by Asim Abbas
11 November 2026 
Capital allowances 2026: AIA, full expensing and the new 14% rate
Capital allowances 2026: AIA, full expensing and the new 14% rate
When your business buys equipment, vans or machinery, you can’t deduct the cost as a normal expense. Instead you claim capital allowances, and the rules changed again in 2026.
- Annual Investment Allowance: 100% on up to £1 million
- Full expensing for companies buying new plant
- Main pool writing-down rate cut to 14% from April 2026
- Cars have their own rules based on CO2
Most small businesses can still write off the full cost in the year of purchase, but the rate for anything not covered has dropped.
This guide explains the allowances available for sole traders and companies in 2026/27.
What are capital allowances?
Capital allowances give tax relief on assets you keep and use in your business, such as computers, tools, machinery, vans, office furniture and some building fixtures. They reduce your taxable profit, just like expenses.
If you use the cash basis as a sole trader, most equipment is simply deducted as an expense when paid for, but cars still go through capital allowances.
Annual Investment Allowance
The AIA gives 100% relief on up to £1 million a year of plant and machinery, including second-hand items. It covers most purchases for most small businesses, and it’s available to sole traders, partnerships and companies. Cars don’t qualify.
Full expensing for companies
Companies can claim 100% first-year relief on new and unused main-rate plant and machinery, with no upper limit, and 50% on special rate assets such as integral features. Full expensing has been made permanent. If you sell the asset later, the sale proceeds are taxable.
Self Assessment tax calculator
See how allowances reduce your bill.
Writing-down allowances
| Pool | Rate |
|---|---|
| Main pool | 14% from April 2026 (previously 18%) |
| Special rate pool | 6% |
| Structures and buildings | 3% straight line |
Where expenditure isn’t covered by the AIA or full expensing, it goes into a pool and you claim a percentage each year on the reducing balance. The cut to 14% applies from 1 April 2026 for companies and 6 April 2026 for income tax, with a hybrid rate for periods spanning the change. A new 40% first-year allowance for main rate assets, including leased assets and purchases by unincorporated businesses, applies to expenditure from January 2026.
A self-employed electrician buys a £28,000 van and £3,000 of tools in 2026/27. Both qualify for the AIA, so the whole £31,000 is deducted from profits. As a higher rate taxpayer paying Class 4 NI at 2%, that saves about £13,020 in tax this year.
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- New zero-emission cars: 100% first-year allowance, currently available until April 2027
- Up to 50g/km CO2: main pool, 14%
- Over 50g/km CO2: special rate pool, 6%
- Private use by a sole trader: allowances reduced for the private share
Vans are treated as plant and machinery, so they qualify for the AIA. Double-cab pick-ups are now treated as cars for capital allowances. For self-employed drivers, see our mileage vs actual costs guide.
Timing your purchases
Relief is given for the period in which you incur the expense. Buying before your year end brings the relief forward a year, but only buy what the business genuinely needs. Hire purchase assets qualify once they are brought into use.
Read HMRC’s guide to capital allowances, see our Corporation Tax rates guide, or ask our tax planning team before a big purchase.
What should I do next?
Date, cost and asset type.
Up to £1 million.
Different rules.
Frequently Asked Questions
What is the Annual Investment Allowance for 2026?
£1 million a year of qualifying plant and machinery.
What is the writing-down allowance from April 2026?
14% for the main pool, down from 18%. The special rate pool stays at 6%.
Can sole traders use full expensing?
No. Full expensing is for companies, but sole traders can use the AIA.
Can I claim capital allowances on a car?
Yes, but the rate depends on CO2 emissions. New zero-emission cars get 100%.
Do I claim capital allowances on the cash basis?
Most equipment is deducted as an expense instead, but cars use capital allowances.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Asim Abbas
I’m Asim Abbas, founder of Wingate Accountants and a Chartered Certified Accountant. I help sole traders, landlords and directors stay on top of their tax with fixed fees and plain-English advice.
