What is Capital Allowances? UK Definition 2026/27
Quick Answer
Tax relief on qualifying business assets like equipment, vehicles, and machinery.
Definition of Capital Allowances
Capital allowances let businesses deduct the cost of certain assets from their taxable profits. Unlike revenue expenses which are deducted in full, capital assets are typically written off over time - though the Annual Investment Allowance allows 100% first-year deduction up to £1,000,000.
Capital Allowances — Key Facts for 2026/27
| AIA limit | £1,000,000 |
| Writing Down Allowance | 18% or 6% |
| Full Expensing | 100% for companies |
| First Year Allowance | Various rates |
How Capital Allowances Works — Example
- 1Equipment purchase: £50,000
- 2Using AIA: 100% first year = £50,000 deduction
- 3Corporation tax saving (25%): £12,500
- 4Or self-employed tax saving (40%): £20,000
How Capital Allowances Affects Your Tax
Capital allowances significantly reduce the effective cost of business investments. Full expensing (100% relief for companies) and the generous AIA make the UK competitive for business investment.
Official HMRC Guidance on Capital Allowances
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Capital allowancesFrequently Asked Questions about Capital Allowances
Related Tax Terms
Annual Investment Allowance (AIA)
Tax relief allowing businesses to deduct 100% of qualifying equipment costs up to £1 million.
Writing-Down Allowance
Annual capital allowance claiming a percentage of an asset pool each year.
Full Expensing
100% first-year tax relief for companies on qualifying plant and machinery.
Corporation Tax
Tax paid by UK limited companies on their profits at 19% or 25%.
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.