Capital Allowances | Business At
Capital allowances allow UK businesses to claim tax relief on investments in plant and machinery, reducing taxable profits.
This guide covers the latest changes for 2026, including new allowances and compliance tips to help you save on tax.
What Are Capital Allowances and How Do They Work?
Capital allowances are a form of tax relief for spending on business assets like equipment and vehicles.
They let you deduct a portion of the cost from your profits before tax is calculated.
This can significantly lower your tax bill and support business growth.
The New 40% First-Year Allowance for 2026
A new 40% first-year allowance is effective from 1 January 2026 for main-rate plant and machinery.
This allows upfront tax relief on investment costs, boosting cash flow for businesses.
It supports investment and growth by reducing the immediate tax burden.
Full Expensing and Annual Investment Allowance
Full expensing offers a 100% first-year allowance for main rate plant and machinery until 31 March 2026.
A 50% allowance is available for special rate expenditure during this period.
The Annual Investment Allowance is permanently set at £1 million, providing flexibility for larger investments.
Reduced Writing-Down Allowances from April 2026
The main rate writing-down allowance is reduced from 18% to 14%, effective from 1 April 2026 for corporations.
For income tax businesses, this change applies from 6 April 2026.
The special rate pool allowance remains at 6%, ensuring some relief continues for specific assets.
Avoiding Common Capital Allowance Mistakes
HMRC updates guidance regularly, such as changes for double cab pick-ups, to clarify compliance.
Ensure you claim allowances correctly to avoid audits or errors.
Common pitfalls include misclassifying assets or missing deadlines for new allowances.
Stay informed with the latest HMRC manuals to maintain accuracy.
Ready to Optimise Your Capital Allowances?
Maximise your tax relief with expert guidance on capital allowances and business investment.
Book a free consultation to explore how our automation-focused approach can save you time and money.
Sources:
- Business investment boosted with new tax relief taking effect today - GOV.UK
- Tax relief statistics (January 2026) - GOV.UK
- Updates - Capital Allowances Manual - HMRC internal manual - GOV.UK
- Capital allowances: full expensing for companies investing in plant and machinery from 1 April 2023 until 31 March 2026 - GOV.UK
- Capital allowances: new first-year allowance and reducing main rate writing-down allowances - GOV.UK
