Capital Allowances Calculator UK

If your business buys equipment, machinery, or other qualifying assets, you may be able to claim capital allowances to reduce your taxable profits. For the 2026/27 tax year, there have been significant changes – the main rate of Writing Down Allowance has dropped from 18% to 14%, and a new 40% First Year Allowance has been introduced from 1 January 2026.

This guide explains everything you need to know about capital allowances, including who can claim, what qualifies, how the different allowances work, and how to use our calculator to maximise your tax relief.

For a full understanding of your overall tax position, our Income Tax calculator can help you estimate your total liability, and our Corporation Tax calculator can help you estimate your company's tax bill.

Who is This Guide For?

This guide is designed for:

• Limited companies – calculating Corporation Tax relief on capital expenditure
• Sole traders – working out Income Tax relief on business equipment
• Partnerships – determining capital allowance claims for the partnership
• Self-employed workers – investing in tools, machinery or IT equipment
• Contractors – purchasing equipment for their business
• Landlords – claiming on qualifying plant and machinery in non-residential properties
• Accountants and tax professionals – preparing capital allowance claims for clients

If you are self-employed or a sole trader, our Self-Employed Tax calculator can help you estimate your overall tax position.

Understanding Capital Allowances

Capital allowances are a type of tax relief that allows businesses to deduct the cost of qualifying assets from their taxable profits. Instead of claiming the cost as an expense in one go (which is not allowed for capital items), capital allowances let you spread the deduction over time – or claim it all at once through certain allowances.

Types of Capital Allowances

There are several types of capital allowances available under UK tax law:

Annual Investment Allowance (AIA) – 100% relief on qualifying expenditure up to £1 million. This is the most generous allowance and should be claimed first.

Writing Down Allowance (WDA) – relief on expenditure not covered by AIA, claimed over several years at 14% (main rate) or 6% (special rate).

First Year Allowances (FYA) – including the new 40% FYA from 1 January 2026 and the existing 100% FYA for zero-emission vehicles.

Full Expensing – unlimited 100% relief for limited companies on new plant and machinery.

Our Annual Investment Allowance guide covers AIA in more detail.

What Qualifies for Capital Allowances?

Most plant and machinery used in a business qualifies for capital allowances. This includes:

Qualifying Assets

• Machinery and tools
• Computers, servers and IT equipment
• Vans and commercial vehicles
• Office furniture and desks
• Integral building features (lifts, heating, air conditioning)
• Agricultural and construction equipment

What Does NOT Qualify

• Cars (separate rules apply)
• Buildings, land and structures
• Items you owned before business use
• Items given to you as a gift

HMRC Rules for Capital Allowances

The Annual Investment Allowance (AIA)

The AIA gives 100% tax relief on qualifying plant and machinery expenditure up to an annual limit. For the 2026/27 tax year, the AIA limit remains at £1 million – a level that has been permanent since April 2023.

Key points about AIA:

• Available to all businesses
• 100% relief in the year of purchase
• Must be claimed – it is not automatic
• Proportionately adjusted for short accounting periods

Cars do not qualify for AIA.

Writing Down Allowance (WDA)

For expenditure not covered by AIA or FYAs, WDA provides relief over several years. The main rate of WDA has been reduced from 18% to 14% from 1 April 2026 for companies and 6 April 2026 for unincorporated businesses. The special rate WDA remains at 6%.

Pool

2025/26 Rate

2026/27 Rate

Main Rate Pool

18%

14%

Special Rate Pool

6%

6%

New 40% First Year Allowance (FYA)

From 1 January 2026, a new 40% FYA is available for qualifying main rate plant and machinery expenditure. This allowance:

• Applies to unused (not second-hand) plant and machinery
• Is available to both companies and unincorporated businesses
• Does not apply to cars
• Can be used for assets used for leasing (but not overseas leasing)
• Is mainly beneficial where AIA or other FYAs are unavailable

Full Expensing

Full expensing is available to limited companies and provides an unlimited 100% FYA on brand new plant and machinery (excluding cars and assets used for leasing). A 50% FYA is available for special rate items.

Tax Rates and Thresholds for 2026/27

Corporation Tax Rates (2026/27)

Profits

Rate

Up to £50,000

19% (Small Profits Rate)

£50,000 to £250,000

26.5% (Marginal Relief)

Over £250,000

25% (Main Rate)

Income Tax Rates for Sole Traders (2026/27)

Band

Income Range

Rate

Personal Allowance

Up to £12,570

0%

Basic Rate

£12,571 to £50,270

20%

Higher Rate

£50,271 to £125,140

40%

Additional Rate

Over £125,140

45%

How the Calculator Works

Our Capital Allowances Calculator works by:

1. Taking your total qualifying capital expenditure – the amount spent on eligible plant and machinery in the accounting period
2. Applying the AIA first – up to £1 million of expenditure receives 100% relief
3. Applying any First Year Allowances – such as the new 40% FYA for expenditure from 1 January 2026
4. Applying Writing Down Allowance – at 14% (main rate) or 6% (special rate) on any remaining expenditure
5. Calculating your total claim – the total amount you can deduct from taxable profits
6. Showing your tax saving – based on your Corporation Tax or Income Tax rate

The calculator uses the latest 2026/27 HMRC rates and rules.

Calculation Explained with Examples

Example 1: Limited Company with AIA Claim

Scenario: A limited company purchases new machinery costing £80,000 in the 2026/27 tax year.

Calculation:

• Qualifying expenditure: £80,000
• AIA claim: £80,000 (full amount, within £1 million limit)
• Corporation Tax rate: 19%
• Tax saving: £80,000 × 19% = £15,200

Example 2: Business Exceeding the AIA Limit

Scenario: A company purchases machinery costing £1,200,000.

Calculation:

• Qualifying expenditure: £1,200,000
• AIA claim: £1,000,000
• Excess expenditure: £200,000 (goes to main pool)
• WDA on excess (14%): £200,000 × 14% = £28,000 relief in year 1
• Corporation Tax rate: 25%
• Tax saving on AIA: £1,000,000 × 25% = £250,000
• Tax saving on WDA: £28,000 × 25% = £7,000

Example 3: Claiming the New 40% FYA

Scenario: A sole trader purchases new IT equipment costing £50,000 on 1 February 2026. The business has no remaining AIA.

Calculation:

• Qualifying expenditure: £50,000
• 40% FYA claim: £50,000 × 40% = £20,000
• Remaining expenditure to main pool: £30,000
• WDA on remaining (14%): £30,000 × 14% = £4,200
• Total claim in year 1: £24,200
• Income Tax rate (basic): 20%
• Tax saving: £24,200 × 20% = £4,840

How to Claim Capital Allowances

For Limited Companies

1. Identify all qualifying capital expenditure in the accounting period
2. Calculate your AIA, FYA and WDA claims
3. Enter the claim in the capital allowances section of the CT600 Company Tax Return
4. For the new 40% FYA, use the existing capital allowance boxes on form CT600 until April 2027, when new boxes will be added

For Sole Traders and Partnerships

1. Identify all qualifying capital expenditure in the period of account
2. Calculate your AIA, FYA and WDA claims
3. Enter the claim in the capital allowances section of the Self Assessment tax return
4. Use helpsheet HS252 for guidance on the calculations

Our Self Assessment complete guide provides step-by-step filing instructions.

Common Mistakes to Avoid

1. Claiming AIA on cars – cars never qualify for AIA
2. Not claiming the new 40% FYA – this is available from 1 January 2026 and should not be overlooked
3. Forgetting to claim – capital allowances are not automatic; you must claim them on your tax return
4. Not adjusting for short accounting periods – the AIA limit must be proportionately adjusted for periods shorter than 12 months
5. Claiming on ineligible assets – buildings, land and structures do not qualify for plant and machinery allowances (except integral features)
6. Using the wrong WDA rate – the main rate is now 14%, not 18%
7. Claiming the 40% FYA on second-hand assets – the new FYA only applies to unused plant and machinery

Frequently Misunderstood Rules

The 40% FYA vs AIA

The new 40% FYA is designed to be used where AIA or other FYAs are unavailable. It is not a replacement for AIA – AIA remains the first port of call for most businesses.

The WDA Rate Change

The reduction in main rate WDA from 18% to 14% takes effect from 1 April 2026 for companies and 6 April 2026 for unincorporated businesses. Businesses with accounting periods that span these dates must use a hybrid rate.

Full Expensing vs AIA

Full expensing is available only to limited companies and provides unlimited 100% relief on new plant and machinery. AIA is available to all businesses but is capped at £1 million.

Cars and Capital Allowances

Cars are treated separately under the capital allowances regime. They never qualify for AIA, full expensing, or the new 40% FYA. Instead, they are allocated to the main or special rate pool based on CO₂ emissions. Our Company Car Tax Calculator can help you understand the tax implications of company cars.

Advantages of Claiming Capital Allowances

• Immediate tax relief – AIA provides 100% deduction in the year of purchase
• Improves cash flow – reduces your tax bill, leaving more money in the business
• Simplifies tax calculations – flat rates rather than tracking individual costs
• Available to all businesses – regardless of size or legal structure
• Encourages investment – provides a strong incentive to invest in business growth

Limitations of Capital Allowances

• AIA capped at £1 million – expenditure above this limit must be claimed through WDA
• Cars are excluded – separate rules apply to vehicles
• Must be claimed – not automatic; you must actively claim on your tax return
• Some assets excluded – buildings, land and structures do not qualify
• Related business restrictions – businesses under common control may need to share allowances

Related Tax Rules

Structures and Buildings Allowance

A 3% annual allowance is available for qualifying costs of constructing new, non-residential structures and buildings. This is claimed separately from plant and machinery allowances.

Small Pools Allowance

Where the balance of expenditure in the main pool or special rate pool is £1,000 or less, the small pools allowance is available, allowing you to write off the full balance.

Zero-Emission Vehicles

100% FYAs are available for brand-new electric cars and electric vehicle charging points. These have been extended to April 2027.

When to Seek Professional Advice

You should consider seeking professional advice if:

• Your total capital expenditure exceeds £1 million in a single year
• You own multiple businesses or are part of a corporate group
• You are unsure whether an asset qualifies for capital allowances
• Your accounting period is not 12 months
• You are a partnership with a corporate partner (these are not entitled to AIA)
• You need help with complex tax planning involving capital allowances

A qualified accountant or tax adviser can help you maximise your claims while ensuring full compliance with HMRC rules.

Summary

For the 2026/27 tax year, there have been significant changes to the capital allowances regime:

• The AIA limit remains at £1 million – a permanent level since April 2023
• Main rate WDA has dropped from 18% to 14% from April 2026
• Special rate WDA remains at 6%
• A new 40% FYA is available from 1 January 2026 for qualifying main rate expenditure
• Full expensing remains available for limited companies
• 100% FYA for zero-emission vehicles extended to April 2027