Capital Allowances Explained: How to Turn Your Business Spending Into Tax Savings (2025/26)
- JSC Accounting Team
- Oct 7
- 2 min read
Most small businesses know they can claim expenses, but many overlook capital allowances, one of the most generous (and least understood) tax reliefs available.
Understanding how they work could save your company thousands each year.
What are capital allowances?
When you buy long-term assets for your business, such as computers, machinery, vehicles, or office furniture, you can’t normally deduct the full cost as an expense straight away. Instead, HMRC lets you claim capital allowances, which spread the cost of those assets over time or, in many cases, allow full deduction immediately.
The Annual Investment Allowance (AIA)
The AIA is the simplest and most common form of capital allowance. It lets you claim 100% of qualifying asset costs (up to £1 million per year) in the same year you buy them. That means if you spend £25,000 on new equipment, you can reduce your taxable profits by the full £25,000 immediately, a potential £6,250 corporation-tax saving at the 25% rate.
Most assets used for business purposes qualify, including:
Equipment, tools, and machinery
Computers and office furniture
Vans and commercial vehicles (not cars)
Other types of capital allowance
If you’ve spent more than the AIA limit, or the asset doesn’t qualify, you can still claim under other categories:
Writing-down allowances (WDAs): typically 18% or 6% per year, depending on the asset type.
First-Year Allowances (FYAs): 100% relief for energy-efficient or low-emission equipment.
Full expensing (introduced 2023): for new plant and machinery, companies can claim 100% immediately, with no upper limit.
Cars and special rules
Cars don’t qualify for the AIA, but you can still claim WDA based on CO₂ emissions:
18% for low-emission cars (under 50 g/km)
6% for higher-emission vehicles
Electric cars can qualify for a 100% First-Year Allowance, making them a great tax-efficient choice.
The simple takeaway
Capital allowances aren’t just for big companies. Every small business that buys equipment can benefit. Keep receipts, record purchase dates, and review large purchases each year to ensure nothing is missed.
Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.
