UK Capital Allowances Calculator

Turning business kit into a tax deduction

When a business buys equipment, you cannot simply deduct the whole cost as an expense the way you would with rent or wages, because it is capital spending. Instead you claim capital allowances, the tax system's version of depreciation. The headline relief is the Annual Investment Allowance, which lets a business deduct 100 percent of qualifying plant and machinery in the year of purchase, up to a generous £1 million a year. This calculator takes your capital spend and your marginal tax rate, caps the spend at the £1 million AIA limit, and shows the resulting year-one tax saving.

The £1 million cap is so high that the vast majority of small and medium businesses get full first-year relief on everything they buy. The tool is aimed at sole traders, partnerships and company directors who want a quick read on what a planned purchase of vans, machinery, computers or commercial fit-out will save them in tax this year.

Buying £50,000 of equipment in a 25 percent company

Take the defaults: £50,000 of qualifying spend and a 25 percent rate, the main rate of corporation tax. The whole £50,000 sits well under the £1 million AIA limit, so it is deducted in full this year.

The chart frames it simply: a £50,000 outlay produces a £12,500 reduction in this year's tax bill, so the true post-tax cost of the kit is £37,500.

AIA, Full Expensing and the pools

There is more than one route to first-year relief. The AIA at £1 million applies to both unincorporated businesses and companies, on most plant and machinery. Full Expensing, by contrast, is available to companies only, gives 100 percent first-year relief with no upper limit, but excludes cars, second-hand assets and items bought for leasing. For most owner-managed companies the AIA already covers their spend, so Full Expensing only matters once annual investment runs past £1 million. Anything not relieved in year one falls into a pool and attracts the Writing Down Allowance, 18 percent a year on the reducing balance for the main pool and 6 percent for the special rate pool, which holds items like integral building features and most cars.

The car exception that catches people out

The single most common mistake is assuming a company car qualifies for the AIA. It does not. Cars are specifically excluded from both the AIA and Full Expensing, and instead go into a pool for writing down allowances at a rate that depends on CO2 emissions. The reward is concentrated at the clean end: a brand new, zero-emission electric car bought by a business currently qualifies for a 100 percent first-year allowance, so the whole cost can be written off in year one, while a higher-emitting petrol or diesel car drips relief at just 6 percent a year. Vans, lorries and pickups are treated as plant rather than cars, so they do qualify for the AIA, which is a useful distinction when choosing a vehicle.

Does the timing of the purchase matter for the claim?

It matters a great deal. The allowance is given for the accounting period in which you incur the expenditure, broadly when the obligation to pay becomes unconditional, not necessarily when you pay. Buying a £50,000 machine on the last day of your accounting year still gives the full year-one deduction for that year. Conversely, slipping a purchase a day into the next period defers the whole relief by a year. If you are near a year end and the cash and need are there, bringing a purchase forward can pull a meaningful tax saving into the current year.

What if I buy the asset on finance or hire purchase?

You can usually still claim the full allowance on the cash price of an asset bought under hire purchase, provided it is in use in the business, even though you are paying in instalments. The interest element of the finance is treated separately as a deductible business expense over the agreement. A true lease where you never own the asset works differently: there is no capital allowance because you do not own it, and the lease rentals are deducted as an expense instead.