The tax relief on the kit your business buys. Bigger than most founders realise, and much changed in 2026.
Who should read this: UK founders deciding whether and when to buy equipment, anyone budgeting for tax-efficient purchases like electric vehicles or office fit-outs, and founders running unincorporated businesses (sole traders or partnerships) wondering why full expensing didn't apply to them in 2025.
Most founders treat equipment spend as a cost. In reality, it's often a tax lever. Capital allowances are the tax relief you get when your business buys long-term assets like laptops, machinery, vans, office equipment, or fit-out costs. Instead of getting nothing back the year you spend the money, capital allowances let you write off some or all of the cost against profit, reducing your tax bill, often immediately.
Two things make this matter for founders. First, the savings are real: a £10,000 piece of equipment with full expensing means £2,500 less corporation tax (at 25%). Second, 2026 has rewritten the rules, and most existing guides on the internet still quote the old ones. The main rate writing down allowance dropped from 18% to 14%. A new 40% First Year Allowance (FYA) launched in January 2026 for leased assets and unincorporated businesses. And full expensing, despite what older articles say, was made permanent back in Autumn Statement 2023.
This guide covers what capital allowances actually are, the key reliefs you might use, what counts as plant and machinery, how integral features and electric vehicles fit in, plus a worked example and the common mistakes founders make.
The key reliefs, who can use each, and what they're worth.
| Relief | Who can claim | What you get | Best for |
|---|---|---|---|
| Annual Investment Allowance (AIA) | All businesses (companies, sole traders, partnerships) | 100% relief on qualifying plant and machinery, up to £1m per year. Permanent. | Most founders' first port of call. Covers nearly all kit you'd buy in a typical year. |
| Full expensing (100% FYA) | Companies only | 100% relief on new and unused main-rate plant and machinery. No annual cap. Permanent since November 2023. | Companies spending more than £1m per year on qualifying kit, where AIA runs out. |
| 50% First Year Allowance | Companies only | 50% immediate relief on new and unused special-rate assets (integral features, long-life assets, etc.). Remainder goes into the special rate pool at 6% per year. | Companies investing in office fit-outs, lighting systems, or other integral features. |
| 40% First Year Allowance | All businesses, but designed for leased assets and unincorporated businesses | 40% immediate relief on main-rate plant and machinery. From 1 January 2026. Cars excluded. Second-hand excluded. Permanent. | Sole traders, partnerships, and any business buying assets to lease within the UK. |
| Writing Down Allowance (WDA) | All businesses | The default fallback. Annual percentage of the unrelieved cost. Main rate pool: 14% from April 2026 (was 18%). Special rate pool: 6%. | Whatever's left after you've used AIA and any FYAs. |
For a typical UK startup, AIA covers nearly all kit. Layer in full expensing or the 40% FYA where they fit, and only the leftover spend falls into the WDA pools.
The main rate WDA was 18% for years and is now 14% (from 1 April 2026 for companies, 6 April 2026 for income tax). The 40% FYA only launched on 1 January 2026 and most existing guides don't mention it. Full expensing was made permanent in Autumn Statement 2023. Always check the publication date of any capital allowances article you're reading.
Quick rule of thumb for which relief to use. Use AIA first, because it's the most flexible and covers main pool, special rate pool, and second-hand kit. If you're a company spending more than £1m a year on qualifying main-rate kit, full expensing kicks in for the excess. If you're an unincorporated business (sole trader or partnership) or buying assets to lease in the UK, the new 40% FYA fills the gap that full expensing left for you. Anything that doesn't qualify for AIA or a FYA falls into the writing down allowance pools at 14% or 6%.
The one-line mental model. Most small businesses can write off nearly all their equipment spend immediately. The complexity only matters when you fall outside AIA, buy unusual assets, or hit one of the timing edges around the 2026 changes.
Plant and machinery is HMRC shorthand for tangible business assets that are used in your trade and have a useful life of more than a year. Examples:
Things that don't count as plant and machinery for capital allowances:
If you're not sure whether something qualifies, the HMRC Capital Allowances Manual has detailed lists, but a UK accountant will know the answer in two minutes.
Integral features are a specific category of asset that sits in the special rate pool rather than the main pool. They include:
For companies, new integral features qualify for the 50% First Year Allowance, with the balance written down at 6% per year. For other businesses, integral features go straight into the special rate pool at 6% WDA, or can be claimed within AIA (which covers special rate assets too).
Why this matters: if you're doing an office fit-out, the typical split is roughly 60% main pool (furniture, computers) and 40% special rate pool (lighting, heating, ventilation). Splitting correctly maximises your immediate relief.
Cars are treated separately from other plant and machinery. The current 2026 rules:
The EV 100% FYA was originally due to expire on 31 March 2026 but was extended by one year in the Autumn Budget 2024.
A practical note: buying an EV through your limited company also affects your personal tax through the Benefit in Kind (BiK) charge, which is currently very low for fully electric vehicles. The combination of company-side capital allowance and low personal BiK is why electric company cars have become popular for UK founders. But model the personal tax impact alongside the corporate one before committing.
Buying versus leasing changes the picture. Outright purchase qualifies for the 100% FYA. Leasing an EV instead means you don't get the capital allowance (the leasing company does), but the lease payments are typically deductible as a business expense in the year you make them. Cash flow, balance sheet impact, and total cost over three to four years often differ enough between the two routes to be worth modelling both with your accountant.
A UK limited company, second year trading, profitable. They're investing in growth and spend the following in their accounting year:
Total spend on capital items: £114,000.
Their relief, claimed in this accounting year:
Total capital allowances claimed: £114,000.
At the 25% main rate of corporation tax, that's a £28,500 reduction in their corporation tax bill for the year, against the same £114,000 of spend they were already planning to make. Without claiming any capital allowances, the year-one tax saving on this spend would be £0. Founders who don't think about this leave that money on the table.
Stylised illustration, not advice. The maths assumes:
Always model your specific scenario with an accountant before relying on any number.
Treating capital allowances as "the accountant's problem". Founders who don't think about timing miss the difference between buying that £45,000 EV in the last week of the accounting year (full relief now) versus the first week of the next year (delayed by 12 months).
Forgetting AIA covers special rate assets too. Some founders use AIA only on main pool items, then drop integral features into the 6% pool. AIA is more flexible than that. Use it for whatever gives the best immediate relief.
Buying second-hand kit and assuming full expensing applies. It doesn't. Used or second-hand assets only qualify for AIA, not for full expensing or the new 40% FYA. The reliefs that allow second-hand assets (AIA) and the ones that don't (full expensing, 40% FYA) are easy to mix up.
Missing the 2026 rule changes. The main rate WDA dropped from 18% to 14%. The 40% FYA launched on 1 January 2026. Some founders are budgeting from outdated guides that still quote 18% WDA and don't mention the new FYA at all.
Claiming full expensing as a sole trader. Full expensing is for companies only. Sole traders and partnerships use AIA, the new 40% FYA, or WDA. Many founders running their business as a sole trader rather than through a limited company miss this.
Not separating the office fit-out properly. A £30,000 fit-out, naively claimed as one main-pool expense, can leave thousands of pounds of relief on the table. Splitting between main pool, special rate pool, and structures and buildings allowance (a separate relief for the building itself) usually requires a specialist capital allowances survey, but the savings often dwarf the cost on anything above £20,000 to £30,000.
Forgetting balancing charges when you sell the kit. This is a future-founder problem worth flagging now. If you claim 100% FYA on a £40,000 electric car, the asset's tax-written-down value is immediately £0. Sell that car for £25,000 two years later and the full £25,000 typically becomes a balancing charge, taxable in the year of sale. The relief isn't permanent in the way founders sometimes assume. It accelerates the deduction; it doesn't waive future tax on disposal proceeds.
Double-claiming on R&D capital expenditure. Tech-heavy founders often claim R&D Tax Credits on revenue R&D spend, which is correct. But capital R&D spend (the equipment used in the R&D project itself) typically goes through the separate Research and Development Allowance (RDA), which is a 100% capital allowance in its own right. The mistake is claiming RDA AND another capital allowance on the same asset, or trying to claim R&D Tax Credit relief on what's actually capital expenditure. They're separate categories with separate rules and one item of spend slots into one of them, not both.
Capital allowances are claimed in the accounting period the expenditure is incurred. Practical implication: the difference between buying a major asset on 31 March vs 1 April (for most companies) shifts the relief by an entire year.
If you're profitable and considering a large capital purchase near year-end, talk to your accountant first. Sometimes accelerating a planned purchase by a few weeks moves significant tax. Sometimes deferring it (because next year's profits will be higher and need the relief more) is better. The decision is rarely obvious without running the numbers.
A founder who tracks planned capital expenditure across the year, runs a year-end review with their accountant six to eight weeks before the accounting period ends, claims AIA first, layers in full expensing or the 40% FYA where useful, splits any office fit-out properly between main and special rate pools, and never lets a January 1st capital purchase slip into a February 1st purchase by accident.
If grants might fund some of your capital purchases (and many UK innovation grants do), see how to apply for a grant or try YourGrantBuddy.com.
Capital allowances reduce the tax on your spend. Grants can reduce the spend itself. If you're spending £50k to £100k on growth, the funding finder will show grants and programmes that fit your stage and sector, often non-dilutive.
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This is general information, not financial, tax, or legal advice. Capital allowances rules are technical, change frequently (with significant 2026 updates), and the right answer depends on your specific business structure, profit position, and asset purchases. Always check the latest HMRC guidance and seek professional tax advice before making decisions based on capital allowances treatment.