What's the difference between AIA and full expensing?

AIA is available to all businesses with a £1m annual cap and covers both new and second-hand qualifying assets. Full expensing is companies-only, has no cap, but applies only to new and unused main-rate plant and machinery.

Is software a capital allowance?

Software bought outright is usually plant and machinery, qualifying for AIA or full expensing. Software acquired under a subscription (SaaS) is normally a revenue expense and goes through the P&L directly.

Can I claim capital allowances on a building?

Not on the building shell, but you can on integral features within it (lifts, electrical systems, heating, air-conditioning) and certain plant. The Structures and Buildings Allowance gives 3% per year on qualifying construction costs.

What happens if I sell an asset I claimed AIA on?

You add the disposal proceeds back to your capital allowances pool, which can create a balancing charge (extra tax) if proceeds exceed the remaining pool value. Sell at less than pool value and you get a balancing allowance.

Guides

Capital Allowances, AIA and Full Expensing

How UK businesses claim tax relief on plant, machinery and equipment in 2025/26 — Annual Investment Allowance, full expensing, FYAs and writing-down allowances.

3 min read·Updated 10 November 2026

Quick answers

What is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) lets most UK businesses deduct 100% of qualifying plant and machinery purchases up to £1 million per year from taxable profits. It's available to companies, sole traders and partnerships but doesn't cover cars.

What is full expensing?

Full expensing is a 100% first-year capital allowance available to companies (not sole traders) for new and unused main-rate plant and machinery, with no annual cap. Special-rate assets get a 50% first-year allowance under the same rules.

Can I claim capital allowances on a car?

Cars don't qualify for AIA or full expensing. Instead they go into the writing-down pools: 100% first-year allowance for new electric cars (0g/km CO₂), the applicable main rate for cars 1–50g/km, and 6% special rate for cars over 50g/km. Main-pool writing-down allowances changed from 18% to 14% on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Straddling periods use a hybrid rate; the special rate remains 6%. See [HMRC rates and pools](https://www.gov.uk/work-out-capital-allowances/rates-and-pools).

Under traditional accounting, qualifying capital purchases may receive capital allowances rather than an expense deduction. Sole traders and partnerships using cash basis normally deduct qualifying equipment costs as expenses; cars have separate rules. See HMRC capital allowances.

Annual Investment Allowance (AIA)

The headline relief for most businesses.

100% deduction in the year of purchase.
£1 million annual limit per business (or per group of associated companies).
Available to companies, sole traders and partnerships.
Covers most plant and machinery, but NOT cars.

Full expensing

A further 100% first-year allowance specifically for companies buying new and unused main-rate plant and machinery.

No annual cap.
Used as an alternative or addition to AIA.
50% first-year allowance applies to special-rate (long-life, integral features) assets.

Writing-down allowances (WDA)

Used when AIA or full expensing isn't available — typically once you exceed limits or for cars.

Main rate pool: 14% from April 2026; 18% before. Main-pool writing-down allowances changed from 18% to 14% on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Straddling periods use a hybrid rate; the special rate remains 6%. See HMRC rates and pools.
Special rate pool: 6% per year (long-life assets, integral features, cars over 50g/km CO₂).

Cars and CO₂

CO₂ emissions	Allowance
0g/km (electric, new)	100% first-year
1–50g/km	Main-rate WDA, subject to purchase-date rules
Over 50g/km	6% special rate WDA

What counts as plant and machinery?

Tools and equipment.
Computers, servers, software.
Furniture and fittings.
Vans, lorries, trucks (but not company cars).
Integral features in buildings (lifts, electrical systems, heating).

How to claim

Capital allowances are claimed on your CT600 (companies) or SA103 (self-employed). Keep a fixed asset register so you can show what you bought, when, and how it's been depreciated for tax.

This is general guidance for the 2025/26 UK tax year and is not personal tax advice. Always check the latest figures on GOV.UK or speak to a qualified accountant for your situation.

Later changes

A 40% first-year allowance is available for qualifying expenditure from January 2026. HMRC also records a Budget 2026 proposal for a 12% main rate from April 2027, pending Royal Assent; do not treat it as an enacted rate. See HMRC’s rate-change record.

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