Capital Allowances for UK Company Directors: The AIA, Full Expensing, and the WDA Cut You Need to Know About
Capital Allowances for UK Company Directors: The AIA, Full Expensing, and the WDA Cut You Need to Know About
If your limited company has ever bought a laptop, a van, tools, machinery, or office furniture, you've bumped into capital allowances — even if nobody called them that. They're the mechanism that lets you turn business spending on equipment into a reduction in your Corporation Tax bill.
Most directors know the broad idea ("buying kit is tax deductible") but not the mechanics, and the mechanics changed this year. From April 2026, one of the three main allowances got noticeably less generous. Here's how the whole system fits together, and what's actually different now.
Why "capital" spending is treated differently
Day-to-day running costs — stationery, software subscriptions, insurance — get deducted from profit in the year you spend the money, no special rules needed.
Capital spending is different. HMRC treats the purchase of an asset that will last more than a year (a van, a laptop, a CNC machine, shop fittings) as an investment rather than a cost, so it doesn't automatically reduce your taxable profit. Instead, capital allowances are the specific reliefs that let you write some or all of that cost off against tax — either all at once or spread over several years.
There are three routes a company typically uses, and they're not mutually exclusive.
Route 1: The Annual Investment Allowance (AIA)
The AIA is the one most small and medium companies rely on day to day. It lets you deduct 100% of the cost of qualifying plant and machinery from your profits in the year you buy it, up to an annual limit of £1 million. That limit has been in place since January 2019 and was made permanent, so it isn't a temporary Budget measure you need to watch expire.
What counts as "plant and machinery" is broader than it sounds — it covers most business equipment: computers, tools, machinery, office furniture, commercial vehicles (vans, lorries), and integral building features like heating and electrical systems. It generally excludes cars (which have their own rules based on CO2 emissions) and the structure of buildings themselves.
For the overwhelming majority of small companies, annual capital spending sits well under £1 million, so in practice the AIA gives an instant, full deduction on almost everything you buy.
Route 2: Full expensing
Full expensing is a separate, permanent relief introduced for companies (not sole traders or partnerships) that also gives 100% first-year relief on qualifying new and unused main pool plant and machinery — but with no upper limit. It was announced as a temporary measure and then made permanent from the 2023 Autumn Statement, so there's no expiry date to track.
In practice, most companies won't need to think about full expensing separately from the AIA, because the £1 million AIA limit already covers the vast majority of purchases. Full expensing matters mainly if:
you're spending more than £1 million a year on qualifying assets, or
you've already used up your AIA for the year on something else and still have main pool spending left to relieve.
One catch worth knowing: full expensing only applies to new and unused assets. Buy a second-hand van or refurbished machinery, and you're back to relying on the AIA (which does cover used assets) or the standard writing down allowance.
Route 3: Writing down allowances (WDA) — and the change from April 2026
If an asset doesn't get full relief through the AIA or full expensing — because you've used up your allowance, or the asset doesn't qualify for those routes — it goes into a "pool" and gets relieved gradually through writing down allowances instead, at a fixed percentage of its value each year on a reducing balance basis.
There are two pools:
Main pool — most plant and machinery, including cars with lower CO2 emissions.
Special rate pool — items like cars with higher emissions, integral building features, and long-life assets.
This is where the recent change lands. The main pool WDA rate has been cut from 18% to 14% per year, effective 1 April 2026 for Corporation Tax (6 April 2026 for Income Tax). The special rate pool stays at 6%, unchanged.
Practically, this means: if you have unrelieved expenditure sitting in your main pool — for example because you're a bigger spender who's exhausted the AIA, or you're carrying forward pooled costs from older purchases — it now takes longer to get the tax relief, because you're claiming a smaller slice of the pool's value each year. No relief is actually lost; it's just spread over more years than before. For most small companies whose annual equipment spend is comfortably inside the £1 million AIA, this change won't be noticeable — it mainly affects unrelieved balances and larger capital-intensive businesses.
If your company straddles the change date with an accounting period that runs across 1 April 2026, a hybrid rate applies for that period, blending the old and new rates proportionally — your accountant or bookkeeping software should handle this calculation for you.
A worked example
Say your limited company buys £15,000 of new workshop equipment in the 2026/27 tax year, and this is comfortably within your annual spending.
You'd claim the full £15,000 under the AIA in the year of purchase, reducing your taxable profit by £15,000. At the 19% small profits rate, that's a £2,850 reduction in your Corporation Tax bill; at the 25% main rate, it's £3,750. (Companies with profits between £50,000 and £250,000 pay somewhere between the two, via marginal relief.)
Compare that to a scenario where, for whatever reason, the same £15,000 asset ends up in the main pool instead of being fully relieved by the AIA. In year one you'd claim 14% (£2,100), leaving £12,900 to carry forward and relieve gradually in future years — a much slower route to the same total relief.
What this means for record-keeping
Capital allowances are one of the areas where good bookkeeping pays for itself directly. To claim correctly, you need to be able to show:
what you bought, when, and for how much
whether it was new or used
which category it falls into (main pool, special rate pool, or a route like the AIA)
a running total of what's been claimed against your annual AIA limit
Miss an asset, misclassify it, or lose track of your AIA usage partway through the year, and you either under-claim relief you're entitled to, or risk an inaccurate Corporation Tax return.
This is exactly the kind of thing Founders Ledger is built to keep on top of — live bookkeeping that tracks your business spending as it happens, so equipment and asset purchases are captured and categorised correctly from day one, feeding straight into an up-to-date Corporation Tax estimate rather than a guess you make at year-end. It won't replace your accountant's judgement on complex claims, but it means nothing gets missed or forgotten between purchase and filing. You can see how it works at foundersledger.co.uk.
This article is correct at the time of writing (September 2026) and covers general rules for UK limited companies. Capital allowances rules have exceptions and edge cases — cars, connected-party transactions, and disposals all have their own quirks — so this isn't a substitute for advice from a qualified accountant on your specific circumstances. It is not financial or tax advice.