Plant and machinery capital allowances

How plant and machinery allowances give tax relief

Plant and machinery capital allowances are a tax relief that lets a business deduct some or all of the value of an item from its profits before paying tax. They cover items such as equipment, machinery and business vehicles, for example vans, lorries or business cars. ^[1]

Fixtures inside business premises are one area where claims on commercial property fixtures may be identified, alongside equipment bought for day-to-day work.

How much relief an item gives depends on which allowance is used for it. The guide to the AIA and how it is shared covers that allowance in detail, and the guide to tax relief on company cars covers emission bands and electric cars.

What counts as plant and machinery for capital allowances?

Plant and machinery is the name given to items a business keeps to use in its business. What counts as plant and machinery will depend on the nature of the business. ^[2]

The definition reaches beyond the item itself. Plant and machinery includes the costs of demolishing plant and machinery, and alterations to a building to install plant or machinery, though this does not include repairs.

Inside buildings, background plant or machinery means the things installed in a building to make it usable, including lighting, wiring and central heating. A company that leases out commercial property may be able to claim for background plant or machinery in the leased buildings.

Ownership of the building does not settle the point on its own: a business can claim whether it rents or owns the building, but only the person who bought the item can claim.

Things outside plant and machinery

Plant and machinery allowances cannot be claimed on land. Repairs are also kept out: they are claimed as business expenses by a sole trader or partnership, or deducted from profits as a business cost by a limited company.

The cost of things that are not business assets is claimed in a different way. Day-to-day running costs are claimed as business expenses by a sole trader or partnership, or deducted from profits as a business cost by a limited company.

The accounting method matters too. If a sole trader or partnership uses cash basis, capital allowances can only be claimed on business cars.

Matching an item to the right allowance

The plant and machinery allowances include the annual investment allowance, first-year allowances and writing down allowances. If an item qualifies for more than one capital allowance, the business can choose which one to use. Only companies can claim full expensing and the 50% first-year allowance.

Writing down allowances can be claimed where plant and machinery does not qualify for another allowance, or where there is value remaining after claiming the maximum amount of another allowance.

An HMRC example shows how the kind of item steers the choice. Spending on new laptops is available for full expensing, the AIA or main rate writing down allowances, while spending on solar panels and a new electrical system for business premises is eligible for the 50% first-year allowance, the AIA or special rate writing down allowances. ^[3]

Solar panels have their own designation: capital expenditure on the provision of solar panels has been designated as special rate since 1 April 2012 for corporation tax and 6 April 2012 for income tax. ^[4]

What are the changes to capital allowances in 2026?

Plant and machinery bought in 2026 is affected by a new first-year allowance and a lower main rate. A 40% first-year allowance is available for qualifying plant or machinery bought on or after 1 January 2026, letting a business deduct 40% of the cost from its profits before tax. In the next accounting period, writing down allowances can be claimed on the remaining 60% of the cost. A business that wants the 40% first-year allowance has to claim it in the accounting period the item was bought.

The main rate of writing down allowance changed from 18% to 14% on 1 April 2026 for Corporation Tax and on 6 April 2026 for Income Tax. ^[5]

Where an accounting period includes the date the rate changed, a hybrid rate is worked out for that period, based on how much of the period falls before the change and how much after. For a company paying Corporation Tax with an accounting period from 1 January 2026 to 31 December 2026, the hybrid rate is 14.99%. More calculations are needed to adjust writing down allowances if the accounting period is more or less than 12 months.

Working out an item's value and business use

In most cases, the value of an item is what the business paid for it.

A sole trader or partnership cannot claim the full value of items also used outside the business, and reduces the capital allowances claimed by the amount the asset is used outside the business.

A business may not want to take the whole value at once, for example when profits are low. If it does not want to claim the full value as the annual investment allowance or a first-year allowance, it can claim part of it using writing down allowances. Where an item qualifies for 100% first-year allowances and not all of them are claimed, the unclaimed part of the cost can be claimed using writing down allowances.