Capital Allowances for UK Tradespeople — Claiming Tax Relief on Tools, Vans and Equipment (2026)

Expenses vs Capital — The Core Distinction

The starting point is understanding the difference between an everyday running cost and a capital purchase, because they get tax relief in completely different ways.

Allowable expenses are the day-to-day costs of keeping the business running. These you deduct in full from your profits in the year you incur them. For a typical trade, that includes:

• Consumables — screws, sealant, abrasives, adhesives
• Fuel and vehicle running costs
• Materials bought for jobs
• Small hand tools and short-life items
• Insurance, phone, accountancy fees, trade body membership

Capital items are things you buy to keep and use in the business over a number of years — what HMRC calls plant and machinery. Think vans, machinery, larger power tools, computers and office equipment. You don't deduct these as a straight expense; instead you get tax relief on them through capital allowances. That is the whole purpose of the capital allowances system: it is the mechanism that gives you tax relief on the bigger, longer-lasting things you buy for your trade.

The Annual Investment Allowance (AIA) — The Big One

For the vast majority of tradespeople, the Annual Investment Allowance is the part of the system that matters most — and it is far more generous than people expect. The AIA lets you deduct the full cost of most qualifying plant and machinery from your profits in the same year you buy it, rather than spreading the relief over many years.

There is an annual limit on how much you can claim this way, but it is currently set at £1,000,000 a year — vastly more than almost any sole trader or small trade business will ever spend on equipment in a single year. In practical terms, that means most tradespeople get 100% tax relief in year one on the tools, van and equipment they buy, simply by claiming the AIA.

Qualifying items for AIA typically include:

• Tools and power tools you keep and reuse
• Machinery and plant — saws, generators, compressors, mixers, diggers
• Vans and other commercial vehicles (vans count as plant — more on this below)
• Computers, tablets, software and office equipment
• Workshop and yard fittings, and certain integral features of buildings (such as electrical and heating systems)

So if you spend, say, £18,000 on a new van and £3,000 on tools in the year, you can generally claim the whole £21,000 as a deduction against your profits that year using the AIA — provided the items qualify and are used for the business. Always confirm the current AIA limit on GOV.UK, as it has changed several times over the years.

What Does Not Qualify for AIA — And Special Cases

The AIA is broad, but it is not unlimited. The most important exclusions for trades are:

• Cars do not qualify for AIA. A car gets relief through writing-down allowances instead, with the rate based on its CO2 emissions. This is the single most common trip-up — see the vans vs cars section below.
• Buildings and land do not qualify as plant and machinery, though certain integral features within a building may.
• Items you already owned and then bring into the business (for example a personal tool kit you start using for work) are treated on a different basis — generally on their market value when introduced, not the original price you paid.
• Items bought partly for private use must have the claim restricted to the business-use proportion (covered in its own section below).

Where an item doesn't qualify for AIA — most commonly a car, or spend that somehow exceeds the AIA limit — you fall back on writing-down allowances.

Writing-Down Allowances (WDA)

Writing-down allowances are the alternative method for items that don't get full AIA relief — principally cars, and any spend above the AIA limit. Instead of deducting the full cost in year one, you deduct a percentage of the value each year on a reducing balance, through what are called pools.

• Main rate pool — currently around 18% a year. Most plant and machinery sits here.
• Special rate pool — currently around 6% a year. This covers items such as integral features and higher-emission cars.

Because the percentage applies to the reducing balance, the relief tails off over time — you claim 18% of the value, then 18% of what is left the next year, and so on. For most tradespeople WDAs only come into play for vehicles that are cars, since almost everything else is wiped out in year one by the AIA. Your accountant maintains your pools each year as part of your accounts.

The Cash Basis Alternative

Many small sole traders use the cash basis rather than traditional accruals accounting. Under the cash basis you record income when money actually comes in and costs when money actually goes out, which keeps the bookkeeping simpler. Crucially, it also changes how equipment is treated.

Under the cash basis, most equipment purchases are simply treated as an allowable expense when you pay for them — you just deduct the cost like any other running cost. That means you generally don't need capital allowances or the AIA for most items at all, because the deduction is already built into how the cash basis works. There is one big exception: cars. Cars are still dealt with through capital allowances (or you can use the simplified mileage method instead).

So the choice between the cash basis and traditional accruals accounting affects whether you ever touch capital allowances for your tools and van. On the cash basis you mostly don't; on accruals you claim AIA. Neither is automatically better — it depends on your numbers, whether you carry stock, and how you want to plan your tax. This is exactly the kind of decision worth discussing with your accountant.

Vans vs Cars — The Key Question for Trades

This deserves its own section because it is the question tradespeople ask most, and the answer has a real tax impact.

A genuine van or commercial vehicle is treated as plant and machinery, so it generally qualifies for the AIA — meaning you can usually claim the full cost against your profits in the year you buy it. A car does not qualify for AIA; it goes through writing-down allowances at a rate set by its CO2 emissions, so the relief is spread over many years instead of landing all at once.

That difference can be worth thousands in year-one tax relief, which is why the classification matters. Most clear-cut vans — panel vans, pickups built as commercial vehicles, crew vans without rear side windows — fall on the right side of the line. But some vehicles are genuinely dual-purpose or borderline (certain double-cab pickups and car-derived vans have caused disputes over the years), and the rules around how vehicles are categorised can shift. If your vehicle is anything other than an obvious panel van, get advice before you assume it qualifies for AIA. Keep the V5C and the dealer's description on file.

Private Use — Restrict the Claim

If you use a tool, van or piece of equipment partly for private purposes, you can only claim capital allowances on the business-use proportion. If your van is used 80% for work and 20% privately, you restrict the allowance to 80%.

HMRC expects you to be able to justify the split, so keep records — a simple log of business versus private mileage for a vehicle, or a sensible, documented estimate for shared equipment. The same principle applies if you later sell an item that had private use: the adjustment is proportionate. Good record-keeping here protects you if your return is ever queried.

Sole Trader vs Limited Company

Both sole traders and limited companies claim capital allowances — the difference is mainly where and how.

• Sole traders and partnerships claim capital allowances on the self-employment pages of the Self Assessment tax return.
• Limited companies claim them within the Company Tax Return (CT600), set against corporation tax.

The AIA, writing-down allowances and the van/car rules broadly apply to both. Limited companies also have access to additional reliefs on new qualifying plant and machinery — full expensing and first-year allowances — which can give 100% relief on certain brand-new assets outside the AIA limit. These are valuable but the detail is involved, the rules change, and they only apply to companies, so if you run a limited company and are buying significant new kit, this is firmly an area to put in front of your accountant rather than work out yourself.

Practical Tips

• Keep every invoice and receipt for capital purchases. You need the date, the supplier and the amount, and you may need them years later when an item is sold or scrapped.
• Tell your accountant about big buys. A new van, a major machine or a workshop fit-out should be flagged so it's claimed correctly and in the right year.
• Time large purchases sensibly around your accounting year end. Whether it helps to buy before or after year end depends on your profits and tax position — a quick word with your accountant before you sign can be worth real money.
• Never double-claim. You cannot claim the same item as both an allowable expense and a capital allowance. On the cash basis it's an expense; on accruals most kit is a capital allowance via AIA. Pick the correct route once.
• Track business vs private use from the start, especially on vehicles, so any restriction is easy to evidence.

Quick Reference: How Common Trade Purchases Are Treated

The table below is a general guide for the 2025-26 tax year. Your own treatment depends on the accounting basis you use and the specifics of each purchase, so check with your accountant before relying on it.

Frequently Asked Questions

Can I claim the full cost of my van against tax?

In most cases, yes. A genuine van or commercial vehicle counts as plant and machinery, so on accruals accounting you can usually claim 100% of the cost in the year you buy it through the Annual Investment Allowance. On the cash basis it's simply deducted as an expense, which has the same effect. If you use the van partly for private journeys, restrict the claim to the business-use proportion. Cars are treated differently, so be sure your vehicle really is classed as a van.

What is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) lets you deduct the full cost of most qualifying plant and machinery — tools, vans, machinery, equipment — from your profits in the year you buy it, rather than spreading the relief over several years. There is an annual limit, currently £1,000,000, which is far more than almost any trade business spends in a year, so in practice it usually gives 100% tax relief on qualifying purchases straight away. Cars are excluded. Always check the current limit on GOV.UK.

Do tools count as capital allowances or expenses?

It depends on the tool and the accounting basis you use. Small, short-life hand tools are usually treated as everyday allowable expenses. More expensive tools and equipment that you keep and reuse over several years are capital items — on accruals accounting you claim them through capital allowances (normally the AIA, giving full relief in year one), while on the cash basis most tools are simply deducted as an expense. Either way you get relief; you just can't claim the same item twice. If you're unsure which side a particular tool falls, ask your accountant.