Capital Allowances on Plant & Machinery: How to Claim the AIA

What Are Capital Allowances?

When you buy equipment for your business, you generally cannot deduct the full cost as a normal business expense. Instead, HMRC requires you to claim capital allowances, which spread the tax relief across the asset's useful life — or, in many cases, let you claim 100% relief immediately through the Annual Investment Allowance (AIA).

What Counts as Plant and Machinery?

The term sounds industrial, but plant and machinery covers a wide range of business assets. Qualifying items include:

• Computers, laptops, tablets, and phones used for business
• Office furniture, desks, and shelving
• Tools, equipment, and specialist machinery
• Vans and vehicles (with some restrictions — see below)
• CCTV, security systems, and fire alarms
• Solar panels and other integral building features in certain cases

Assets must be used wholly or partly for business purposes. If there is personal use — for example, a laptop also used at home — HMRC will only allow a proportionate deduction based on business use.

What Does NOT Qualify?

Not everything you spend money on counts as plant and machinery. The following are excluded:

• Land and most buildings (though some fixtures within buildings do qualify)
• Assets leased or rented to others under most operating leases
• Cars (these follow separate rules and cannot use the AIA)
• Items bought primarily for personal use

Cars are a key exception. They qualify for capital allowances, but through a separate pool with rates based on CO2 emissions — not through the AIA.

The Annual Investment Allowance Explained

The AIA allows businesses to deduct 100% of the cost of qualifying plant and machinery in the year of purchase, rather than writing it down over several years. As of the 2026–27 tax year, the AIA limit remains £1,000,000 per year — more than enough for the vast majority of sole traders, freelancers, and small limited companies.

Both sole traders and limited companies can claim the AIA. For sole traders, it reduces your taxable profit on your Self Assessment return. For limited companies, it reduces your Corporation Tax liability.

How to Claim the AIA Correctly

Getting the timing right matters. The AIA applies to assets purchased and in use during the accounting period you are claiming for. Keep these points in mind:

• Keep all receipts and invoices. HMRC may ask for evidence that the asset exists and was used in the business.
• Record the purchase date accurately. An asset ordered in one tax year but delivered in the next falls into the later year.
• Apportion for personal use. If an asset is partly personal, reduce the claim by the personal-use percentage before entering it on your return.
• Sole traders: Claim on the SA103 (Self Employment) supplementary pages of your Self Assessment return under the capital allowances section.
• Limited companies: Include capital allowances in your CT600 Corporation Tax return, supported by your detailed accounts.

What Happens If You Spend More Than £1 Million?

If your capital expenditure exceeds the AIA limit — unlikely for most small businesses — any excess goes into the main pool at a writing-down allowance of 18% per year, or the special rate pool at 6% per year for long-life assets and certain building features.

A Practical Example

Sarah runs a freelance video production business as a sole trader. In the 2025–26 tax year she bought a camera for £3,200, editing software for £800, and a desk for £450. Total spend: £4,450. All items are used 100% for business. She claims the full £4,450 under the AIA, reducing her taxable profit by that amount and saving her Income Tax and Class 4 National Insurance on the whole sum.

Final Checklist

• Confirm the asset is plant and machinery — not land, buildings, or a car
• Check the asset is in use during the correct accounting period
• Apportion any personal use element before claiming
• Claim on the correct section of your tax return
• Retain purchase records for at least five years

Capital allowances are one of the most valuable reliefs available to UK businesses. Used correctly, the AIA can significantly reduce your tax bill in the year you invest — so it is worth getting right every time.