing
Full expensing is a 100% first year allowance for companies on new and unused main-rate plant and machinery, with no monetary cap. It was introduced in April 2023 to replace the super-deduction, and it’s been made permanent.
The obvious question is why a company would bother with full expensing when the AIA already gives 100% relief. The answer is the cap. If your qualifying spend goes above £1 million, full expensing keeps the relief flowing at 100% beyond the AIA ceiling. For special rate assets, companies get a 50% first year allowance instead, with the remaining balance going into the special rate pool at 6% a year.
The important limit: full expensing is for companies only. Sole traders and partnerships can’t use it, though the £1 million AIA covers most unincorporated businesses comfortably.
First year allowances
Separate from full expensing, certain assets attract their own 100% first year allowance. The main ones in 2025/26 are new zero-emission cars and equipment for electric vehicle charging points. These sit outside your AIA limit, so claiming one doesn’t eat into the £1 million.
There’s also a new 40% first year allowance arriving from 1 January 2026. It’s aimed at businesses that couldn’t previously reach full expensing, including leasing and hire businesses and unincorporated businesses. The detailed guidance is still being finalised through the Finance Bill, so if this is relevant to a large purchase you’re planning, it’s worth checking the position before you commit.
Writing down allowances
If an asset doesn’t qualify for AIA or a first year allowance, or you’ve already used your AIA for the year, you claim relief gradually through writing down allowances (WDAs). You group assets into pools and write down a percentage of the pool balance each year on a reducing balance basis.
For 2025/26 the main rate pool runs at 18% and the special rate pool at 6%. The special rate pool covers integral features such as heating, lighting, air conditioning and electrical systems, long-life assets, and higher-emission cars.
One change to plan around: the main rate WDA drops from 18% to 14% from 1 April 2026 for companies, and 6 April 2026 for sole traders and partnerships. The special rate stays at 6%. If you have large capital spending coming up that will rely on WDAs rather than AIA or full expensing, bringing it forward to before the change could give you relief at the higher rate. Weigh that against your actual cash flow needs rather than letting the tax tail wag the dog.
A worked example
Say your company spends £30,000 refurbishing its business premises with qualifying plant and machinery in the 2025/26 year, and your taxable profit before the claim is £50,000.
Because the spend is well within the £1 million AIA, you can deduct the full £30,000 in the year. Your taxable profit drops to £20,000, and you only pay Corporation Tax on that figure. The relief is immediate rather than spread over many years, which is the whole point of the AIA and full expensing.
Now flip it. If that same £30,000 went into an asset that didn’t qualify for AIA and fell into the main pool, you’d claim 18% in year one (£5,400), then 18% of the reducing balance the year after, and so on. Same total relief eventually, but it takes years to arrive.
Capital allowances on business cars
Cars play by their own rules, and this is where people most often get it wrong. You can’t claim the AIA on a car. Instead, the allowance depends on the car’s CO2 emissions:
- New and unused cars with zero CO2 emissions qualify for a 100% first year allowance
- Cars emitting 1 to 50g/km go into the main rate pool, with an 18% writing down allowance
- Cars emitting 51g/km or more go into the special rate pool at 6%
A few other things change the picture: whether the car was new or second-hand, when you bought it, and how much private use it gets. Where a car isn’t used exclusively for business, you apply a private-use restriction to the allowance. If you’re choosing a company car, the emissions figure has a direct effect on the relief, so it’s worth running the numbers before you buy.
Other allowances worth knowing
Beyond plant and machinery, there are a few more specialised allowances. The Structures and Buildings Allowance gives 3% a year on the cost of constructing or renovating non-residential structures. There are also allowances for research and development, patent rights, mineral extraction and renovating premises in certain disadvantaged areas. These come up less often, but if you’ve had significant building or development spend, they’re worth a proper look.
When you eventually sell or scrap a pooled asset, you may get a balancing allowance (extra relief) or face a balancing charge (a clawback), depending on how the sale proceeds compare with the written down value. That’s the system squaring up the relief you’ve had against what the asset was actually worth.
How to claim
How you claim depends on how your business is taxed.
If you’re a sole trader or in a partnership, you work out your capital allowances and claim them on your Self Assessment tax return. Partnerships claim on assets owned collectively in the partnership return, not on the individual partners’ returns.
If you’re a limited company, you claim on your Company Tax Return (CT600) and include a separate capital allowances computation. This feeds into your Corporation Tax position.
Timing matters. To claim the full value under AIA or a first year allowance, you generally need to make the claim in the accounting period you bought the item. Writing down allowances are more flexible: you can start claiming them later, as long as you still own and use the asset, and there’s no fixed time limit while that holds true.
Keep your evidence. HMRC expects invoices, receipts and a record of what each asset is and when you bought it. Poor record-keeping is one of the quickest ways to turn a legitimate claim into a query.
Common mistakes we see
Two errors come up again and again. The first is misclassifying assets, particularly dropping something into the wrong pool, which either overstates the relief or quietly loses it. The second is missing embedded fixtures in a commercial property: the wiring, heating, sanitary ware and similar features inside a building often qualify, and they’re easy to overlook if nobody goes looking for them.
Business spending is one of the better and worse parts of running your own company. You have to find the cash for the initial outlay, which hits your cash flow, but you can recover a good chunk of it over time by claiming the right allowances. The difference between a rough claim and a careful one can be substantial.
Frequently Asked Questions
What is the Annual Investment Allowance for 2025/26?
£1 million. The limit is permanent, so you can claim 100% relief on up to £1 million of qualifying plant and machinery in the year you buy it.
What's the difference between AIA and writing down allowances?
The AIA gives you 100% relief in the year of purchase. Writing down allowances spread the relief over several years at a fixed percentage of the reducing balance (18% main pool, 6% special rate for 2025/26). You’d typically use WDAs when an asset doesn’t qualify for AIA or you’ve used your AIA up.
Can I claim capital allowances on a car?
Not through the AIA. Cars are claimed through first year or writing down allowances based on CO2 emissions: 100% for new zero-emission cars, 18% for 1 to 50g/km, and 6% for 51g/km and above.
Can sole traders claim capital allowances?
Yes. Sole traders and partnerships can claim the AIA, first year allowances and writing down allowances, and claim them on the Self Assessment or partnership return. Full expensing, though, is only available to companies.
Is there a time limit on claiming capital allowances?
For the full value under AIA or a first year allowance, claim in the period you bought the item. For writing down allowances there’s no fixed deadline while you still own and use the asset.
What's changing in April 2026?
The main rate writing down allowance falls from 18% to 14% (1 April for companies, 6 April for sole traders and partnerships). A new 40% first year allowance also arrives from 1 January 2026 for businesses that couldn’t previously use full expensing.
Get the claim right
Capital allowances reward attention to detail. The headline rates are straightforward enough, but the value is in correctly categorising assets, spotting the fixtures inside a building, and timing claims around changes like the April 2026 rate cut. If you’re not certain which category your spending falls into, that’s exactly the point to get advice rather than guess.
If you’d like a hand reviewing what your business can claim, the tax team at IBISS & CO can work through it with you. Book an appointment and we’ll go through your spending and pick up anything that’s been missed.
Muhammad Sufyan Moavia
Muhammad Sufyan Moavia, Chartered Tax Adviser and Fellow Chartered Certified Accountant at IBISS & CO.
He has 15 years experience in accounting and tax, advising individuals and business owners on personal tax, HMRC matters, IHT, CGT and tax planning.
Last review: June 2026
