Capital allowances for tools and equipment: what tradespeople can claim

When you buy a van, tools, or other equipment for your trade, you cannot just subtract the full cost from your profit as a normal expense. That falls under capital allowances — a separate set of HMRC rules that determine how much you can deduct and when.

The good news is that for most tradespeople, the Annual Investment Allowance covers the full cost of almost anything you buy. This guide explains how capital allowances work, what changed in April 2026, and how to make sure you are claiming everything you are entitled to.

Revenue expenses vs capital expenditure

First, a key distinction. When you buy materials for a specific job — say, pipes for a plumbing job — that is a revenue expense. You can deduct it in the year you spend it as a normal business cost. When you buy something with a longer useful life — a van, a power tool, a laptop — that is capital expenditure. You cannot just expense it in one go; you need to use capital allowances instead.

The dividing line is not always obvious, but the basic rule is: if you expect to use it for more than one year in your business, it is probably capital expenditure. Small items like a single screwdriver or a tape measure are usually treated as revenue expenses because the amounts are small and HMRC is not going to worry about them. There is no hard threshold, but most accountants use around £500 as a guide — items above that are treated as capital.

The Annual Investment Allowance (AIA)

The AIA lets you deduct 100% of qualifying capital expenditure in the year you buy it, up to a limit. The current AIA limit is £1 million per year — a number that has been frozen at this level since 2023.

In practice, this means almost everything a typical tradesperson buys — vans, tools, plant and machinery, computers, scaffolding — can be fully deducted in the year of purchase. The £1 million limit is only relevant for larger construction companies with significant equipment spending.

Items that qualify 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 the business
• Fitted fixtures in a rented business premises

Items that do not qualify for AIA include:

• Cars (these use a different allowance — see below)
• Assets bought in the final period of a business that is closing
• Items you owned personally before putting them into the business (use market value at transfer date)

Writing-down allowances: what changes in April 2026

If you spend more than the AIA limit, or buy assets that do not qualify for AIA, you use writing-down allowances (WDAs) instead. These give you a percentage deduction each year rather than 100% upfront.

There are two WDA pools:

• Main pool: most plant and machinery — historically at 18% per year
• Special rate pool: long-life assets, thermal insulation, integral features — at 6% per year

From 6 April 2026 (for sole traders and partnerships), the main rate WDA drops from 18% to 14% per year. This is a significant change — it means assets outside AIA take longer to write off. For example, a £10,000 piece of kit will generate a £1,400 deduction in year one at 14%, rather than £1,800 at 18%.

At the same time, a new 40% First Year Allowance (FYA) is being introduced for new main pool assets from January 2026. This sits between AIA (100%) and WDA (14%) — useful for businesses that have used up their AIA limit.

Capital allowances for vans

A van used for business qualifies for AIA, so you can deduct 100% in the year of purchase. Importantly, for tax purposes a van is defined as a commercial vehicle with a payload of more than one tonne — not a car-derived van or estate car. Most standard transit-style vans qualify.

If you use the van for both business and personal trips, you need to apportion the allowance based on business use. For example, 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 cannot use AIA. Instead, they go into 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 are better off buying a van or pickup truck (which qualifies for AIA) rather than a car-derived vehicle.

The balancing allowance when you sell or dispose

When you sell an asset you have claimed capital allowances on, the proceeds go back into your pool. If the proceeds are higher than the remaining pool value, you have a balancing charge — effectively a tax charge that claws back some of the relief you claimed. If the proceeds are lower, you claim the remaining balance as a balancing allowance.

How to claim capital allowances

Capital allowances are claimed on your self-assessment tax return, in the self-employment section. Your accountant will usually calculate these if you use one. If you file yourself, HMRC's capital allowances guidance on GOV.UK explains the mechanics.

Keep records of every capital purchase, including the date, cost, and description. You will need these for as long as you own the asset plus five years after you dispose of it.

What about the cash basis?

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

If you are unsure which basis you are using, check with your accountant or look at your previous self-assessment return.

Useful tools

Our self-assessment tax calculator can help you estimate your tax bill after deducting capital allowances and allowable expenses. For a full breakdown of 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 100% of what you spend on tools, vans, and equipment in the year you buy them. From April 2026, the main rate writing-down allowance drops from 18% to 14%, which affects assets you cannot put through AIA. Cars are treated differently and cannot use AIA. Keep records of every capital purchase and claim them through your self-assessment return — it is money you are entitled to.