Capital allowances are one of the most effective, HMRC-approved ways to reduce your taxable profits and keep more cash in your business. Yet many owners still leave relief on the table because the rules feel technical or the timing is unclear. In this guide, we explain what capital allowances are, which assets qualify, and how we help clients plan purchases so relief arrives when it’s most useful. We also cover the interaction between Annual Investment Allowance, full expensing and writing down allowances, plus practical points for property, vehicles and integral features.

Why this matters now: the government has permanently introduced full expensing for companies buying qualifying plant and machinery, and the Annual Investment Allowance (AIA) remains at £1 million. Used well, capital allowances can materially improve cashflow and the after-tax cost of investment. Business investment data shows momentum returning – UK business investment rose 3.9% in Q1 2025 and stood 6.1% higher than a year earlier (ONS, 2025), which underlines how many firms are acting. The Office for Budget Responsibility has also assessed that making full expensing permanent adds around £3 billion a year to total business investment on average across the forecast period (OBR, 2024). If you are planning equipment upgrades, refurbishments or fit-outs in the 2025/26 tax year, it pays to map the claim method before you sign contracts.

What are capital allowances?

Capital allowances let you deduct the cost of qualifying capital assets from your taxable profits. Instead of taking the cost to the profit and loss account as depreciation, you claim tax relief through the capital allowances system. This applies across corporation tax and income tax, depending on your business structure.

The main routes are:

Annual Investment Allowance: A 100% deduction for most plant and machinery up to the £1 million AIA limit per accounting period (HMRC guidance).
Full expensing: For companies, a 100% first-year deduction for qualifying new main-rate plant and machinery, plus a 50% first-year allowance for special rate assets. Cars are excluded.
Writing down allowances: Ongoing relief on pool balances, currently 18% for the main pool and 6% for the special rate pool, claimed each year until fully relieved.
Structures and Buildings Allowance (SBA): A straight-line 3% annual deduction for qualifying non-residential structures and buildings, typically over 33⅓ years.

These routes can work together. You might, for example, use AIA first, then full expensing if you are a company with qualifying new assets beyond the AIA cap, and then writing down allowances on anything left in the pools.

What actually qualifies?

“Plant and machinery” is broad. Typical claims include:

Production and operational kit: CNC machines, commercial ovens, medical equipment, printing presses.
Fixtures and integral features: Electrical systems, lighting, hot and cold-water systems, lifts, air-conditioning and fire alarms in business premises.
IT and office equipment: Servers, laptops, printers, telephony, shelving and storage.
Commercial vehicles: Vans and some trucks qualify for capital allowances; company cars have separate rules.

Non-qualifying items: Land, most buildings themselves (handled by SBA instead), items for personal use, and assets gifted to the business.

Annual Investment Allowance: Quick wins up to £1 million

For many owner-managed businesses, AIA does the heavy lifting. You get a 100% deduction for most qualifying plant and machinery up to £1 million in your accounting period. Tactically:

Timing: If you are near your year-end and have headroom, bringing forward delivery and making sure the asset is available for use can secure relief earlier.
Apportionments: If your period is shorter or straddles changes, AIA can pro-rate. We check the exact dates before you commit.
Groups and related businesses: AIA is shared in some structures. We help you allocate the cap to the best use within your group.

Full expensing for companies: Immediate relief for new kit

Full expensing gives incorporated businesses a 100% deduction in the year of purchase for qualifying new main-rate plant and machinery. There is also a 50% first-year allowance for special rate assets such as integral features. It does not apply to cars, second-hand assets, or assets acquired for leasing out (subject to any future changes).

When full expensing is useful:

Large capex years: Where spend exceeds AIA, or you want to preserve AIA for mixed-use assets.
Cashflow priorities: Immediate relief improves post-tax cashflow in the year of investment.
Project staging: Phasing deliveries can spread relief across periods if that supports your profit profile.

The OBR has assessed that the shift to permanent full expensing increases total business investment by about £3 billion a year on average across the forecast period (OBR, 2024).

Writing down allowances: Relief over time

Not everything qualifies for AIA or first-year relief. Writing down allowances give systematic relief on pool balances:

Main rate pool: 18% reducing balance each year.
Special rate pool: 6% reducing balance for long-life assets and integral features.

We keep clear pool records, track additions and disposals, and ensure disposal proceeds are correctly brought in to prevent over- or under-claims.

Structures and Buildings Allowance: Don’t overlook the 3% on property

SBA gives a 3% straight-line annual deduction for qualifying spend on non-residential structures and buildings. It covers new builds, conversions and refurbishments where contracts were signed on or after 29 October 2018. You must hold an allowance statement and the property must be used for a qualifying activity. We also check whether any elements are better claimed as plant and machinery, to maximise relief across both regimes.

Cars and commercial vehicles: Different rules apply

Company cars are excluded from full expensing and have separate capital allowance rates based on emissions and purchase date. Vans and trucks generally qualify as plant and machinery and can be eligible for AIA or full expensing if new and within scope. Selecting the right financing method, delivery timing and specification can change the relief you receive and the benefit-in-kind position for drivers. Ask us to model whole-life costs before you order.

Common pitfalls we help you avoid

Asset categorisation errors: Misclassifying integral features can push items into the wrong pool. We split costs between plant and machinery and SBA to improve outcomes.
Timing mismatches: Relief follows when the asset is acquired and available for use. Lead times and staged deliveries matter for year-end planning.
Incomplete evidence: Missing invoices, contracts or the SBA allowance statement can delay or reduce claims. We build a clean audit trail.
Group and shared-use issues: AIA sharing, inter-company asset transfers and partial non-business use need careful treatment.
Disposals and balancing charges: Selling an asset after claiming AIA or first-year relief can create immediate tax charges. We plan the exit as carefully as the purchase.

How we approach capital allowances planning

Our process is simple and thorough. For example:

Discovery: We review your planned and historic capex, property works and leases.
Asset mapping: We identify plant and machinery, fixtures and SBA elements, and agree the best claim route.
Relief modelling: We model AIA, full expensing and pool outcomes across current and future periods to smooth tax and cashflow.
Documentation: We compile evidence, draft the SBA allowance statement where relevant, and prepare clear working papers for your tax return.
Post-completion review: We revisit the claim after delivery to confirm use, additions and any variances.

If you are refurbishing premises or fitting out a new space, we can work with your contractor’s schedule of works to ensure nothing is missed.

Make capital allowances work harder for your business

Capital allowances can turn a large investment into a manageable after-tax cost, but only if you claim in the right way at the right time. AIA at £1 million, permanent full expensing for companies and the steady 3% SBA together offer meaningful scope to reduce your bill, protect cashflow and reinvest with confidence. With business investment running 6.1% higher year-on-year in Q1 2025 (ONS, 2025), competitors are already upgrading equipment, digital infrastructure and premises. If you are planning spend in the 2025/26 tax year, talk to us before you sign so we can map out the most efficient claim, avoid traps and build the supporting evidence.

We’ve advised Scottish and UK businesses for more than 50 years. If you want a practical review of your capex plans, or you’d like us to benchmark your current claims, get in touch. We’ll help you apply capital allowances effectively and keep your investment plans on track.

Ready to optimise your capital allowances for 2025/26? Speak to our team today or request a review of your upcoming projects – we’ll show you the savings and the steps to claim.

Capital allowances explained: Making the most of your business investments