Capital Allowances UK 2026/27 | AIA, WDA, Cars & SBA

When your business buys a long-lasting asset — a machine, a van, office furniture — you cannot deduct the full cost as a normal expense in one year. Instead, capital allowances let you recover the cost against taxable profits, either immediately or over several years. For 2026/27 the headline is the Annual Investment Allowance (AIA) at £1,000,000, which lets most businesses write off qualifying plant and machinery in full in the year of purchase, with the Writing Down Allowance catching everything AIA does not cover.

Getting the classification right is where the money is: a qualifying £50,000 machine claimed under AIA is deducted immediately, while an asset left in a writing-down pool is relieved over time. The tax saving depends on the taxpayer’s marginal rate and accounting period. Model your own claim with the Capital Allowances Calculator→, and see how allowances interact with structure in the Sole Trader vs Limited Company guide.

The Annual Investment Allowance

AIA is the most generous general capital allowance: 100% of qualifying plant and machinery costs are deductible in the accounting period of purchase, up to a £1,000,000 annual limit — made permanent from April 2023. Qualifying assets can include machines, tools, office equipment, IT, vans and commercial vehicles. Cars do not qualify for AIA; other exclusions and connected-party or leasing rules can also matter.

The limit is subject to the rules for companies under common control and accounting periods, so a group cannot simply multiply the allowance without checking the legislation. If purchases exceed £1m in a year, the excess may fall into the main pool (14%), special-rate pool (6%), full expensing or another applicable allowance.

Writing Down Allowance: Main and Special Rate Pools

Assets that do not qualify for AIA — or exceed the £1m limit — may sit in a pool and attract a reducing-balance allowance each year. For 2026/27, the main pool carries 14% for general plant and machinery; the special-rate pool carries 6% for integral building features (such as lifts, air conditioning and electrical systems), long-life assets, thermal insulation and cars in the special-rate category.

Two reliefs keep small pools tidy: if a pool balance is £1,000 or less at the year end, you can write the whole balance off, and when you sell an asset the proceeds are deducted from the pool — a balancing charge arises if proceeds exceed the remaining balance, while a negative balance generates a balancing allowance.

Cars and First Year Allowances

Cars do not qualify for AIA or full expensing. A new and unused zero-emission car can qualify for a 100% first-year allowance, currently available for expenditure before the relevant 2027 deadline. For cars bought from April 2021, cars with emissions of 50g/km or less generally use the main rate and cars over 50g/km use the special rate. For 2026/27 the main rate is 14% and the special rate is 6%. A sole trader or partnership apportions the claim for private use; a company’s treatment and benefit-in-kind position are separate questions.

Example: a company buys a qualifying fully electric car new and unused for £40,000 before the applicable 2027 deadline. A 100% first-year allowance may deduct the full £40,000, but the company must meet the qualifying conditions and cannot claim two allowances on the same cost. A van is not automatically covered by the electric-car FYA; it may instead qualify for AIA, full expensing or another rule depending on the taxpayer and use.

40% First-Year Allowance and Full Expensing

For qualifying new and unused main-rate plant and machinery bought by a company on or after 1 January 2026, the 40% first-year allowance can provide an immediate deduction where AIA or full expensing is not claimed. Companies may also claim 100% full expensing for qualifying main-rate plant and machinery and 50% for qualifying special-rate expenditure, subject to the conditions. Cars, second-hand assets and leased assets are excluded from full expensing; do not treat these company-only allowances as general sole-trader reliefs.

Structures & Buildings Allowance

SBA applies to new commercial buildings — offices, factories, warehouses, retail premises — constructed after 29 October 2018. The allowance is 3% straight-line per year on the construction cost (excluding land), running for 33 years and 4 months until the building is fully written off. Land never qualifies, and the claim belongs to the owner or long-term lessee.

SBA is slower than AIA but better than nothing: a £500,000 warehouse yields £15,000 of deductions every year for over three decades, worth £2,850 a year at 19% corporation tax. Claim it separately from plant and machinery — integral features inside the building stay in the special rate pool at 6%, not in SBA.

Worked Example: The £50,000 Machine

A manufacturer buys a £50,000 production machine in 2026/27. The tax saving below uses an assumed 19% rate only to illustrate timing; the actual rate depends on the taxpayer and circumstances.

Option 1 — claim AIA. The full £50,000 is deducted immediately, cutting taxable profit to £150,000 and saving £50,000 × 19% = £9,500 of corporation tax in year one.

Option 2 — skip AIA, use the main pool. Year one WDA is £7,000, year two £6,020, year three £5,177 — a total of £18,197 over three years, equivalent to £3,457 at 19%. The remaining £31,803 keeps generating smaller deductions for later years.

The AIA wins by a wide margin, and the same logic applies to any qualifying purchase. Where AIA really pays is timing: buy in March and the full deduction lands in the current accounting period, so businesses planning capital expenditure should front-load purchases before the year end.

Enhanced Allowances in Freeports and Investment Zones

Businesses in Freeport tax sites and Investment Zones can claim 100% First Year Allowances on qualifying plant and machinery in addition to the standard AIA, potentially writing off more than £1m of immediate deductions in a single year. Enhanced structures allowances also exist in these zones, offering higher rates on qualifying buildings. If your premises sit in a designated zone, check your eligibility before defaulting to the standard pools — the paperwork is simple and the cash-flow benefit is significant.

Common Mistakes

The errors HMRC sees most: claiming on repairs as if they were capital (or missing genuine capital items), ignoring the £1,000 car-related rules for vans versus cars, forgetting to apportion for private use, letting the AIA limit be wasted by buying just after the year end, and failing to track pool balances so disposals produce incorrect balancing charges. Land, goodwill and most intangibles never qualify — always check the asset type before assuming relief.

Ownership, grants and records

The invoice total is not automatically the qualifying expenditure. Check who bought and owns the asset, whether it is leased or hire-purchased, whether a grant or subsidy contributed to the cost, whether VAT is recoverable, and whether the asset is used privately. Keep the contract, invoice, commissioning date, asset register, finance agreement, grant evidence and business-use calculation together. A company-only allowance should not be claimed by a sole trader, and an asset moved between connected businesses needs a separate review.

When an asset is sold, scrapped, transferred or taken out of business use, update the relevant pool and record the disposal proceeds, insurance receipt and date. A later balancing charge or allowance can depend on the pool, the original claim and the asset category. Review the claim again if the accounting period changes, the business enters a freeport or investment zone, or an allowance deadline is extended or replaced by legislation.

Frequently Asked Questions

Evidence and timing before you claim

Keep the invoice, payment record, delivery date, asset description, business-use percentage and disposal history together. A supplier’s label such as “equipment” or “vehicle” does not decide whether the asset is plant and machinery, a car, a building or a mixed-use item. Record the accounting period in which the expenditure was incurred and check whether the business has connected companies or a short accounting period that changes the allowance calculation.

Review the claim again if an asset is sold, leased, moved between businesses or used privately. The tax deduction and the cash purchase are different decisions: model the timing benefit, but do not treat a capital allowance as a cash grant or assume the full cost is immediately deductible. If the rate or first-year rule depends on the asset being new, unused or zero-emission, preserve evidence of that condition before submitting the return.

Work out your year-one deduction with the Capital Allowances Calculator→ and compare structures in Self-Employed vs Limited Company 2026/27. Pair this guide with Corporation Tax and Sole Trader Expenses for the full deduction picture.

Official sources

• GOV.UK: Capital allowances
• GOV.UK: First-year allowances
• GOV.UK: Business cars
• GOV.UK: 40% first-year allowance
• GOV.UK: Budget 2025 rates and allowances
• GOV.UK: How to claim capital allowances