When your business buys a van, tools, machinery or computer equipment, you can’t usually deduct the full cost as an ordinary expense. Capital allowances are how you claim tax relief instead. For construction firms and other Essex businesses that invest regularly in equipment, they’re one of the most valuable and most misunderstood areas of tax. As a chartered accountant in Essex, here’s a plain-English guide for 2026/27.
What are capital allowances?
Capital allowances let you deduct the cost of qualifying plant and machinery from your profits before tax is calculated. That includes tools, vans, computers, office equipment and many fixtures. The amount of relief, and how quickly you receive it, depends on which type of allowance applies.
The main reliefs available
The Annual Investment Allowance gives 100% relief on up to £1 million of qualifying spending each year and is available to most businesses, including sole traders and partnerships. Full expensing offers 100% relief with no upper limit, but only to limited companies buying new main rate equipment. A new 40% first-year allowance has applied since 1 January 2026 and, unlike full expensing, can be used by sole traders and partnerships too. Whatever isn’t claimed upfront joins a pool and is written down gradually. From April 2026 that main pool rate fell from 18% to 14% a year.
Cars versus vans
Vehicles are treated differently depending on type. Vans and most commercial vehicles generally qualify for the Annual Investment Allowance, while cars do not. For cars, relief depends on CO2 emissions, and new zero-emission cars can qualify for a 100% first-year allowance, which is currently available until spring 2027. Getting the classification right matters, because the difference in relief can be substantial, and it’s an area where our team regularly spots missed claims for construction and other SME clients.
Timing your purchases
With slower relief on the main pool, claiming upfront allowances matters more than before. Relief normally follows the accounting period in which you buy the asset, so a purchase just before your year end can bring tax savings forward. It’s worth remembering, though, that tax relief reduces the cost of an asset rather than removing it. Spending money purely to save tax rarely makes sense, so buy what the business genuinely needs and let the allowances work in your favour.
Buying, leasing or financing
Second-hand equipment, leased assets and finance agreements can each follow different rules. Speaking to a financial advisor before a major purchase can help you compare buying outright with leasing or financing, and see how each option affects your tax and cash flow.
Make sure you claim everything
Many businesses leave allowances unclaimed simply because nobody checked. Contact us today to have your equipment spending reviewed before your year end.