Capital allowances for UK businesses in 2026

Capital allowances let a UK business deduct the cost of buying equipment, machinery, vehicles and other assets from its taxable profits. In 2026 the main reliefs are the Annual Investment Allowance, worth up to £1 million a year, and full expensing, which gives companies a 100% deduction on qualifying new plant and machinery with no upper limit.

This guide covers which capital allowances are available now, how full expensing and the Annual Investment Allowance actually work, the rates for assets that don't qualify for either, and what changed for cars and other equipment at Autumn Budget 2025. It also covers how to fund a purchase if you'd rather not pay for equipment outright.

Which capital allowances can UK businesses claim in 2026?

You don't have to pick just one. Most businesses use the Annual Investment Allowance for the bulk of their spending and fall back on the other reliefs for anything it doesn't cover.

How does the Annual Investment Allowance work?

The Annual Investment Allowance lets your business deduct up to £1 million of qualifying purchases in full, in the same year you buy them. It's available to sole traders, partnerships and limited companies, and it covers new and second hand equipment, unlike full expensing.

Most plant, machinery, tools, fixtures and computer equipment qualify. Cars are the main exclusion, along with land, buildings and structures, which have their own separate allowances covered below. You can check what qualifies on gov.uk's Annual Investment Allowance guidance.

The £1 million limit was introduced on a temporary basis from 1 January 2019 and extended several times. Spring Budget 2023 made it a permanent fixture, for spending from 1 April 2023 onwards, so it isn't due to fall back to a lower figure. Very few UK businesses spend more than £1 million a year on qualifying equipment, so in practice the Annual Investment Allowance covers the whole cost for most purchases.

How does full expensing work?

Full expensing gives limited companies a 100% deduction against profits for qualifying new and unused plant and machinery, in the year of purchase, with no upper limit on how much you spend. It has applied to spending from 1 April 2023, originally due to run only until March 2026, before Autumn Statement 2023 made it a permanent relief with no end date. Full expensing only applies to companies, not sole traders or partnerships, and only to new assets bought outright or through hire purchase, not second hand equipment or assets you lease. This is where full expensing and the Annual Investment Allowance differ most: the Annual Investment Allowance covers second hand assets and unincorporated businesses, but caps relief at £1 million, while full expensing has no cap but is limited to new assets bought by companies.

A 50% first year allowance works alongside full expensing for companies, covering new special rate assets, such as integral building features and long life equipment, that would otherwise only qualify for the slower 6% special rate writing down allowance.

Which capital allowance should you use?

For most businesses buying equipment costing less than £1 million in a year, the Annual Investment Allowance is simpler and covers everything, new or second hand, whether you're a sole trader, a partnership or a company. Full expensing mainly matters if your company spends more than £1 million a year on qualifying new equipment, since it removes the cap the Annual Investment Allowance has, or if you want to combine an unlimited 100% deduction on new assets with the Annual Investment Allowance covering second hand purchases separately.

What are the writing down allowance rates in 2026?

Writing down allowances apply once you've used up your Annual Investment Allowance for the year, or for assets that don't qualify for full expensing or the Annual Investment Allowance at all. Unlike the reliefs above, they spread the deduction over several years on a reducing balance, rather than giving it to you all at once.

Autumn Budget 2025 cut the main rate from 18% to 14%. The new rate applies to spending from 1 April 2026 for companies and 6 April 2026 for the self employed, with a hybrid rate for accounting periods that straddle that date. The special rate stayed at 6%, where it's been since 2019. You can check both rates on gov.uk's guidance on working out your writing down allowances. Alongside that cut, the government introduced a new 40% first year allowance for qualifying plant and machinery bought from 1 January 2026. It's aimed at businesses that can't use full expensing, mainly sole traders, partnerships and equipment leasing businesses, and it doesn't cover cars or second hand assets. If you're a sole trader or partnership buying new equipment above your Annual Investment Allowance limit, this is worth checking alongside the standard writing down allowance rate.

How do capital allowances work for business cars?

Cars are excluded from the Annual Investment Allowance and full expensing, so they follow their own set of rates based on CO2 emissions.

The 100% first year allowance for new zero emission cars has been extended to 31 March 2027 for companies and 5 April 2027 for the self employed, so it's still available for the whole of 2026. Whichever pool a car sits in, you can only claim if the business owns the car outright or is buying it through hire purchase. Leased cars don't qualify for capital allowances at all, since ownership never transfers to the business, though lease rental payments can usually be deducted as a running cost instead.

What are the rates for buildings and structures?

Buying, converting or renovating a non residential building doesn't qualify for the Annual Investment Allowance or full expensing, but the structures and buildings allowance gives you a straight line deduction of 3% of the qualifying cost every year, for 33 and a third years, until the full cost has been claimed. It applies to new commercial buildings and structures, and to renovations or conversions of existing ones, but not to the cost of the land itself, and not to residential property. You can check the detail on gov.uk's structures and buildings allowance guidance.

How much could your business save through capital allowances?

What a capital allowance is actually worth to your business depends on your corporation tax rate. Companies pay 19% if their profits are £50,000 or less, 25% if their profits are above £250,000, and a rate between the two, worked out through marginal relief, in between. You can check the current bands on gov.uk's corporation tax rates guidance. As an example, a business claiming the Annual Investment Allowance on £20,000 of new equipment deducts the full £20,000 from its taxable profits in that year. At the 25% rate, that's a £5,000 reduction in the corporation tax bill. At the 19% rate, it's £3,800. Your own figure will depend on your company's profits and its exact corporation tax rate for the year, so treat this as an illustration rather than a quote.

How do you claim capital allowances?

You claim capital allowances through your business's tax return, either your Self Assessment return if you're a sole trader or partnership, or your Company Tax Return if you're a limited company. There's no separate application or approval process. To make a claim, you'll need the purchase date, the cost of the asset and evidence of how it's used in the business, such as an invoice. If you buy an asset through hire purchase, HMRC treats you as the owner for capital allowance purposes as soon as you bring it into use, so you can start claiming even before you've finished paying for it. It's worth talking to your accountant before you file, since choosing between the Annual Investment Allowance, full expensing and the writing down allowances can affect how much relief you get and when, especially if your business is close to the Annual Investment Allowance limit or has profits near a corporation tax band.

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