When a business purchases major equipment or assets, the cost is not usually allowed as a normal day-to-day expense for tax purposes. Instead, tax relief is given over time through capital allowances, helping businesses reduce their taxable profits.
Capital allowances apply to many assets used in trading and can make a significant difference to your overall tax position when planned correctly.
Relief is commonly available on a wide range of assets, including:
Machinery and production equipment
Office furniture and fittings
Computers and IT systems
Vans and certain vehicles
Electrical systems, heating, lighting, and other fixed installations within buildings (known as integral features)
Special rules apply to cars and environmentally efficient assets, which are treated differently for tax purposes.
Businesses that own commercial property and lease it to another business may also be entitled to claim allowances on qualifying fixtures within the building.
The Annual Investment Allowance allows businesses to claim 100% tax relief on qualifying plant and machinery costs in the year of purchase, excluding cars.
The AIA can significantly accelerate tax relief and improve cash flow, especially during periods of growth or expansion.
Current AIA limits:
Companies: £1,000,000
Sole traders and partnerships: £1,000,000
Where businesses are connected or under common ownership, the allowance may need to be shared.
If an asset does not qualify for AIA, or if the allowance limit has already been used, tax relief is instead claimed through writing down allowances.
Assets are grouped into pools rather than being dealt with individually:
Main rate pool: 18% per year
Special rate pool: 6% per year
This method spreads tax relief over several years.
Certain assets qualify for enhanced relief in the year of purchase, including:
Energy-efficient equipment
Zero-emission vehicles
New, unused plant and machinery (under full expensing rules for companies)
Depending on the asset type, relief may be available at 100% or 50% in the first year.
Businesses investing in the construction or renovation of non-residential buildings may qualify for the Structures and Buildings Allowance, providing relief at 3% per year over time.
This applies to commercial properties such as offices, warehouses, and industrial premises.
| Type | Allowance |
|---|---|
| First Year Allowance (FYA) on certain plant, machinery and cars of 0 g/km (for cars purchased before 1 April 2026) | 100% |
| Corporation tax FYA ('full expensing') on certain new, unused plant and machinery | 100% |
| Corporation tax FYA on new, unused long-life assets, integral features of buildings, etc. | 50% |
| Emissions (g/km) | Pool | Allowance |
|---|---|---|
| 0 | Main rate | 100% FYA |
| ≤ 50 | Main rate | 18% WDA |
| > 50 | Special rate | 6% WDA |
Capital allowance rules are detailed and mistakes can be costly. The timing of claims, asset classification, and ownership structure all affect how much tax relief you can secure.
AppleGrow Financial Advisors can help you:
Identify qualifying assets
Maximise available allowances
Ensure compliance with HMRC rules
Improve cash flow through effective tax planning
If you would like to discuss your business investments and explore how capital allowances can reduce your tax bill
