Capital Allowances Calculator: AIA & Writing Down Allowances

Use the capital allowances calculator

Enter the cost of the asset you bought for your business, choose whether it qualifies for the Annual Investment Allowance or a writing down allowance, and add your tax rate. The calculator above returns the deduction you can claim and an estimate of the tax it knocks off your bill. Use it before you file, but also before you buy, so you know the real after-tax cost of a purchase.

What capital allowances actually are

When you buy something that gets used up quickly in the course of running your business, like stationery, fuel or stock, you deduct it as a normal day-to-day expense. Capital items are different. A van, a laptop, a commercial oven or a workshop lathe lasts for years, so HMRC treats it as a capital asset rather than an everyday running cost. You can't put the full price through your accounts as a revenue expense, and that's where capital allowances step in.

A capital allowance is the mechanism that lets you deduct the cost of a qualifying capital asset from your taxable profit. The deduction reduces the profit figure that feeds into your self-employed tax calculation or your corporation tax bill. Less taxable profit means less tax. The amount you claim, and how fast you claim it, depends on which allowance the asset qualifies for.

Capital allowances apply to what HMRC calls plant and machinery. That label is broader than it sounds. It covers tools, computers, office furniture, vans and lorries, machines, and certain fixtures integral to a building such as heating, lighting and electrical systems. It does not normally cover the building itself, land, or cars used personally (cars have their own separate rules and never qualify for the Annual Investment Allowance).

The Annual Investment Allowance (AIA)

The Annual Investment Allowance is the headline relief and the one most small businesses rely on. It lets you deduct the full cost of qualifying plant and machinery from your profits in the year you buy it, up to an annual limit set by the government. If your spending sits within that limit, you get 100% relief straight away rather than spreading it over many years.

The AIA limit applies per business and per accounting period, and it has changed several times over the years, so always confirm the current figure on gov.uk before you rely on it. If your accounting period is shorter or longer than twelve months, the limit is scaled to match. Connected businesses and groups share a single allowance between them rather than getting one each, which is an easy point to miss.

Most assets qualify for the AIA, but cars are the big exception. If you spend more than the AIA limit in a year, the excess doesn't disappear. It drops into a writing down allowance pool and gets relieved more slowly instead.

Writing down allowances explained

A writing down allowance, or WDA, gives you tax relief on a percentage of the asset's value each year rather than all at once. You use it for spending above your AIA limit, for cars, and for assets that don't qualify for the Annual Investment Allowance. The value of your qualifying assets sits in a pool, and each year you claim a set percentage of the pool's balance, carrying the rest forward to be written down in future years.

HMRC runs two main pools. The main rate pool covers most plant and machinery and is written down at the standard main rate. The special rate pool covers longer-life assets, integral building features like air conditioning and electrical systems, and higher-emission cars, and it is written down at a lower rate. Because the rates are reducing-balance percentages, the writing down allowance calculator effect is that relief tapers off over many years rather than ending neatly. The exact main rate and special rate percentages are published on gov.uk and should be checked for the current year before you claim.

There's also a small pools allowance: if the balance in a pool falls below a small threshold, you can write off the whole remaining amount in one go instead of chipping away at tiny percentages forever.

Full expensing for companies

Limited companies that pay corporation tax have access to full expensing on qualifying new plant and machinery. It works like an uncapped version of the AIA for new main-rate assets, giving 100% relief in the year of purchase, with a separate first-year allowance for new special-rate assets. It applies to companies only, not to sole traders or partnerships, and the asset generally has to be new and unused rather than second-hand. For most small companies the AIA already covers their spending, so full expensing matters most to businesses investing heavily in new kit. Check the qualifying conditions on gov.uk, because the disposal rules differ from the AIA.

How the capital allowances calculator works

The maths behind the tool is straightforward once you know which allowance applies. The core formula is:

Tax saved = capital allowance claimed × your marginal tax rate.

For an AIA or full expensing claim, the allowance claimed equals the full cost of the asset (within the limit). For a writing down allowance, the allowance for the year equals the pool balance multiplied by the WDA percentage. The deduction reduces your taxable profit, and the tax you save depends on the rate that profit would otherwise have been taxed at.

For a sole trader, that marginal rate is your income tax band plus, often, Class 4 National Insurance. For 2026/27, basic-rate income tax is 20% and Class 4 NI is 6% on profits between £12,570 and £50,270, so a basic-rate sole trader frequently saves around 26p of tax and NI for every pound of allowance. A higher-rate sole trader pays 40% income tax plus 2% Class 4 above £50,270. For a company, the saving depends on the corporation tax rate the profit would have faced. The calculator applies your chosen rate so you can see the genuine after-tax cost of the purchase.

Worked example: a sole trader buying a machine

Priya runs a small bakery as a sole trader and expects taxable profit of £48,000 in 2026/27 before any capital allowances. In June 2026 she buys a new commercial mixer and oven for £9,000. Both are plant and machinery and fall within her Annual Investment Allowance, so she can claim the full £9,000 as a deduction this year.

Her profit drops from £48,000 to £39,000. At that level she is a basic-rate taxpayer, so each pound of allowance saves 20% income tax plus 6% Class 4 NI, a combined 26%:

• Allowance claimed: £9,000
• Income tax saved: £9,000 × 20% = £1,800
• Class 4 NI saved: £9,000 × 6% = £540
• Total tax and NI saved: £2,340

So the £9,000 equipment effectively costs Priya £6,660 after tax relief. If she registers for VAT and reclaims the VAT separately, the capital allowance is claimed on the net cost. The relief lands in the same tax year, reducing the balancing payment due by 31 January 2028 for her 2026/27 return.

Worked example: spending above the AIA limit

Imagine a manufacturing partnership spends £1.4 million on machinery in one year and the AIA limit for that period is lower than the spend. Everything up to the AIA limit gets 100% relief immediately. The excess above the limit doesn't vanish; it goes into the main rate pool and is written down at the main rate each year. So in year one the partnership claims the AIA in full plus a writing down allowance on the spillover, and the remaining pool balance is carried forward and written down again the following year. Because you should use the current published limit and WDA percentage, run your own figures through the calculator above with this year's rates rather than relying on a single fixed number.

2026/27 figures to check before you claim

Capital allowance limits and percentages are set by the government and revisited at Budgets, so the safest approach is to confirm them at source. The tax rates that turn an allowance into a saving for 2026/27 are below.

For the current Annual Investment Allowance limit, writing down allowance percentages and full expensing rules, see the official guidance at gov.uk/capital-allowances. Capital allowance rules are UK-wide, so the AIA and WDAs are the same in England, Scotland, Wales and Northern Ireland. What differs is the income tax that turns the allowance into a saving: Scottish taxpayers pay Scottish income tax rates and bands, so a Scottish sole trader's saving on the same purchase can differ from a comparable trader elsewhere in the UK. You can check that side with the Scotland tax calculator.

How capital allowances cut your tax bill

The practical value of claiming is timing as much as amount. A well-timed purchase can pull a deduction into a year where your profits are high, lowering the slice taxed at higher rates. If you're a sole trader hovering just over £50,270, an AIA claim that brings profit back under that line saves you tax at 40% plus 2% NI on the part it removes from the higher band, which is a much bigger saving per pound than relief at the basic rate.

• Buy before your accounting period ends if you want the relief in this year rather than next.
• Keep invoices and proof of business use; HMRC can ask you to show an asset is genuinely used in the business.
• Remember the AIA is shared across connected businesses and groups, not multiplied.
• For companies, weigh full expensing against the AIA, and check the disposal rules before selling an asset you claimed on.

Common mistakes to watch

The first trap is treating a capital asset as an ordinary expense. If you simply deduct the cost of a van as a running cost, you've claimed it wrongly; it should go through capital allowances. The second is forgetting that cars never qualify for the AIA. A car you buy for the business goes into a writing down allowance pool at a rate that depends on its CO2 emissions, and a private-use proportion may be restricted for sole traders.

A third mistake is ignoring the balancing charge when you sell. If you claimed allowances on an asset and later sell it for more than its written-down value, the difference can be added back to your profit as a balancing charge, increasing your tax that year. People who claimed generous relief up front are sometimes surprised by this on disposal.

Fourth, sole traders who use cash basis accounting can't pool assets the same way; most capital purchases are simply deducted when paid, but cars are still handled separately. Fifth, don't double-count: if you reclaim VAT on an asset, you claim the capital allowance on the net cost, not the VAT-inclusive figure. The VAT return calculator can help you keep those figures straight. Finally, connected-company groups regularly over-claim the AIA by assuming each entity has its own full allowance; they don't.

Because the deduction flows straight into your profit figure, getting it right also keeps your limited company tax calculation accurate, rather than overstating profit and overpaying.

This capital allowances calculator and the figures here are estimates for guidance only and are not personal tax or financial advice; check current limits with HMRC or a qualified accountant before you file.

Related calculators

Once you know your allowance, see how the lower profit changes the rest of your tax: try the self-employed tax calculator for sole traders and partnerships, the corporation tax calculator for companies, and the limited company tax calculator to see the combined picture.