Buying Equipment? HMRC Will Help Pay for It — If You Claim It Right
Buy a laptop, a van or a set of shop fittings and HMRC does not let you deduct the cost the way you deduct stationery. Equipment that lasts more than a year is capital spending, and the tax relief for it comes through a separate system: capital allowances. Get it right and a £20,000 equipment purchase can cut your tax bill by £5,000 in the same year. Get it wrong and the same relief trickles in at a few hundred pounds a year — or is lost entirely.
The rules changed twice in a year. From April 2026 the main writing-down allowance rate fell from 18% to 14%, softened by a brand-new 40% first-year allowance. Then the Autumn Budget on 28 October 2026 announced a further cut to 12% from April 2027, with the first-year allowance rising to 50% from January 2027. Most guides still describe the old 18% world. This guide explains the system as it works in 2026/27, shows the maths, and tells you when to buy now and when to wait until January.
What Are Capital Allowances, in Plain English?
Day-to-day running costs — rent, software, insurance — are deducted from profit in the year you spend the money. Capital spending is different: HMRC treats an asset you will keep and use in the business as an investment, not a cost, so it does not automatically reduce your taxable profit.
Capital allowances are the reliefs that let you write some or all of that cost off against tax — either at once or spread over several years. They apply to “plant and machinery”: computers, tools, machinery, office furniture, commercial vehicles, and integral features of buildings such as heating systems. They do not apply to the structure of a building itself, to stock you buy to sell, or to assets you lease rather than own.
The Five Routes to Relief — and Which to Use First
| Route | Relief | Who can use it | Key limit |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% in year one | All businesses | £1 million per year; not cars |
| Full expensing | 100% in year one | Companies only | New and unused main rate assets; no cap |
| New 40% first-year allowance | 40% in year one, rest pooled | All businesses | New assets only; not cars or second-hand |
| Writing-down allowances (WDA) | 14% a year (main pool), 6% (special rate) | All businesses | Reducing balance; relief spread over years |
| Structures and Buildings Allowance | 3% a year, straight-line | All businesses | Qualifying buildings only; about 33 years |
Use them in this order: the AIA first, then full expensing if you are a company spending over £1 million, then the new 40% first-year allowance, and let the rest fall into the pools. The AIA alone covers almost everything a small business buys in a year, so the WDA cut only bites once your AIA is used up, or on unrelieved balances from older purchases.
Annual Investment Allowance: 100% of qualifying plant and machinery in the year you buy it, up to £1 million a year, for companies, sole traders and partnerships alike, new or second-hand. It never applies to cars.
Full expensing: 100% first-year relief for companies on new and unused main rate plant and machinery, with no upper limit, and 50% on special rate assets. Sole traders and partnerships cannot use it, and it does not cover second-hand assets.
The new 40% first-year allowance, available for expenditure incurred from 1 January 2026, fills the gap full expensing leaves: it is open to unincorporated businesses and covers assets bought for leasing. The remaining 60% goes into the main pool at 14%. It excludes cars, second-hand assets and assets for leasing overseas.
Writing-down allowances are the slow route. Anything not fully relieved goes into a pool and is relieved gradually: the main pool at 14% a year, the special rate pool (integral building features, long-life assets, high-emission cars) at 6%. No relief is lost — it is simply spread over more years.
What Changed in 2026/27 — and What Is Coming in 2027
| 2025/26 | 2026/27 | 2027/28 (announced) | |
|---|---|---|---|
| Main pool WDA | 18% | 14% | 12% from 1 Apr 2027 (CT) / 6 Apr 2027 (IT) |
| Main rate first-year allowance | None | 40% from 1 Jan 2026 | 50% from 1 Jan 2027 |
| Special rate pool WDA | 6% | 6% | 6% (unchanged) |
| Annual Investment Allowance | £1 million | £1 million | £1 million |
| Full expensing (companies) | 100% | 100% | 100% (unchanged) |
The 2027 changes were announced in the Autumn Budget on 28 October 2026 and still need legislation in the Finance Bill, so treat the dates as announced rather than enacted. The pattern is deliberate: the Government is cutting the slow, automatic relief while raising the upfront relief for new investment.
Worked Example: A £20,000 Workshop Fit-Out
Say your limited company buys £20,000 of new workshop equipment in 2026/27 with its full AIA available. You claim the whole £20,000 under the AIA: £3,800 off your Corporation Tax bill at the 19% small profits rate, or £5,000 at the 25% main rate. (Our corporation tax guide explains the bands for profits between £50,000 and £250,000.)
Now suppose the AIA is already used up, so the new 40% first-year allowance applies instead. You claim 40% (£8,000) in year one, and the remaining £12,000 goes into the main pool, where 14% (£1,680) is claimable in the same year. Total year-one relief: £9,680, worth £2,420 at 25%. Under the old rules the same asset would have gone straight into the pool at 18% — just £3,600 of relief in year one, worth £900. The new allowance more than doubles year-one relief when the AIA is exhausted.
The 2027 changes also create a timing decision. From 1 January 2027 the first-year allowance rises to 50%, so on a £30,000 purchase of new qualifying equipment, buying on 2 January 2027 instead of 31 December 2026 gives £15,000 of year-one relief instead of £12,000 — an extra £3,000 of deductions, worth £750 at 25% or £570 at 19%. It only matters if the AIA is already used up — inside your £1 million AIA, you get 100% relief whenever you buy.
Sole Traders: The Cash Basis Changes Everything
If you are a sole trader or in a partnership and you use the cash basis — the default for most small unincorporated businesses since 2024/25 — you only need to claim capital allowances on business cars. The cost of most other plant and machinery is simply deducted as an expense when you pay for it, so the WDA cut barely touches you: your £2,000 laptop is already fully deductible in the year you buy it.
The system still matters to you in three situations: you buy a car for the business, you elect to use the accruals basis, or you buy a building and need the Structures and Buildings Allowance. If none of those apply, just keep good records and claim the expense. Our business expenses guide explains what counts as allowable.
Cars Have Their Own Rules
| Car | Relief |
|---|---|
| New and unused zero-emission car | 100% first-year allowance (extended to 31 Mar 2027 for Corporation Tax, 5 Apr 2027 for Income Tax) |
| CO2 emissions of 50g/km or below | Main pool, WDA at 14% |
| CO2 emissions above 50g/km | Special rate pool, WDA at 6% |
The AIA never applies to cars, and neither does the new 40% first-year allowance. If you claim simplified mileage expenses instead of actual costs, you cannot also claim capital allowances on the same vehicle. Our company car tax guide covers the benefit-in-kind side.
Common Mistakes That Cost Small Businesses Money
Expecting the AIA on a car. It never applies. A £25,000 car goes into a pool at 14% or 6% — unless it is a new zero-emission car.
Claiming full expensing as a sole trader. It is companies only. Unincorporated businesses should use the AIA, or the new 40% first-year allowance where the AIA is used up.
Buying second-hand and expecting a first-year allowance. Full expensing and the 40% allowance both require new and unused assets.
Forgetting the pool balance. Equipment bought years ago still sits in your pool, generating a small WDA each year. Ignore it and you under-claim every year.
How to Claim, and What Records to Keep
Companies claim on the Company Tax Return (CT600); sole traders and partnerships claim on the Self Assessment return. Your accountant or software handles the pooling, but the claim is only as good as your records: keep the invoice, the purchase date, whether the asset was new or second-hand, and a running total of your AIA usage. Our record-keeping guide sets out what to keep and for how long.
Frequently Asked Questions
Do capital allowances apply to everything my business buys?
No — only to plant and machinery you keep and use in the business. They do not apply to stock, to the building itself, to leased assets (with narrow exceptions), or to items used only for entertainment.
My annual equipment spend is under £10,000. Does any of this matter to me?
Probably not much. As a company, the AIA gives you 100% relief on everything you buy; as a sole trader on the cash basis, the cost is deductible as an expense anyway. The changes matter most to businesses with large or lumpy capital spending, or with old pool balances.
I bought equipment before April 2026. Does the rate cut affect me?
Only on the unrelieved balance. What you already claimed at 18% stays claimed; the rest is relieved at 14% from April 2026 (and 12% from April 2027). The total relief is the same — it just arrives more slowly.
The Bottom Line
For most small businesses in 2026/27, capital allowances are good news disguised as a rate cut. The AIA still gives 100% relief on your first £1 million of spending, and the new 40% first-year allowance covers the cases the AIA misses, including for sole traders and partnerships. From January 2027 that allowance rises to 50%, so if you are planning a large purchase of new equipment and your AIA is used up, January is the month to aim for. Check which route applies before you buy and keep the invoice.
