Capital allowances are UK tax relief that let a business deduct some or all of the cost of equipment, machinery and business vehicles from its profits before tax. As of October 2026, most purchases can be deducted in full with the £1 million Annual Investment Allowance, and anything left goes into pools that get writing down allowances each year: 14% in the main pool from April 2026 (it was 18%) and 6% in the special rate pool.
That drop from 18% to 14% is the 2026 change to watch, along with a new 40% first year allowance. Here's how the whole system fits together.
The allowances at a glance
| Allowance | What it gives you | Who can claim |
|---|---|---|
| Annual Investment Allowance (AIA) | Full cost of most plant and machinery, up to £1 million a year | Sole traders, partnerships of individuals, companies |
| 100% first year allowances | Full cost of new, unused electric or zero emission cars and EV charging equipment bought before April 2027 | Any business |
| Full expensing and 50% first year allowance | Qualifying new plant and machinery bought from 1 April 2023, not cars | Companies only |
| 40% first year allowance | Qualifying plant and machinery bought after 1 January 2026 | Check the GOV.UK conditions for your business |
| Writing down allowances | 14% a year in the main pool (18% before April 2026), 6% in the special rate pool | Everyone, on what's left |
If an item qualifies for more than one allowance, GOV.UK says you can choose which one to use.
What counts as plant and machinery
- Equipment, machinery and business vehicles, including cars, vans and lorries.
- Integral features of a building, such as lifts, heating, air conditioning, hot and cold water systems and electrical and lighting systems.
- Some fixtures, such as fitted kitchens, bathroom suites, fire alarms and CCTV.
- Alterations to a building to install plant or machinery (but not repairs, which are a normal expense).
You can't claim on things you lease (unless it's hire purchase or a long funding lease), land, buildings and structures, or items used only for business entertainment, which GOV.UK illustrates with a yacht and a karaoke machine. If you're a sole trader or partnership using the cash basis, you can only claim capital allowances on cars; everything else goes through as an allowable expense.
The Annual Investment Allowance
The AIA lets you deduct the full value of qualifying items in the year you buy them, up to £1 million. It doesn't cover cars, items you owned before using them in the business, or gifts; those go to writing down allowances. Two companies controlled by the same person share one AIA, and if your accounting period is shorter than 12 months the allowance shrinks with it: GOV.UK's example is 9/12 of £1,000,000, which is £750,000.
Writing down allowances and pools
- Put each item in the right pool. Most go in the main pool. Integral features, long-life assets (once they total more than £100,000 in a period) and cars over the CO2 threshold go in the special rate pool.
- Add purchases to the pool and take off what you sold items for.
- Apply the rate: 14% for the main pool from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax, or 6% for the special rate pool. If your period spans the change, you work out a hybrid rate.
- If a pool is £1,000 or less before you start, you can claim the whole balance as a small pools allowance instead.
- Carry the rest forward to next year.
GOV.UK's worked example: a main pool opens at £9,000, you buy a £1,200 machine (£10,200), sell a desk for £200 (£10,000) and claim 14%, which is £1,400. If a car in its own pool is used privately half the time, you claim only half: £700 instead of £1,400.
Buying premises with fixtures
One rule matters if you're buying business property. GOV.UK says that when you buy a building from a previous business owner, you can usually only claim for integral features and fixtures that they claimed for, and you must agree the value of those fixtures with the seller. If you don't agree a value, you can't claim at all. Raise it with your solicitor before completion, not after.
Cars and selling assets
Cars don't get AIA. A new electric or zero emission car can get a 100% first year allowance if bought before April 2027; otherwise the rate depends on the car's CO2 emissions. When you sell something you've claimed on, its sale value comes off the pool, and if that's more than the balance, the difference is a balancing charge that goes on your tax return. GOV.UK also warns that selling an item after claiming AIA may mean paying tax.
If you're deciding how to structure the business, sole trader vs limited company matters here, because full expensing and the 50% allowance are for companies only.
The verdict
For most small businesses, capital allowances come down to one move: claim the AIA on equipment in the year you buy it, because £1 million covers nearly everyone. The 2026 change that matters is for what's left in your pools and for cars, which never get AIA: relief on the main pool is now 14% a year rather than 18%, so it comes back to you more slowly. Keep a simple asset list with dates and costs, because that's what makes the pools, the hybrid rate and any balancing charge easy when you sell.
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Frequently asked questions
What are capital allowances?
UK tax relief that lets businesses deduct some or all of the value of equipment, machinery and business vehicles from profits before tax.
How much is the Annual Investment Allowance?
As of October 2026, £1 million a year, reduced proportionally for accounting periods shorter than 12 months.
What is the main rate of writing down allowance in 2026?
14%, from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. It was 18% before.
Can I claim AIA on a car?
No. Cars get writing down allowances, or a 100% first year allowance if they're new electric or zero emission cars bought before April 2027.
What is the small pools allowance?
If your main or special rate pool is £1,000 or less, you can claim the full balance instead of writing down allowances.
Can sole traders on the cash basis claim capital allowances?
Only on business cars. Other equipment is claimed as a business expense.
What is a balancing charge?
If what you deduct from a pool when you sell an item is more than the pool's balance, the difference is a balancing charge that goes on your tax return.
