Are you investing in computers, servers, office equipment, machinery or other business assets in 2026? If so, you could be entitled to significant tax relief through capital allowances.
Many growing businesses record the cost of new equipment but fail to claim the capital allowances available to them. That can mean paying more Corporation Tax or Income Tax than necessary : even when the qualifying assets have already been purchased and are being used in the business.
The opportunity is substantial. The Annual Investment Allowance (AIA) can provide 100% tax relief on up to £1 million of qualifying expenditure in a 12-month accounting period.
And the benefits do not stop there.
Companies investing above the AIA limit may also be able to claim full expensing, whilst qualifying expenditure that falls outside these reliefs could benefit from the new 40% first-year allowance introduced for assets purchased from 1 January 2026.
Capital allowances are tax reliefs that allow you to deduct the cost of certain long-term business assets from your taxable profits.
These assets are commonly known as plant and machinery and can include:
The key point is simple: when you buy qualifying equipment for your business, the cost may reduce the profits on which you pay tax.
That can improve your cash position, preserve funds for hiring or product development, and provide a valuable financial lift at a crucial stage of growth.
You can read the HMRC overview of capital allowances for the official framework.
The Annual Investment Allowance 2026 limit is £1 million for each 12-month accounting period.
The AIA provides 100% relief on most qualifying plant and machinery in the accounting period in which you buy it. It is available to:
For example, if your company purchases £80,000 of qualifying computers and equipment during its accounting period, you may be able to deduct the full £80,000 from taxable profits.
At a Corporation Tax rate of 25%, that could represent a potential tax reduction of up to £20,000. The actual saving depends on your company’s tax rate, available profits, accounting period and the precise treatment of the assets.
The £1 million limit applies to a standard 12-month period. If your accounting period is shorter, the allowance may need to be time-apportioned. For example, a nine-month accounting period could produce an AIA limit of £750,000.
There is also no requirement to claim the entire amount. If your profits are low, or a full claim would create an unwanted loss, you may choose to claim part of the cost and use writing-down allowances instead.
Full expensing is a 100% first-year allowance for qualifying companies investing in eligible new and unused main-rate plant and machinery.
Unlike the AIA, full expensing does not have a £1 million spending cap. This makes it particularly important for companies making larger investments in technology, machinery or equipment.
To claim full expensing, the asset generally needs to be:
Full expensing means the entire qualifying cost can usually be deducted from taxable profits in the year of purchase.
So, if a company invests £1.4 million in qualifying new main-rate machinery, it may be possible to claim 100% relief through a combination of the AIA and full expensing. The correct allocation must be reviewed carefully, particularly where a business has connected companies or multiple trades.
Full expensing was initially introduced with a deadline, but it was subsequently made permanent. You can review the HMRC guidance on full expensing for the qualifying conditions.
The 50% first-year allowance applies to certain qualifying special-rate plant and machinery purchased by companies.
Special-rate assets can include some:
These assets generally receive a lower rate of relief than main-rate equipment. However, the 50% first-year allowance allows a company to deduct half of the qualifying cost from taxable profits in the year of purchase.
The remaining 50% is generally allocated to the special-rate pool, where it can qualify for writing-down allowances in later periods.
The 50% allowance cannot be claimed alongside full expensing on the same expenditure. This is where planning matters : the most tax-efficient treatment depends on the asset, the business structure and the level of investment.
From 1 January 2026, qualifying businesses can claim a 40% first-year allowance on certain new and unused main-rate plant and machinery.
The allowance is designed for situations where AIA or existing first-year allowances are unavailable or not used. It can be relevant to:
The 40% allowance provides accelerated relief in the year of investment. The remaining 60% generally enters the main pool and is relieved through writing-down allowances in later periods.
From April 2026, the main pool writing-down allowance also reduces from 18% to 14% for Corporation Tax businesses. For Income Tax businesses, the change applies from 6 April 2026.
This makes it even more important to identify whether an investment qualifies for AIA, full expensing or a first-year allowance before preparing your tax return.
Capital allowances on computers are often available because computers, laptops, servers and related hardware are usually treated as main-rate plant and machinery.
This can include:
New computers purchased by a company may qualify for full expensing if all conditions are met. Most businesses can also consider AIA, subject to the £1 million limit.
Business software can be more nuanced.
HMRC generally treats computer software and certain rights to use software as plant for capital allowance purposes. However, the accounting and tax treatment can depend on whether the software is:
A one-off capital purchase may be considered differently from a monthly software subscription, which could instead be treated as a normal business expense. We encourage you to keep the contracts, invoices and accounting treatment clear so the correct relief can be assessed.
Not every business purchase falls within capital allowances.
Common exclusions and complications include:
There are exceptions and special rules, so an asset should not be dismissed simply because it is unusual. The key is to review what was bought, when it was bought, who bought it and how it is used.
Depreciation and capital allowances are not the same thing.
Depreciation is an accounting charge that spreads the cost of an asset over its estimated useful life. It reflects how the asset is consumed in the accounts.
However, depreciation is not normally deductible for UK tax purposes. Instead, it is added back in the tax computation and replaced by the relevant capital allowance claim.
Capital allowances are therefore the tax mechanism that provides relief for qualifying capital expenditure.
This distinction is regularly overlooked : especially when a business prepares its own accounts using cloud accounting software. The asset may appear correctly in the balance sheet, but the corresponding capital allowance may still be missing from the tax computation.
You generally claim capital allowances through the relevant tax return:
Before claiming, we recommend that you:
Create a complete asset schedule showing the purchase date, supplier, description, cost and business use.
Separate revenue costs from capital expenditure so that repairs, subscriptions and ordinary running costs are treated correctly.
Classify each asset as main-rate, special-rate or another category.
Check the available reliefs : including AIA, full expensing, the 50% first-year allowance and the 40% first-year allowance.
Review connected companies and accounting periods, as these can affect the available limits.
Retain invoices, contracts and finance documents to support the claim if HMRC asks questions.
At Price & Accountants, our accounting and tax planning services help growing businesses connect their bookkeeping, accounts and tax strategy. We can also help ensure your company accounts reflect the investment decisions being made across your business.
Capital allowances UK rules can seem complex, but the principle is powerful: qualifying investment can translate into real tax relief and stronger cash flow.
Whether you are buying £10,000 of new computers or investing £1 million-plus in machinery, the correct treatment could make a material difference to your tax bill. And if assets were purchased in a previous period but never reviewed properly, there may be an opportunity to identify missed claims : subject to the relevant amendment and filing rules.
We encourage you to speak with our team before finalising your accounts or making a major equipment purchase. We can review your planned or historic investment, identify the reliefs that may apply, and help you make informed decisions that keep your business moving forward.
Contact Price & Accountants to discuss your capital allowances position for 2026.
For the latest official rules, visit:
