A complete guide to HMRC capital allowances for UK businesses — covering Annual Investment Allowance, Writing Down Allowances, First Year Allowances and the April 2026 main rate reduction from 18% to 14%. Includes a free capital allowances calculator.
Capital allowances let UK businesses deduct the cost of qualifying assets from their taxable profits — reducing their Corporation Tax or Income Tax bill.
When a business buys a capital asset — such as machinery, equipment, commercial vehicles or business cars — it cannot deduct the full cost as an expense in the year of purchase (unlike day-to-day running costs). Instead, HMRC allows businesses to claim capital allowances, which spread the tax relief on those assets over time. The mechanism is similar to depreciation in accounting, but HMRC uses its own fixed rates rather than the accounting depreciation rate you apply in your accounts.
There are three main types of capital allowance available to UK businesses in 2026: the Annual Investment Allowance (AIA), which gives 100% relief on up to £1 million of qualifying expenditure per year; Writing Down Allowances (WDA), which give annual percentage relief on assets in the main rate pool (14% from April 2026) or special rate pool (6%); and First Year Allowances (FYA), which give 100% relief in the year of purchase for qualifying assets such as new zero-emission cars. A fourth allowance — the new 40% First Year Allowance for main-rate plant and machinery — was introduced from 1 January 2026. It does not apply to cars, second-hand assets, special-rate items or overseas leasing, but it can help where AIA or full expensing is not available.
It is essential to understand that cars are treated differently from other business assets for capital allowance purposes. Cars cannot qualify for the AIA, the new 40% FYA, full expensing, super-deduction or 50% FYAs. Instead, business cars are limited to WDA at 14% (main rate, for cars with CO₂ of 50g/km or less) or 6% (special rate, for cars over 50g/km CO₂), or 100% FYA for brand new zero-emission cars. Use the Capital Allowances Calculator below to work out your exact relief.
Three tools to calculate AIA relief, WDA writing down allowance schedules and business car capital allowances — updated with April 2026 rates.
The Annual Investment Allowance (AIA) gives 100% tax relief on qualifying plant and machinery in the year of purchase. The AIA limit is £1,000,000 per year. Cars do not qualify — use the Business Car Allowances tab for cars.
Writing Down Allowances (WDA) reduce your taxable profits by a percentage of the pool value each year. From April 2026: main rate reduces from 18% to 14%. Special rate remains 6%. Use this tab for plant and machinery that exceeds the AIA limit, or for assets added to the pool in prior years.
Cars have their own capital allowance rules — they cannot use AIA, the new 40% FYA, full expensing or super-deduction. The rate depends on CO₂ emissions and whether the car is new or used. From April 2026: main rate WDA reduces from 18% to 14%. 100% FYA for zero-emission cars extended to 31 March 2027.
All main capital allowance types, rates and qualifying conditions for UK businesses in 2026.
| Allowance Type | Rate | Annual Limit | Qualifying Assets | Cars Eligible? |
|---|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% | £1,000,000/yr | Plant & machinery, commercial vehicles, fixtures | ❌ No |
| 100% First Year Allowance (FYA) — Zero-Emission Cars | 100% | No limit | New & unused electric / 0g/km CO₂ cars (extended to 31 Mar 2027) | ✅ Yes (zero-emission only) |
| 40% First Year Allowance — P&M New Jan 2026 | 40% | No limit | New main-rate plant & machinery from 1 Jan 2026 | ❌ No |
| Main Rate WDA Changed Apr 2026 | 14%/yr (was 18%) | No limit | General P&M; cars with CO₂ ≤50g/km; second-hand EVs | ✅ Yes (CO₂ ≤50g/km) |
| Special Rate WDA | 6%/yr | No limit | Cars over 50g/km CO₂; integral features; long-life assets | ✅ Yes (CO₂ >50g/km) |
| Small Pools Allowance | 100% | £1,000 pool balance | Any pool with balance of £1,000 or less | ✅ Yes |
| Structures & Buildings Allowance (SBA) | 3%/yr | No limit | New commercial buildings and structures from Oct 2018 | ❌ N/A |
* Main rate WDA change (18% → 14%) takes effect 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. AIA limit has been £1M since Jan 2016. Always verify current rates with HMRC or a qualified accountant before filing.
Essential figures and rates for UK businesses planning capital expenditure in 2026/27.
Annual Investment Allowance remains at £1,000,000 per year — giving 100% tax relief on qualifying plant & machinery in the year of purchase.
Main rate WDA reduces from 18% to 14% from April 2026. Applies to general plant & machinery, and cars with CO₂ of 50g/km or less.
Special rate remains at 6% per year. Applies to cars with CO₂ over 50g/km, integral features (heating, electrics, lifts) and long-life assets.
100% First Year Allowance for new zero-emission (0g/km) cars extended to 31 March 2027. Full purchase cost deducted from profits in year one.
New 40% First Year Allowance for main-rate plant & machinery from 1 January 2026 — introduced to offset the WDA rate reduction. Does NOT apply to cars.
Main Corporation Tax rate is 25% for profits over £250,000. Small Profits Rate: 19% for profits under £50,000. Marginal relief applies between.
A simple walkthrough of how UK businesses claim capital allowances to reduce their tax bill.
Capital allowances apply to most plant, machinery, equipment, commercial vehicles and business cars. Buildings and land generally do not qualify for CA — only the Structures & Buildings Allowance (SBA) at 3%/yr applies to commercial buildings.
For qualifying plant and machinery (not cars), apply the Annual Investment Allowance at 100% up to £1M. This gives immediate full tax relief in the year of purchase. Any expenditure above £1M then goes into the WDA pool.
Assets not covered by AIA or FYA go into either the main rate pool (14% WDA from April 2026) or the special rate pool (6% WDA). Cars are always pooled separately based on CO₂ emissions — never in the same pool as other assets.
The allowances calculated reduce your taxable profits before Corporation Tax or Income Tax is applied. Keep records of all asset purchases, disposal proceeds and the pool balance at each year-end — HMRC may request these as evidence of your claims.
AIA, WDA and FYA — what each one is, how it works and when to use it for maximum tax relief.
Which capital allowance rate applies to your business car depends on its CO₂ emissions and whether it is new or second-hand.
| Car Type | CO₂ Emissions | Allowance Type | Rate | Tax Relief (£40k Car, 25% CT) |
|---|---|---|---|---|
| New & Unused Electric / Zero-Emission | 0g/km | 100% First Year Allowance | 100% in Year 1 | £10,000 in Year 1 |
| Second-Hand Electric Car | Electric | Main Rate WDA | 14%/yr (from Apr 2026) | £1,400 in Year 1 |
| New or Used — Low Emission (Hybrid/Petrol) | 1–50g/km | Main Rate WDA | 14%/yr (from Apr 2026) | £1,400 in Year 1 |
| New or Used — Standard Petrol / Diesel | Over 50g/km | Special Rate WDA | 6%/yr | £600 in Year 1 |
| ⚠️ Cars do NOT qualify for AIA, 40% FYA, full expensing or super-deduction. Main rate WDA was 18% before April 2026 — now 14%. Example based on £40,000 car, 100% business use, 25% Corporation Tax rate. | ||||
Most errors happen because businesses mix accounting depreciation with HMRC tax relief or put the asset into the wrong pool.
Depreciation belongs in the accounts, not directly in the tax return. For tax, add depreciation back and claim the correct capital allowance instead. This keeps your Corporation Tax or Self Assessment calculation aligned with HMRC rules.
Cars cannot use AIA or the 40% FYA. Always check whether the vehicle is legally a car or a van, then use the CO₂ emissions to choose 100% FYA, 14% main rate WDA or 6% special rate WDA.
Limited companies normally claim allowances on the full cost, but sole traders and partnerships must restrict relief for private use. Keep a mileage log or another reasonable record so the business-use percentage is defensible.
When an asset is sold, the proceeds reduce the pool. If the disposal creates a surplus or closes a single-asset pool, you may need a balancing charge or balancing allowance. This is especially important for cars with private use and assets sold shortly after a large AIA claim.
Further resources for UK businesses claiming capital allowances in 2026.
Search-friendly answers to the questions UK business owners ask most about AIA, WDA, FYA, business cars, vans and the April 2026 rate changes.