Capital allowances let you deduct the cost of business equipment and assets from your taxable profit. This guide explains how they work, including the Annual Investment Allowance.
Published July 2026 · Updated July 2026
When you buy equipment for the business, you usually can't deduct the whole cost as a normal expense. Instead you claim capital allowances, the tax system's way of spreading or granting relief for the cost of assets you keep and use.
The Annual Investment Allowance (AIA) lets most businesses deduct 100% of the cost of qualifying equipment in the year of purchase, up to a generous annual limit. There are other allowances for cars and larger or special assets.
They serve a similar purpose but are different: depreciation is an accounting figure; capital allowances are the tax relief HMRC allows, calculated by its own rules.
Yes, but cars have their own rules based on CO2 emissions rather than the standard AIA.
Source: GOV.UK ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.