Capital allowances for tools and equipment: what tradespeople can claim

Capital allowances for tools and equipment: what tradespeople can claim

taxcapital-allowancesHMRCsole-traderequipment

Capital allowances for tools and equipment: what tradespeople can claim

By InvoiceAdept Team12 March 2026Updated 16 August 20265 min read

In this article

Try InvoiceAdept

Professional invoicing for UK tradespeople. Free to start.

Start free

Capital allowances for tools and equipment: what tradespeople can claim

When you purchase a van, tools, or other equipment for your trade, you cannot simply subtract the full cost from your profit as a regular expense. This is where capital allowances come in, a specific set of HMRC rules determining how much you can deduct and when.

Fortunately, for most tradespeople, the Annual Investment Allowance typically covers almost everything you buy. This guide will explain how capital allowances operate, changes effective from April 2026, and how to ensure you claim all you are entitled to.

Revenue expenses vs capital expenditure

First, let's clarify the difference. Buying materials for a specific job, like pipes for plumbing, is a revenue expense. You can deduct it in the year of purchase as a typical business cost. However, buying something with a longer lifespan, like a van or power tool, is capital expenditure. You cannot expense it all at once; capital allowances are necessary.

Quick takeaway: Capital expenditure involves items expected to last over a year, like vans and power tools, needing capital allowances.

The line can be blurry, but the rule of thumb is: if you expect to use it in your business for more than a year, it is likely capital expenditure. Small items such as a screwdriver or tape measure are usually revenue expenses because they are minor, and HMRC is unlikely to be concerned. There's no strict limit, but many accountants use around £500 as a benchmark — items over that are seen as capital.

The Annual Investment Allowance (AIA)

The AIA allows you to deduct 100% of qualifying capital expenditure in the year of purchase, up to a certain limit. The current AIA limit is £1 million per year — unchanged since 2023.

For most tradespeople, this means you can fully deduct purchases like vans, tools, machinery, computers, and scaffolding in the year you buy them. The £1 million limit mainly affects larger construction companies with extensive equipment spending.

Items qualifying for AIA include:

• Tools and hand tools

• Power tools and machinery

• Commercial vehicles (vans, pickup trucks)

• Plant and equipment

• Computers, tablets, and phones used for business

• Fitted fixtures in rented business premises

Items not qualifying for AIA include:

• Cars (these have a different allowance — see below)

• Assets bought in the final period of a closing business

• Items owned personally before business use (use market value at transfer)

Writing-down allowances: what changes in April 2026

If you exceed the AIA limit or buy assets not qualifying for AIA, writing-down allowances (WDAs) apply. These offer a percentage deduction each year instead of 100% upfront.

Pro tip: Maximise your deductions by using the AIA for all qualifying purchases up to £1 million annually.

There are two WDA pools:

• Main pool: most plant and machinery — used to be 18% annually

• Special rate pool: long-life assets, thermal insulation, integral features — at 6% annually

From 6 April 2026 (for sole traders and partnerships), the main rate WDA decreases from 18% to 14% annually. This change means assets outside AIA take longer to write off. For instance, a £10,000 asset will generate a £1,400 deduction in year one at 14%, instead of £1,800 at 18%.

Worth pairing this with sole trader expenses spreadsheet.

At the same time, a new 40% First Year Allowance (FYA) is being introduced for new main pool assets from January 2026. This is useful for businesses that have used up their AIA limit.

Capital allowances for vans

A van used for business qualifies for AIA, allowing you to deduct 100% in the purchase year. For tax purposes, a van is defined as a commercial vehicle with a payload exceeding one tonne, not a car-derived van or estate car. Most standard transit-style vans qualif

If you use the van for both business and personal trips, you need to apportion the allowance based on business use. For instance, if 80% of your van use is business and 20% is personal, you can only claim 80% of the purchase cost as a capital allowance.

Capital allowances for cars

Cars do not qualify for AIA. Instead, they are placed in a special capital allowance pool based on CO2 emissions:

• Zero emission cars: 100% first year allowance

• Cars with CO2 of 50g/km or less: 18% WDA (main pool)

• Cars with CO2 over 50g/km: 6% WDA (special rate pool)

Many tradespeople find a van or pickup truck (which qualifies for AIA) more beneficial than a car-derived vehicle.

The balancing allowance when you sell or dispose

When you sell an asset you claimed capital allowances on, the proceeds return to your pool. If the proceeds exceed the remaining pool value, you face a balancing charge, effectively a tax charge reclaiming some relief. If the proceeds are lower, you claim the remaining balance as a balancing allowance.

Related: when to register for VAT.

Invoice your customers in 30 seconds

InvoiceAdept helps UK tradespeople send professional invoices, track payments, and stay MTD-compliant — all from your phone.

Start for free — no card needed

Common mistake: Not claiming the balancing allowance when disposing of assets can lead to lost tax relief.

How to claim capital allowances

Capital allowances are claimed on your self-assessment tax return, within the self-employment section. If you have an accountant, they will typically handle these calculations. If you file yourself, the capital allowances guidance on GOV.UK provides detailed instructions.

Keep records of all capital purchases, including the date, cost, and description. Retain these for as long as you own the asset, plus five years after disposal.

What about the cash basis?

Many sole traders use the cash basis for calculating their self-assessment profits. Under this method, you can usually deduct capital expenditure in full in the year paid — even for items like vans and tools — without needing capital allowances. The exception is cars, which still require capital allowances under the cash basis.

If you need the paperwork side too, see our guide to self assessment tax guide for tradespeople.

If unsure about your accounting method, check with your accountant or review your previous self-assessment return.

For the tax angle, read self-employed tax deadlines for 2026/27.

Useful tools

Our self-assessment tax calculator can help estimate your tax bill after deducting capital allowances and allowable expenses. For a detailed look at day-to-day expenses you can claim, see our guide to allowable expenses for self-employed tradespeople.

Summary

For most tradespeople, the £1 million Annual Investment Allowance means you can deduct the full cost of tools, vans, and equipment in the year of purchase. From April 2026, the main rate writing-down allowance reduces from 18% to 14%, affecting assets not covered by AIA. Cars have different rules and cannot use AIA. Keep detailed records of every capital purchase and claim them through your self-assessment return — it is your entitlement.

Stop chasing invoices. Get paid faster.

InvoiceAdept sends professional invoices in 30 seconds, with automatic payment reminders and one-click card payments. Built for UK tradespeople. Free to start, no card required.

Try InvoiceAdept free →

Send your first invoice in under a minute · No credit card needed

Ready to get started?

InvoiceAdept helps UK tradespeople send invoices, track payments, and stay compliant — all from one place.

Start for free

No credit card required