Question 1

What are Capital Allowances?

Accepted Answer

Capital Allowances are a way for UK businesses to claim tax relief on the purchase of certain long-term assets, such as equipment, machinery, and vehicles. Instead of deducting the full cost as an expense in one year, you claim a portion of the value over time, which reduces your taxable profit and, therefore, your Corporation Tax bill.

Question 2

What is the Annual Investment Allowance (AIA)?

Accepted Answer

The Annual Investment Allowance (AIA) is the most common type of capital allowance. It allows a business to deduct 100% of the cost of most plant and machinery (up to a certain limit) from its profits in the year of purchase. For 2025/26, the AIA limit is £1 million.

Question 3

What is Full Expensing?

Accepted Answer

Full Expensing is a 100% first-year allowance that allows limited companies to write off the full cost of new, qualifying plant and machinery in the year of purchase. Unlike AIA, it has no upper limit, but it only applies to new (not second-hand) assets and is only available to companies subject to Corporation Tax.

Question 4

What is the difference between capital allowances and business expenses?

Accepted Answer

Business expenses are the day-to-day running costs of your business, like rent, wages, or utility bills, which are deducted from your revenue in full in the year they are incurred. Capital allowances are for 'capital expenditure'—the purchase of long-term assets. Instead of a one-off deduction, you claim their value over several years (unless you can use AIA or Full Expensing for a 100% first-year claim).

Question 5

What are Writing Down Allowances (WDA)?

Accepted Answer

If you have already used your AIA limit or the asset does not qualify for it, you use Writing Down Allowances (WDA). This allows you to deduct a percentage of the asset's value from your profits each year. The main rate is 18%, and the special rate (for things like long-life assets or building fixtures) is 6%.

Question 6

What happens when I sell an asset I've claimed allowances on?

Accepted Answer

When you sell an asset, you must account for the sale proceeds. This can result in a 'balancing charge' (if you sell it for more than its written-down value for tax, which increases your taxable profit) or a 'balancing allowance' (if you sell it for less, which further reduces your taxable profit).

Question 7

Can sole traders and partnerships claim capital allowances?

Accepted Answer

Yes, sole traders and partnerships can claim capital allowances in the same way as limited companies, including the Annual Investment Allowance (AIA) and Writing-Down Allowances (WDA). However, they are not eligible for the 'Full Expensing' scheme, which is only available to companies that pay Corporation Tax.

Question 8

Can I claim capital allowances on a car?

Accepted Answer

Yes, but the rate depends on the car's CO2 emissions. New electric cars and cars with zero CO2 emissions may qualify for a 100% First Year Allowance. Other cars are allocated to either the main rate (18%) or special rate (6%) pool depending on their emissions.

Capital Allowances Calculator

Interactive Capital Allowances Calculator

Your Figures

Assets Purchased This Year

Your Estimated Allowances & Savings

Breakdown of Claim

What Are Capital Allowances?

Types of Capital Allowances

Annual Investment Allowance (AIA)

Writing Down Allowances (WDA)

What Can I Claim For?

Example: How it Reduces Your Tax

Without Claiming Allowances

With Annual Investment Allowance

Frequently Asked Questions