Glossary · UK

What is Capital Allowances?

Tax relief that lets businesses deduct the cost of qualifying equipment and plant from their profits.

Full Definition

Capital allowances are the way businesses claim tax relief on capital spending — items like machinery, equipment, computers and commercial vehicles — that cannot be deducted as ordinary running costs. The Annual Investment Allowance (AIA) gives 100% relief on up to £1 million of qualifying plant and machinery each year. For companies, full expensing allows a 100% first-year deduction on new and unused main-rate plant and machinery with no upper limit (and 50% on special-rate assets), and was made permanent for 2026/27. Spending beyond these limits attracts a Writing Down Allowance (WDA) at 18% a year on the main rate pool or 6% on the special rate pool, calculated on a reducing-balance basis. Cars are excluded from AIA and full expensing and instead get WDAs based on CO2 emissions. Claiming the right allowances can substantially cut a business's Corporation Tax or Income Tax bill.