Claiming Capital Allowances on Equipment for Your Limited Company

Yes, your UK limited company can claim capital allowances on qualifying equipment, which directly reduces your taxable profits and lowers your Corporation Tax liability. By deducting the cost of capital assets from your pre-tax income, you ensure your business is not overtaxed on necessary investments.

Key takeaways on capital allowances for equipment

• AIA Limit: You can claim 100% tax relief on qualifying equipment purchases up to a permanent limit of £1 million per year.
• Full Expensing: Limited companies can benefit from an uncapped 100% first-year allowance for brand-new, unused main-rate items.
• 40% FYA: From 1 January 2026, a new 40% First-Year Allowance applies to qualifying leased plant and machinery.
• WDA Reduction: The main pool Writing-Down Allowance rate decreases from 18% to 14% starting 1 April 2026.
• Corporation Tax Savings: A profitable company paying the 25% main rate saves £12,500 in tax for every £50,000 of fully relieved equipment assets physicalised in the accounts.

Can my limited company deduct equipment purchases from tax?

Yes, your limited company can deduct the cost of qualifying equipment purchases from its taxable profits by claiming capital allowances. These allowances acts as a tax-approved alternative to commercial depreciation, which is not an allowable deduction for Corporation Tax purposes.

When your company purchases qualifying assets, you do not deduct the capital cost directly as an everyday business expense on your profit and loss account. Instead, you claim these costs through your annual Corporation Tax return (Form CT600) under the capital allowances regime, legalised under the Capital Allowances Act 2001.

What equipment qualifies for capital allowances?

Qualifying items are capital assets used for business purposes that fall under the legal definition of 'plant and machinery'. This broad category includes commercial vehicles, machinery, office furniture, computer hardware, specialist tools, and security systems.

To qualify for relief, your limited company must own the asset, and the asset must be used for trade purposes. Under UK tax law, capital allowances are explicitly barred for land, residential buildings, and assets purchased primarily for personal or non-business use.

What capital allowances are available to limited companies?

Limited companies have several distinct capital allowance mechanisms available to claim depending on the asset type and purchase date. This table outlines the primary tax relief options available for company equipment.

How does the Annual Investment Allowance (AIA) work?

Under Section 51A of the Capital Allowances Act 2001, the Annual Investment Allowance provides 100% tax relief on qualifying plant and machinery in the year of purchase. The AIA limit is permanently set at £1 million per year, which covers the entire capital expenditure of most small-to-medium businesses.

Unlike some first-year allowances, AIA can be claimed on both brand-new and second-hand equipment. However, company cars of any type are legally excluded from the AIA and must be processed under separate car-specific capital allowance pools.

What is Full Expensing and who can claim it?

Full Expensing is a permanent 100% capital allowance available exclusively to businesses subject to Corporation Tax, meaning individuals and partnerships cannot claim it. It allows companies to deduct 100% of the cost of brand-new, unused main-rate plant and machinery from profits without any financial cap.

This relief was made permanent in the Finance Act 2024 to encourage large-scale commercial investment. Because it is uncapped, it acts as the primary vehicle for companies spending more than the £1 million AIA limit on brand-new machinery.

How does the new 40% First-Year Allowance work?

Introduced in the Autumn Budget 2025, a new 40% First-Year Allowance takes effect on 1 January 2026 for qualifying plant and machinery. Crucially, this relief applies to qualifying leased assets, which were previously excluded under older full expensing rules.

Under this rule, you claim 40% of the asset's cost in the first year of ownership. The remaining 60% of the asset's value is directed to your main writing-down pool to be depreciated over subsequent tax years.

What happens to assets under the Writing-Down Allowance?

Writing-Down Allowances are used to claim tax relief gradually over several years for expenditure that does not qualify for, or exceeds, the AIA or first-year allowances. You apply the percentage rate to the reducing balance of your company's general asset pool each tax year.

Starting 1 April 2026, the main pool Writing-Down Allowance rate will drop from 18% to 14% per year. The special-rate pool, which is reserved for long-life assets and integral building features, continues to write down at a rate of 6% annually.

What special-rate allowances apply to integral features?

Special-rate assets include integral building systems such as air conditioning, electrical systems, lifts, and thermal insulation. For these assets, companies can claim a 50% first-year allowance in the first year.

Any remaining balance on these special-rate purchases after the initial 50% claim is transferred directly into your company's special-rate pool. This remaining balance then depreciates at the standard special-rate pool writing-down allowance of 6% per year on a reducing-balance basis.

What rules must limited companies follow when claiming?

Claiming capital allowances requires strict adherence to corporate tax regulations. Your limited company must follow these primary compliance rules when recording capital expenditure.

1. Do not defer first-year allowances: You must claim AIA and first-year allowances in the Corporation Tax return for the exact accounting period in which you incurred the expenditure.
2. Apportion mixed-use assets: If an asset is used for both commercial and personal purposes, you must restrict the capital allowance claim to the business-use percentage.
3. Calculate balancing charges: When you sell an asset on which you previously claimed 100% relief, the disposal proceeds are treated as taxable income via a balancing charge.
4. Share the AIA in groups: Connected or associated company groups must share a single £1 million annual AIA allocation between them.
5. Apply carbon emission rules: Passenger motor cars do not qualify for general capital allowance rates and must instead follow strict CO2 emission banding rules.

How much Corporation Tax does a £50,000 purchase save?

If your limited company purchases £50,000 worth of eligible office or IT equipment, you can deduct the entire £50,000 from your taxable profits using the Annual Investment Allowance. This reduces your net taxable profit by the full purchase amount in that accounting year.

For a company paying the main 25% Corporation Tax rate, reducing your taxable profit by £50,000 translates to a direct tax saving of £12,500. Under the marginal relief or small profits tax rate of 19%, the same £50,000 purchase would save your company £9,500 in tax.