Key takeaways
- Companies get tax relief on equipment and machinery through capital allowances, not depreciation.
- The main reliefs are the £1 million AIA, unlimited full expensing on new main-rate assets and a 50% allowance on new special rate assets.
- A new 40% first-year allowance applies to main-rate spending from 1 January 2026, including assets for leasing.
- The main pool writing down allowance fell from 18% to 14% from 1 April 2026; the special rate stays at 6%.
- Cars have their own rules: 100% for new zero-emission cars until March 2027, otherwise 14% or 6% a year depending on emissions.
Depreciation in a company’s accounts is not deductible for Corporation Tax. Instead, the tax system gives capital allowances on qualifying spending, mainly plant and machinery. The rules changed again from January and April 2026, with a new 40% allowance and a lower writing down rate.
The allowances available in 2026/27
| Allowance | What it covers | Rate |
|---|---|---|
| Annual Investment Allowance (AIA) | Most plant and machinery, new or second-hand, main or special rate (not cars) | 100% up to £1 million a year |
| Full expensing | New and unused main-rate plant and machinery (companies only) | 100%, no limit |
| 50% first-year allowance | New and unused special rate assets, such as integral features (companies only) | 50%, then 6% on the balance |
| 40% first-year allowance | New main-rate plant and machinery from 1 January 2026, including assets for leasing; also available to unincorporated businesses | 40%, then writing down allowances |
| 100% first-year allowance | New zero-emission cars and electric vehicle charge points (to 31 March 2027 for companies) | 100% |
| Main pool writing down allowance | Remaining main-rate expenditure | 14% a year from 1 April 2026 (18% before) |
| Special rate pool writing down allowance | Integral features, long-life assets, thermal insulation, cars over 50g/km | 6% a year |
| Structures and Buildings Allowance (SBA) | Construction and renovation of non-residential buildings | 3% a year on a straight-line basis |
Choosing between them
For most small and medium-sized companies the AIA covers all their plant and machinery. Where spending goes above £1 million:
- new main-rate assets can use full expensing for 100% relief
- new special rate assets can use the 50% first-year allowance, with the balance at 6%
- assets bought for leasing, which are generally excluded from full expensing, can use the new 40% first-year allowance
- second-hand assets above the AIA go into the pools at 14% or 6%
The AIA is often best used on special rate assets first, because the alternative is only 50% or 6%.
Writing down allowances from April 2026
The main rate writing down allowance fell from 18% to 14% from 1 April 2026 for companies (6 April 2026 for income tax). If your accounting period straddles 1 April 2026, a time-apportioned hybrid rate applies: for a year ending 31 December 2026, roughly 15% (a quarter of the year at 18% and three quarters at 14%).
Small pools of £1,000 or less can be written off in full in one year.
Cars
| Car | Treatment |
|---|---|
| New, zero CO2 emissions | 100% first-year allowance (expenditure to 31 March 2027) |
| CO2 of 50g/km or less (including second-hand electric cars) | Main pool, 14% a year |
| CO2 over 50g/km | Special rate pool, 6% a year |
Cars cannot use the AIA or full expensing. If a car is used privately by a sole trader or partner, allowances are restricted; for companies, the director’s private use is dealt with through benefit in kind instead.
Disposals and balancing charges
When you sell an asset, its disposal value (up to the original cost) is deducted from the pool. If the pool goes negative, the excess is a balancing charge, taxable as profit. Assets on which full expensing or the 50% allowance were claimed are taxed in full or by half on disposal.
The Structures and Buildings Allowance
The SBA gives 3% a year, over 33⅓ years, on the cost of constructing, renovating or converting non-residential buildings and structures, excluding land and the parts that qualify as plant. You need an allowance statement to claim it, and the right to it passes to a buyer if the building is sold.
Example
A company with a March 2027 year end spends:
- £1.3 million on new production machinery (main rate)
- £200,000 on new lighting and heating in its factory (special rate)
- £60,000 on second-hand equipment (main rate)
| Expenditure | Relief in the year |
|---|---|
| Special rate £200,000 | AIA £200,000 |
| Second-hand equipment £60,000 | AIA £60,000 |
| New machinery £1.3m | AIA £740,000 + full expensing £560,000 |
| Total relief | £1.56 million |
All of the spending is relieved in the year of purchase.
Frequently asked questions
What are the capital allowance rates for 2026/27?
The AIA is £1 million at 100%. Full expensing gives 100% on new main-rate assets for companies. Writing down allowances are 14% (main pool, from April 2026) and 6% (special rate pool).
What is the new 40% first-year allowance?
A 40% allowance on new main-rate plant and machinery bought from 1 January 2026, including assets for leasing, available to companies and unincorporated businesses.
Can I claim capital allowances on a company car?
Yes, but not the AIA or full expensing. New zero-emission cars get 100% until March 2027; other cars get 14% or 6% a year depending on emissions.
Is depreciation tax deductible?
No. Depreciation is added back in the tax computation and replaced by capital allowances.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.