When your business buys equipment or machinery, you can’t usually deduct the full cost as a business expense in your profit and loss account — because these are classed as capital assets, not day-to-day running costs.
But that doesn’t mean you lose out. Instead, you may be able to claim capital allowances — a way to deduct the cost of those assets from your profits before tax.
Let’s break down what that means and how it works.
What Counts as a Capital Allowance?
You can claim capital allowances on assets you buy for use in your business, such as:
- Computers and office equipment
- Vans, machinery or tools
- Furniture and fixtures
- Some types of building improvements (in limited cases)
In most cases, the asset must be something your business uses long-term – not stock or consumables.
How Does It Work?
Instead of deducting the full cost like an expense, you deduct a portion of it using one of HMRC’s capital allowance schemes. Here are the key ones:
1. Annual Investment Allowance (AIA)
This is the most commonly used scheme. It lets you deduct 100% of the cost of qualifying items (up to a certain limit) in the year you buy them. As of 2025, the AIA limit is £1 million per year — more than enough for most small businesses.
Example: you buy a van for £20,000 for your business. If it qualifies for AIA, you can knock the full £20,000 off your profit before calculating corporation tax.
2. Writing Down Allowance (WDA)
If your purchase doesn’t qualify for AIA (or if you’ve exceeded the limit), you may still be able to deduct part of the cost each year using WDA. This spreads the relief over several years, based on a fixed percentage (typically 18% or 6%, depending on the asset type).
3. Full Expensing
Introduced for companies from April 2023, this allows 100% deduction for certain new plant and machinery — effectively a permanent form of AIA for companies. It’s similar in outcome but available even if you’ve hit the AIA cap.
Note: full expensing is only for companies (not sole traders or partnerships), and only for brand-new assets — not second-hand ones.
4. Super-Deduction (now closed)
If you heard about the super-deduction, this was a temporary scheme for companies between April 2021 and March 2023. It allowed 130% relief on qualifying assets. It’s now ended but may still show up in older accounts.
Cars and Capital Allowances
Cars are treated differently:
- Electric or low-emissions cars: Can qualify for 100% first-year allowances
- Other cars: You’ll usually claim a writing down allowance over several years
Vans, on the other hand, often qualify for AIA or full expensing — assuming they’re not also used personally.
Why Do Capital Allowances Matter?
Claiming capital allowances reduces your taxable profit, meaning you pay less Corporation Tax or Income Tax.
If you don’t claim, you might end up paying more tax than necessary — or delaying relief you could take sooner.
What Should You Do?
- Keep detailed records of any equipment or vehicles bought for the business
- Work with your accountant to decide the best approach — sometimes it’s worth claiming the full allowance in year one, but not always (e.g. if profits are low and you’d rather spread the relief)
- Don’t forget about assets bought on hire purchase — you can usually still claim allowances once the asset is in use, even if you haven’t finished paying for it
Capital allowances can be a dry subject, but they make a real difference to your bottom line. Whether you’re buying your first business laptop or investing in a van, understanding how and when to claim can help you reduce your tax bill and reinvest in your business more effectively.
