What capital allowances actually are

When your business buys an asset (something it will use over a number of years), you can't deduct the full cost from profit straight away the way you would with a normal expense. Instead, you claim capital allowances over time. Various schemes — the Annual Investment Allowance, full expensing, writing-down allowances — let you accelerate that relief, often giving you the full deduction in the year of purchase.

Annual Investment Allowance (AIA)

The AIA lets most businesses deduct 100% of qualifying plant and machinery spending against profits up to an annual cap. For most small businesses this is the most useful relief — everything qualifies up to the limit, with full relief in the year of purchase.

Qualifying spend typically includes computers, tools, machinery, office furniture, vans and certain integral features of buildings. Cars are a separate regime (more on that below).

Full expensing (companies)

Full expensing gives limited companies a 100% first-year deduction on most main-rate plant and machinery, with no annual cap, and a 50% first-year deduction on special-rate assets. Combined with the AIA, this is powerful relief for capital-intensive companies.

Full expensing isn't available to sole traders or partnerships — they rely on the AIA.

Cars: the trap

Most cars do not qualify for AIA or full expensing. Instead they get writing-down allowances at a rate that depends on their CO2 emissions. Low-emission and electric cars qualify for higher first-year allowances (sometimes 100%) — another reason EVs are popular among directors right now.

Vans, lorries and motorcycles are treated differently from cars and usually qualify for the more generous reliefs.

Timing matters

Capital allowances are claimed in the period when the asset is "brought into use." Timing a purchase a few weeks earlier or later can shift the relief into a different tax year — sometimes worth tens of thousands depending on profit levels. Talk to your accountant before any big purchase if you have flexibility on dates.

Pre-year-end is the moment

The classic mistake is buying equipment in week one of a new tax year when buying it in week 52 of the previous year would have brought a huge deduction forward. We review this with clients heading into each year-end.

Capital allowances checklist

  1. Identify every qualifying asset — including small items that add up.
  2. Decide between AIA and full expensing for limited companies.
  3. Time large purchases with your year-end in mind.
  4. Watch the car rules — if you can pick an EV, the relief picture changes dramatically.
  5. Don't forget property — certain integral features in commercial property qualify and are easy to miss.
  6. Keep evidence — receipts, invoices and the date the asset entered use.

Frequently asked questions

Yes — but cars are subject to special rules. Low-emission and electric cars often qualify for 100% first-year allowances; higher-emission cars get the slower writing-down rate.

AIA is available to all businesses up to an annual cap. Full expensing is a 100% first-year deduction without a cap, but only for limited companies and only on main-rate assets.

AIA can be claimed on second-hand assets. Full expensing generally cannot. Watch the detail — your accountant will confirm.