Capital Allowances Explained: AIA, Full Expensing & Writing Down Allowances

Capital allowances are one of the most valuable, and most commonly under-claimed, reliefs available to UK businesses. Here’s what they are, the main types available, and how they interact.

Types of capital allowances at a glance

There are several types of capital allowances, and which one applies depends on what was bought and how much was spent. The main ones covered below are the Annual Investment Allowance, Full Expensing, Writing Down Allowances, and the Structures and Buildings Allowance, each with its own rate, cap, and qualifying conditions, plus a couple of narrower reliefs for R&D capital spend.

What are capital allowances?

When a business buys equipment, machinery, or certain other assets, standard accounting depreciation isn’t deductible for tax purposes. Capital allowances exist to fill that gap, they give tax relief on qualifying capital spending, letting a business deduct some or all of the cost from its taxable profit.

Without capital allowances, a business buying a £20,000 piece of equipment would get no tax relief on it at all beyond what depreciation (which HMRC ignores) suggests. Capital allowances turn that spending into a genuine deduction against profit, as GOV.UK’s capital allowances overview explains.

To qualify, the asset generally has to be owned and used in the business, purchased and brought into use for the trade, rather than simply held. Revenue expenses like stock, stationery, or day-to-day running costs aren’t capital allowances territory at all, they’re deducted as normal business expenses instead.

What counts as plant and machinery

Plant and machinery is the broadest category of qualifying capital expenditure, and covers far more than factory equipment. It includes tools, computers, office furniture, commercial vehicles, and also fixtures, items fixed to a commercial property such as fitted kitchens, alarm systems, and shelving.

A related category, integral features, covers things like electrical and lighting systems, heating and air conditioning, lifts, and water systems within a commercial property. Integral features don’t qualify for the standard main rate pool, they’re treated as special rate expenditure instead (see Writing Down Allowances below), though they can still qualify for the AIA or Full Expensing up front if the spending falls within those reliefs.

The Annual Investment Allowance (AIA)

The AIA gives 100% relief on qualifying capital spending, up to £1 million per year. It covers most plant and machinery, tools, equipment, computers, office furniture, and commercial vehicles like vans, but it does not cover cars.

For the vast majority of small and medium businesses, spending on equipment falls comfortably within the £1 million cap, meaning the full cost is deducted from profit in the year of purchase. In effect, the AIA works as a 100% first-year allowance for qualifying expenditure incurred within the cap, and it’s by far the most commonly used capital allowance.

Full Expensing

Full Expensing is a separate relief available only to companies (not sole traders or partnerships), giving 100% first-year relief on new, unused main-rate plant and machinery, with no cap at all.

It’s designed to sit alongside the AIA for larger capital investment programmes where spending might exceed the £1 million AIA cap in a year. Like the AIA, it doesn’t cover cars, and it only applies to genuinely new (not second-hand) assets.

Writing Down Allowances (WDAs)

For anything that doesn’t qualify for the AIA or Full Expensing, most commonly cars, or spending above the available caps, relief is instead given through Writing Down Allowances, a percentage of the asset’s value deducted from profit each year, rather than all at once:

The main rate dropped from 18% to 14% from April 2026 (a new 40% first-year allowance was introduced alongside the cut for some qualifying expenditure), so if your accounting period spans the change date, a hybrid rate applies for that year.

Cars typically go into one of these pools depending on their CO2 emissions, lower-emission cars (including many electric vehicles) can qualify for more favourable treatment, while higher-emission cars are treated less generously. See our guide to company car tax for how vehicle choice affects both the business’s allowances and an employee’s Benefit-in-Kind tax.

Structures and Buildings Allowance

The AIA, Full Expensing, and Writing Down Allowances all relate to plant and machinery, not the building itself. For the structure of a commercial property, such as the cost of construction, renovation, or conversion, a separate relief applies: the Structures and Buildings Allowance (SBA).

The SBA is a much slower relief than the others, given as a flat percentage of the qualifying construction cost spread evenly over a fixed number of years, rather than accelerated or claimed in full upfront. It doesn’t cover residential property, and it sits entirely apart from the plant and machinery allowances covered above, fixtures and integral features within the building are still claimed separately under the AIA, Full Expensing, or Writing Down Allowances rules.

Other capital allowances

Two further categories are worth knowing about, even though they apply less often. Research and Development Allowances (RDAs) give 100% first-year relief on capital expenditure used for qualifying R&D activity, such as specialist buildings or equipment. RDAs are separate from R&D tax relief, which covers revenue costs like staff and consumables rather than capital spend.

Historically, a temporary super-deduction offered enhanced relief on qualifying plant and machinery for companies, but that relief ended in March 2023 and no longer applies to current purchases, Full Expensing effectively replaced it from April 2023 onward.

Balancing charges on disposal

Where an asset qualified for a 100% allowance, such as the AIA or Full Expensing, and is later sold, scrapped, or otherwise disposed of, the disposal proceeds (capped at the original cost) are usually added back to taxable profit as a balancing charge. Because full relief was already given on the purchase, this stops a business also getting to keep the sale proceeds tax-free. It’s a common point that gets missed when equipment is replaced or a van is traded in, and it needs to be calculated and included in the tax return for the accounting period in which the disposal happened.

How the three main reliefs interact

In practice, most businesses use a mix:

1. AIA first, for the bulk of qualifying equipment, up to the £1 million cap
2. Full Expensing (companies only), for main-rate plant and machinery spending beyond the AIA cap
3. Writing Down Allowances, for cars, and anything else that falls outside the AIA and Full Expensing

Claiming capital allowances

Capital allowances are not automatic. To claim capital allowances, the spend must be actively identified and claimed on your Self Assessment (sole traders and partnerships) or Corporation Tax return (companies). HMRC doesn’t apply them for you based on your accounts alone, the claim has to identify the qualifying spend and calculate the relief correctly.

To make a claim, you need a clear record of what was bought, when it was brought into use in the business, and what it cost, since this feeds into the capital allowances computation that sits behind the figures on the return. Invoices, purchase dates, and whether an asset is new or second-hand all affect which allowance applies, so keeping this detail organised through the year makes the claim far easier to get right than trying to reconstruct it afterwards.

Because the rules differ between the AIA, Full Expensing, and Writing Down Allowances, and because getting the pool allocation wrong can mean under-claiming relief you’re entitled to, it’s worth having capital spending reviewed properly at year-end. Our Accounts & Corporation Tax service reviews qualifying purchases as part of preparing your accounts and return, so relief isn’t left unclaimed.