Capital allowances
Capital allowances are the tax relief a company gets for buying equipment, vehicles and fixtures. They replace accounting depreciation, which is never deductible, and are claimed in the corporation tax computation.
How it works
Depreciation in the accounts spreads the cost of an asset over its useful life, but tax law ignores it entirely. Capital allowances take its place and follow their own rules, which is why taxable profit and accounting profit rarely match.
There are three main routes. The Annual Investment Allowance gives 100% relief on up to £1,000,000 of qualifying spend, new or second-hand. Full expensing gives uncapped 100% relief to companies on new main rate plant, with 50% for new special rate assets. Anything left goes into pools attracting writing down allowances of 18% or 6% a year.
Qualifying spend is wider than most directors assume. As well as obvious equipment and vans, it includes integral features in commercial property — electrical systems, heating, lifts — and fixtures acquired with a building, which often go unclaimed on a purchase. Structures and buildings allowance gives a separate 3% a year on qualifying construction costs.
Claims belong in the corporation tax return for the period the obligation to pay arose, so the year end date drives the timing. Missed claims on pooled assets can often be picked up later; first-year allowances generally cannot.
Who this affects
- Companies buying equipment, tools, vans or commercial vehicles
- Businesses fitting out or buying commercial premises with unclaimed fixtures
- Companies buying cars, which follow the pool rules rather than the allowance
- Directors near the £50,000 profit limit where timing changes the rate
Common mistakes
- Assuming depreciation in the accounts gives tax relief
- Missing integral features and fixtures when buying a commercial property
- Claiming the Annual Investment Allowance on a car
- Buying just after the year end and delaying relief by twelve months
Frequently asked questions
What are capital allowances?
Tax relief for capital spending on plant, machinery, vehicles and fixtures, claimed in the corporation tax computation in place of accounting depreciation.
What qualifies as plant and machinery?
Equipment, tools, computers, vans, office furniture, and integral features in commercial property. Buildings, land and most structures follow separate rules.
Can I claim on a property purchase?
Often yes, on the fixtures and integral features within it, subject to the fixtures rules and an election with the seller where required.
What if I forgot to claim in an earlier year?
Pooled expenditure can usually be brought into a later claim, but first-year allowances and full expensing are tied to the year of purchase.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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