When you buy equipment, vehicles, machinery, or other assets for your business, you generally cannot deduct the full cost in the year of purchase. Instead, you claim capital allowances — a system of tax deductions spread over the life of the asset. This guide covers the main types of capital allowances available to UK businesses in 2026.
Annual Investment Allowance (AIA)
The AIA lets you deduct the full cost of qualifying assets in the year of purchase, up to the annual limit. The current AIA limit is £1,000,000 per year — meaning most small businesses can deduct the entire cost of their equipment purchases immediately.
Qualifying assets include machinery, equipment, commercial vehicles, computers, furniture, and tools. Cars are excluded from the AIA (they have their own rules).
Writing Down Allowances (WDA)
For assets that exceed the AIA limit or are not eligible for it, you claim writing down allowances — a percentage of the asset’s remaining value each year.
| Pool | Rate | Includes |
|---|---|---|
| Main rate | 18% per year | Most plant and machinery, equipment, vehicles |
| Special rate | 6% per year | Long-life assets (25+ years), integral building features, cars with CO2 over 50g/km |
Cars and Capital Allowances
Cars are treated differently from other business assets:
- Zero-emission cars (electric): 100% first-year allowance — deduct the full cost in year one
- CO2 emissions ≤50g/km: Main rate pool (18% WDA)
- CO2 emissions >50g/km: Special rate pool (6% WDA)
If you use simplified expenses (mileage allowance) for your vehicle, you cannot also claim capital allowances on the same vehicle.
Record Keeping for Capital Assets
Keep purchase receipts, invoices, and any finance agreements for all capital assets. Records must be retained for the entire time you own the asset plus at least 6 years after disposal. An AI receipt scanner ensures these high-value receipts are stored safely for the long term.
For a full overview of deductible business expenses, see self-employed expenses UK.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified accountant or tax adviser for your specific situation.
