What capital allowances can you claim when you’re self employed?

Buying equipment, machinery or a lorry, van or car is a big deal for most small businesses, especially sole traders (AKA the self employed). Such items are called “plant and machinery” for tax purposes and they…

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Last Updated: 5th April 2023

Buying equipment, machinery or a lorry, van or car is a big deal for most small businesses, especially sole traders (AKA the self employed). Such items are called “plant and machinery” for tax purposes and they can be expensive.

Fortunately, when you buy them to keep hold of and use within your business, they’re considered capital assets for which you can claim capital allowances. That means you can take away all or some of their value from your profits to help reduce your tax bill. The value is the price you paid for the “plant and machinery” item.

You may also be able to claim capital allowances for other things, such as doing-up business premises (in some UK areas), fixtures (eg fitted kitchens or bathroom suites in commercial premises), integral parts of commercial premises (eg water heating and air-conditioning systems), even R&D and some forms of intellectual property (eg patent rights).

You can’t claim capital allowances on things you lease, your business must own them.

Need to know! There is a wide range of other business operating costs that you can claim as allowable expenses, which can also reduce your tax bill.

The Annual Investment Allowance

Usually, you can deduct the full cost of plant and machinery from your profits before tax through the Annual Investment Allowance (AIA). The AIA is a 100% capital allowance for qualifying plant and machinery that you buy – although tax may be payable if you later sell an item for which you’ve claimed AIA.

  • The maximum amount of AIA that sole traders/partners can claim in a tax year is £200,000.
  • You can claim a new allowance for each accounting period, but you can only claim AIA in the period in which you bought the item.
  • You cannot claim the full value of items you also use outside your business for personal reasons, if you’re a sole trader or partner.
  • If you’re a sole trader or member of an ordinary partnership and have more than one business or trade, normally, each business can claim AIA, although there are restrictions if controlled by the same person, they have similar activities or operate from the same premises. Mixed partnerships do not get AIA.

Need to know! You cannot claim AIA on business cars, things you owned for another purpose before you started using them in your business or things you’ve been given. Instead, you may be able to claim writing down allowances.

First year allowances

Some assets qualify for first year allowances, the full cost of which you can deduct from your profits before tax. You can claim first year allowances as well as the AIA.

As long as they are brand new, examples of things that you can buy that qualify for first year allowances include: electric cars and cars with zero CO2 emissions; zero-emission goods vehicles; plant and machinery for petrol re-fuelling stations (eg storage tanks, pumps, etc).

Need to know! If you don’t claim all of the first year allowances to which you’re entitled, you can claim part of the cost in the next accounting period by using writing down allowances.

What about business cars?

You’re allowed to claim capital allowances on cars you buy and use in your business, which means you can deduct some of the value from your profits before you pay tax. You use writing down allowances to find out how much you can claim.

Alternatively, sole traders and members of an ordinary business partnership can claim flat-rate simplified mileage expenses on business vehicles, provided that they haven’t already claimed for the vehicle in another way.

How to claim capital allowances

First you need to work out your capital allowances, then you claim via your Self Assessment tax return if you’re a sole trader (or via your partnership return if you’re part of a partnership). Your capital allowances (and any other reliefs and allowances) are deducted from your taxable profits and you are taxed accordingly.

Top tip: If you’re in any doubt over what allowances or reliefs you can claim as a self-employed sole trader, seek tailored professional guidance from a tax adviser. It could save you a lot of money.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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