Capital Allowances for Self-Employed: How to Claim
Claim capital allowances on equipment, vehicles, and tools as self-employed in the UK. Covers AIA, writing-down allowances, and 2026/27 rates.
Key Actions
- Check whether your recent purchases qualify as capital expenditure or revenue expenses
- Use the Annual Investment Allowance to deduct the full cost of qualifying equipment
- Review the new 14% writing-down allowance rate for assets bought from April 2026
- Consider timing larger purchases before or after the tax year boundary
- Keep records of purchase dates, costs, and business-use percentages for all capital items
Capital allowances for the self-employed let you write off the cost of equipment, tools, and vehicles against your taxable profits. Unlike day-to-day expenses such as stationery or phone bills, these long-lasting assets are deducted through a specific set of tax reliefs rather than as a lump-sum expense.
This guide explains how to claim capital allowances as a sole trader in the UK, the different types available, and the key rate changes taking effect from April 2026.
What Are Capital Allowances?
Capital allowances are tax deductions that let you write off the cost of business assets with a useful life beyond one year. While day-to-day running costs (phone bills, office supplies, travel) are deducted as revenue expenses, capital items — such as computers, machinery, and vehicles — are deducted through capital allowances instead.
The amount you can deduct depends on the type of allowance and the item purchased. In many cases, you can deduct the full cost in the year of purchase.
Important: If you use the cash basis of accounting (the default for most sole traders), you can deduct most business purchases directly as expenses when you pay for them. Capital allowances under cash basis are only needed for cars. This guide is most relevant if you use traditional accruals accounting or need to claim for a car.
What Equipment and Assets Qualify?
Capital allowances cover items classed as plant and machinery, which includes most tangible assets used in your business:
- Computers, laptops, tablets, and phones
- Tools and equipment
- Office furniture (desks, chairs, shelving)
- Machinery and workshop equipment
- Vans, lorries, and cars (cars have special rules — see below)
- Integral building features (heating systems, electrical systems, lifts)
- Fire alarm and security systems
You cannot claim capital allowances on:
- Land and buildings themselves (though integral features qualify)
- Items bought for personal use
- Items you owned before using them in your business (unless you can establish their market value at the date business use began)
The Annual Investment Allowance (AIA)
The Annual Investment Allowance is the main relief most self-employed people use. It lets you deduct the full cost of qualifying plant and machinery in the year you buy it, up to a limit.
| Detail | Amount |
|---|---|
| AIA limit (2025/26 and 2026/27) | £1,000,000 per year |
| Covers | Most plant and machinery (not cars) |
| Rate | 100% — deduct the full purchase price |
For most sole traders, the £1,000,000 limit is more than enough to cover all equipment purchases. If you buy a £2,000 laptop, a £500 desk, and £3,000 of tools in a year, you can deduct the full £5,500 through AIA.
Example: Sarah is a self-employed graphic designer using accruals accounting. In the 2025/26 tax year, she buys:
- MacBook Pro: £2,400
- Monitor and peripherals: £800
- Ergonomic desk and chair: £1,200
Total capital expenditure: £4,400
Using AIA, Sarah deducts the full £4,400 from her taxable profits in the 2025/26 tax year. At the basic rate of 20%, this saves her £880 in Income Tax.
Key points about AIA:
- Available to sole traders and partnerships (where all partners are individuals)
- Covers new and second-hand items
- Does not cover cars — they have their own rules
- If your accounting period is shorter than 12 months, the AIA limit is proportionally reduced
- If you're VAT-registered, claim on the net (ex-VAT) cost; if not, claim on the gross cost
Writing-Down Allowances (WDA)
Writing-down allowances apply to items that don't qualify for AIA or where spending exceeds the AIA limit. Instead of deducting the full cost at once, you deduct a percentage of the remaining value each year.
WDA Rates: 2025/26 vs 2026/27
| Pool | Rate to 5 April 2026 | Rate from 6 April 2026 |
|---|---|---|
| Main pool | 18% | 14% (reduced) |
| Special rate pool | 6% | 6% (unchanged) |
The main pool rate reduction from 18% to 14% takes effect on 6 April 2026 for Income Tax purposes. This means self-employed people filing for 2026/27 onwards will see slower tax relief on items in the main pool.
How WDA Works in Practice
Example: James buys a piece of equipment for £10,000 that goes into the main pool (after using his AIA on other items). Here's how the deduction works over three years at the new 14% rate:
| Year | Pool value at start | WDA claimed (14%) | Pool value at end |
|---|---|---|---|
| Year 1 | £10,000 | £1,400 | £8,600 |
| Year 2 | £8,600 | £1,204 | £7,396 |
| Year 3 | £7,396 | £1,035 | £6,361 |
After three years, James has deducted £3,639 of the £10,000 cost. The remaining balance carries forward and continues to be written down at 14% each year.
Small pools allowance: If the balance in a pool drops to £1,000 or less, you can write off the entire remaining amount in one go rather than continuing to claim small percentages.
What Goes in Each Pool?
Main pool (14% from April 2026): Most plant and machinery, plus cars with CO2 emissions of 50g/km or less.
Special rate pool (6%): Integral building features (heating, ventilation, electrical systems, lifts), long-life assets with a useful life of 25 years or more, thermal insulation, and cars with CO2 emissions above 50g/km.
40% First-Year Allowance for Sole Traders (2026)
The 40% first-year allowance is a new relief available from 1 January 2026 for qualifying expenditure on main-rate plant and machinery. This is particularly relevant for self-employed people because — unlike full expensing — it is available to unincorporated businesses (sole traders and partnerships).
| Detail | Information |
|---|---|
| Rate | 40% of cost in the first year |
| Available from | 1 January 2026 |
| Who can claim | Sole traders, partnerships, and companies |
| Qualifying items | New, unused main-rate plant and machinery |
| Does not cover | Second-hand assets, cars, items for overseas leasing |
The remaining 60% of the cost enters the writing-down allowance pool for future years.
When would you use this? In practice, most sole traders will use AIA first (which gives 100% relief). The 40% FYA is mainly useful if your capital spending exceeds the £1,000,000 AIA limit or if you want to allocate your AIA to other items.
Capital Allowances for Cars
Cars have their own set of rules, separate from other plant and machinery. They cannot use AIA, full expensing, or the new 40% first-year allowance.
Car Allowance Rates
| CO2 emissions | Allowance | Pool |
|---|---|---|
| 0g/km (new, unused electric) | 100% first-year allowance | Full deduction in year 1 |
| 0g/km (second-hand electric) | 14% WDA (from April 2026) | Main pool |
| 1–50g/km | 14% WDA (from April 2026) | Main pool |
| 51g/km or more | 6% WDA | Special rate pool |
The 100% first-year allowance for new zero-emission cars is available until 5 April 2027 for Income Tax purposes.
Mixed Personal and Business Use
If you use your car for both business and personal journeys, you need to calculate the business-use percentage. The car goes into a single asset pool — separate from the main pool — and you only claim the business-use proportion of the allowance.
Example: Tom buys a second-hand electric car for £18,000. He uses it 60% for business. The car goes into a single asset pool and is written down at the main pool rate of 14%.
- Year 1 WDA: £18,000 × 14% = £2,520
- Business-use claim: £2,520 × 60% = £1,512
Important: If you claim capital allowances on a vehicle, you cannot later switch to simplified mileage rates for that vehicle. It's worth deciding which method to use when you first start using the vehicle for business, as HMRC expects you to stick with it.
Capital Allowances vs Revenue Expenses
| Feature | Revenue expenses | Capital allowances |
|---|---|---|
| What they cover | Day-to-day running costs | Long-lasting assets |
| Examples | Phone bills, travel, stationery | Equipment, computers, vehicles |
| When deducted | Fully in the year incurred | Varies — AIA gives 100%, WDA spreads over years |
| Where on tax return | Self-employment pages (expenses section) | Self-employment pages (capital allowances section) |
| Cash basis | Deducted when paid | Only needed for cars |
If you're unsure whether a purchase is a revenue expense or capital, consider its useful life. A printer cartridge (consumed quickly) is an expense. The printer itself (lasts several years) is a capital item.
How to Claim Capital Allowances on Your Tax Return
Capital allowances are claimed through your Self Assessment tax return on the self-employment supplementary pages (SA103S or SA103F). Follow these steps:
- Identify which assets you purchased during the tax year and their costs
- Determine the correct allowance type for each asset (AIA, WDA, or first-year allowance)
- Calculate any balancing adjustments for assets sold or disposed of during the year
- Enter the totals in the capital allowances section of your SA103S or SA103F form
- Submit your Self Assessment return by 31 January (online) following the end of the tax year
HMRC's Helpsheet HS252 provides detailed guidance for completing the capital allowances section each tax year.
Balancing charges: If you sell or stop using a capital item, you may need to add a balancing charge to your profits (if you received more than the written-down value) or claim a balancing allowance (if you received less).
Capital Allowances FAQ
Can I claim capital allowances on the cash basis?
If you use the cash basis (the default for most sole traders), you can deduct most business purchases directly as expenses when you pay for them — you don't need to use capital allowances. The exception is cars, which still require capital allowances even on the cash basis.
What happens if I sell equipment I claimed capital allowances on?
When you sell or dispose of an asset, you compare the sale proceeds to the remaining pool value. If you sell for more than the pool value, you add a balancing charge to your profits. If you sell for less, you claim a balancing allowance. This ensures you get relief for the actual net cost over the asset's life.
Should I buy equipment before or after 6 April 2026?
If you're using AIA (which most sole traders do), the timing doesn't matter — you get 100% relief either way. The WDA rate change from 18% to 14% only affects items that go into the writing-down pool, which typically happens when spending exceeds the £1,000,000 AIA limit or for cars.
Is full expensing available to self-employed people?
No. Full expensing (100% deduction for qualifying main-rate assets) is only available to companies, not sole traders or partnerships. Self-employed people use AIA instead, which gives the same 100% relief up to the £1,000,000 annual limit. The new 40% first-year allowance (from January 2026) was introduced partly to address this gap.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.
Official Sources
- Capital allowances - GOV.UK
- Annual Investment Allowance - GOV.UK
- First-year allowances - GOV.UK
- Writing-down allowances - GOV.UK
- Business cars and capital allowances - GOV.UK
- HS252: Capital allowances and balancing charges - GOV.UK