Capital Allowances Calculator 2026/27

Calculation runs based on standard HMRC rules.

Deductions are calculated and adjusted accordingly.

Frequently Asked Questions & Detailed Tax Guide

What are Capital Allowances and how do they save tax?

Capital Allowances are a form of tax relief that allows UK businesses to deduct the cost of capital assets (such as machinery, equipment, vehicles, and computers) from their taxable profits. Under standard accounting rules, you cannot deduct capital expenditure (buying long-term assets) directly from your profit and loss account. Instead, you must write down the asset’s value over time through depreciation. However, HMRC does not allow depreciation as a tax-deductible expense. Capital Allowances replace depreciation, providing a statutory method to offset asset costs against tax.

What are the primary Capital Allowance schemes in 2026/27?

UK companies can utilize several allowance categories to accelerate tax deductions:

• Annual Investment Allowance (AIA): Allows you to deduct 100% of the cost of qualifying plant and machinery up to **£1,000,000 per year** in the year of purchase. This covers computers, tools, office furniture, and commercial vehicles.
• Full Expensing (100% First-Year Allowance): A permanent tax relief for Limited Companies, allowing 100% deduction with no upper limit for new and unused plant and machinery.
• Writing Down Allowances (WDA): Used if you exceed the AIA or for assets that do not qualify. Rates are 18% per year for the main pool (standard machinery) and 6% per year for the special rate pool (long-life assets, integral features like electrical wiring).

Step-by-Step Capital Allowance Math

Let’s calculate the tax saving for a manufacturing company buying a new CNC machine for £150,000 (assuming a 25% Corporation Tax rate):

• 1. Asset cost: £150,000 (qualifies under the Annual Investment Allowance).
• 2. Claim AIA: 100% of the cost (£150,000) is deducted from the company’s taxable profit in year one.
• 3. Tax deduction value: £150,000 * 25% Corporation Tax = **£37,500 cash tax saving**.
• 4. The actual net cost of the machine to the business is reduced to **£112,500** due to the immediate tax relief.
• If using standard WDA (18% pool): If the AIA was already fully utilized on other equipment, the deduction in year one is £150,000 * 18% = £27,000 (saving £6,750 in tax). The remaining £123,000 rolls forward to year two.

Tax Expert Pro-Tips: Car Capital Allowances

David Vance, CTA FCA, recommends: “Business cars are subject to strict capital allowance rules based on their CO2 emissions. Electric cars with 0g/km emissions qualify for a **100% First-Year Allowance**, allowing you to write off the entire cost of the electric car against your profits in year one. Cars with emissions under 50g/km write down at 18% per year, while cars exceeding 50g/km write down at just 6% per year. Always choose electric vehicles for business use to maximize immediate tax write-offs.”

Legislative References

• Capital Allowances Act 2001 (CAA 2001) – Primary statutory framework.
• Finance Act 2023 – Full Expensing permanent implementation rules.