News
Capital allowances: Full Expensing vs AIA vs Writing-Down Allowances
14 May 2025
Capital allowances allow businesses to claim tax relief on money invested in assets like machinery, equipment, or certain vehicles used commercially.
There are a variety of capital allowances available, including:
- Full Expensing
- Annual Investment Allowance (AIA)
- Writing-Down Allowances (WDA)
The allowance that your business is eligible for depends on what you buy, how much you invest, and how your business is structured.
Full Expensing
Full Expensing allows companies to deduct 100 per cent of the cost of qualifying plant and machinery assets from taxable profits in the year of purchase.
This applies to new assets only and is available to limited companies subject to Corporation Tax.
It is an ideal option if you are looking for immediate relief or using the investment to improve cash flow.
Annual Investment Allowance
The AIA offers a similar benefit but is more widely available to sole traders, partnerships, and limited companies.
This allowance allows for 100 per cent relief on qualifying expenditure up to £1 million per year.
Unlike Full Expensing, AIA can apply to both new and used assets, though exclusions can apply to assets such as leased items.
Writing-Down Allowances
WDAs apply to any expenditure that exceeds the AIA threshold or when assets are not eligible for Full Expensing or the AIA.
These allowances offer tax relief spread over several years, typically at a rate of relief against profits of 18 per cent for main pool items and six per cent for special rate pool items, like integral features or solar panels.
How to claim capital allowances
Capital allowances must be claimed within your tax return and can be set against your business’s taxable profits. Eligible items must be used in your business, not for personal use.
There are additional schemes, such as Enhanced Capital Allowances, which can be used for “eco” investments, which may also be useful to certain businesses.
For a full list of qualifying items and further guidance on how to claim, please visit gov.uk/capital-allowances or speak to your tax adviser.
Case Studies
-
Customer care is top of the list for packaging business
-
Smiles all round for dental practice
-
A modern approach required for music moguls
-
Child's play with proactive accounts management
-
A shared passion for architecture and a head for numbers
-
Cut above the rest in personal management style
-
Sometimes a business does exactly as it says on the tin
-
A taste for growth, a thirst for knowledge
-
Taxing demands with old school charm