How to Calculate Capital Allowances: Pools, AIA, and WDA

To calculate capital allowances, you work through your qualifying business spending in a set order: sort each asset into the right pool, claim the Annual Investment Allowance or full expensing on what you can, apply any first-year allowances, deduct disposal proceeds from the pool balances, and then run the writing down allowance percentage over whatever remains. The steps below take you through that sequence with the rates that apply now and the changes coming from April 2026.

Step 1: Identify Your Qualifying Expenditure

Start by listing every capital purchase for the accounting period that relates to your trade. The spending has to be capital expenditure on plant or machinery, and you have to own the asset as a result of that spending.¹ Plant and machinery covers most of what you use to run the business rather than the premises you run it from: computers, telecommunications systems, office furniture, cookers, washing machines, tools, and machinery of all kinds.² Most commercial vehicles qualify too.

The cost you claim is not just the invoice price on the asset. Delivery charges, installation fees, and any building alterations needed to get the equipment working all fold into the total. A factory that needs a reinforced floor before a new press can be installed can roll that floor work into the allowable cost. Keep invoices for each element, because the figure you claim must match what you actually spent.

Some items drop out at this stage. Land never qualifies. Buildings and their structural components are excluded from plant and machinery allowances. Intangibles like goodwill, patents, and trademarks fall outside these rules. Anything bought for personal use is ineligible even if it sits in your office.

Step 2: Sort Each Asset into the Right Pool

Every qualifying asset belongs in a pool. The pool determines the rate at which you write off the cost, so getting this wrong throws the whole calculation off.

Main Pool

Most plant and machinery lives here: computers, office furniture, tools, standard machinery, and cars with CO2 emissions of 50 g/km or less. Multiple assets share one collective balance that carries forward each year and shrinks as you claim relief.

Special Rate Pool

Assets with longer useful lives or specific characteristics attract a lower rate. This includes long-life assets (expected useful life of 25 years or more), integral features of a building such as electrical and cold water systems, thermal insulation added to existing structures, and cars with CO2 emissions above 50 g/km.³ Like the main pool, it is one running balance.

Single Asset Pools

Some items must be tracked on their own. Short-life assets (where you expect to sell or scrap within eight years and make a specific election) and assets with mixed business and private use each get their own single asset pool. The advantage is that if you dispose of the asset for less than its remaining balance, you can claim the shortfall as a balancing allowance, which you generally cannot do inside the main or special rate pools.

Step 3: Apply the Annual Investment Allowance or Full Expensing

Before you touch writing down allowances, use up any 100% reliefs. The Annual Investment Allowance (AIA) is the biggest one for most businesses. It gives a 100% deduction on qualifying plant and machinery expenditure up to £1,000,000 per year, and this limit is now permanent from 1 April 2023.⁴ Spend £80,000 on new equipment and you can deduct the whole £80,000 from your profits in the year of purchase. It is available to sole traders, partnerships, and companies.

A few points catch people out when they run the numbers:

Cars are excluded, whatever their emissions or value.
Unused AIA cannot be carried forward.⁵
If your accounting period is not exactly 12 months, the £1,000,000 limit is adjusted proportionally. An 18-month period gets £1,500,000; a 9-month period gets £750,000.⁵
You can claim AIA on part of an asset’s cost and pool the rest for writing down allowances.

Companies have an additional layer of relief. Permanent full expensing lets a company deduct 100% of the cost of new, unused main rate plant and machinery in the year of purchase with no monetary cap.⁶ A company buying £3 million of qualifying equipment can deduct the entire amount that period. Full expensing only covers new assets, is not available to unincorporated businesses, and does not apply to assets bought for leasing.

Step 4: Claim Any Other First-Year Allowances

A handful of targeted 100% first-year allowances sit alongside the AIA. New zero-emission cars qualify, and this has been extended to 31 March 2027 for corporation tax and 5 April 2027 for income tax.⁷ Electric vehicle chargepoints follow the same timeline.

From April 2026, a new 20% first-year allowance opens up, designed to be available to unincorporated businesses and for leased assets, groups currently shut out of full expensing.⁶ If you are a sole trader or partnership buying qualifying equipment above the AIA limit from that date, check whether this 20% allowance applies before dropping the excess into a pool.

Step 5: Deduct Disposal Proceeds from the Pools

If you sold, scrapped, or gave away any assets during the year that were previously in a pool, take the sale price (or market value where there was no sale) off the pool balance before you calculate the writing down allowance. Do this pool by pool.

Watch what happens if the disposal proceeds push the pool balance below zero. The excess becomes a balancing charge, which is added back to your taxable profit for the year. Balancing allowances work the other way but are more restricted: for a single asset pool, you claim the shortfall between the disposal proceeds and the remaining balance; for the main and special rate pools, a balancing allowance is only available when you close the business entirely.⁸ That restriction is one practical reason to consider the short-life asset election for equipment you plan to replace within eight years.

Step 6: Calculate the Writing Down Allowance

Anything not fully relieved through the AIA, full expensing, or a first-year allowance goes into the relevant pool and is written off gradually. The writing down allowance (WDA) is a reducing balance calculation: the percentage applies to the pool balance each year, not to the original cost of the assets in it.

Current Rates and the April 2026 Change

For accounting periods beginning before April 2026, the main pool WDA rate is 18%. From 1 April 2026 (corporation tax) or 6 April 2026 (income tax), it drops to 14%. The special rate pool stays at 6%.⁶ If your accounting period straddles the April 2026 boundary, apportion the WDA between the old 18% rate and the new 14% rate based on how many days sit either side.

Worked Example

Here is how a main pool calculation looks over two years using the new 14% rate.

Year 1: pool balance brought forward is £50,000. New additions not covered by AIA come to £10,000, giving a total of £60,000. WDA at 14% is £8,400. The balance carried forward is £51,600.

Year 2: pool balance brought forward is £51,600. No new additions. WDA at 14% is £7,224. The balance carried forward is £44,376.

The pool does not reach zero under this method. It just gets smaller each year.

Step 7: Carry the Balance Forward or Use the Small Pools Allowance

Subtract the WDA you claimed from each pool balance. The resulting figure, the Tax Written Down Value, becomes the starting balance for next year. Keep this rolling record accurate, because errors compound over years.

One shortcut applies when a pool gets small. If your main pool or special rate pool balance falls to £1,000 or less before you calculate the year’s WDA, you can write off the entire remaining balance in one go instead of claiming a percentage.⁹ The £1,000 threshold is adjusted proportionally for accounting periods shorter or longer than 12 months, so a 9-month period has a £750 threshold.

Special Rules for Cars

Cars sit outside the standard pattern in one important respect: the AIA cannot be used on any car. The relief you get depends on emissions and whether the car is new or second-hand.

New zero-emission cars: 100% first-year allowance, so the full cost is deducted in the year of purchase.⁷
CO2 emissions of 50 g/km or less: main pool, main pool WDA rate. This is where second-hand electric cars end up because they cannot claim the first-year allowance.
CO2 emissions above 50 g/km: special rate pool at 6%. Petrol and diesel cars almost always land here.

If you use a car partly for personal journeys, it must go into its own single asset pool, and you reduce the WDA by the private use percentage before claiming it.

A Note on Buildings

Buildings and structural components sit outside plant and machinery allowances entirely, so they never appear in the calculation above. Commercial property construction costs may qualify for a separate relief, the Structures and Buildings Allowance, which runs on a straight-line 3% annual deduction rather than the pool-and-percentage mechanics used for plant and machinery.¹⁰ Integral features that qualify as plant, such as electrical systems, go into the special rate pool instead.

1
legislation.gov.uk. Capital Allowances Act 2001 – Section 11
2
GOV.UK. CA22030 – Plant and Machinery Allowances: Buildings and Structures
3
legislation.gov.uk. Capital Allowances Act 2001 – Section 104D
4
GOV.UK. Legislating the Annual Investment Allowance at 1m
5
GOV.UK. CA23085 – Plant and Machinery Allowances: Annual Investment Allowance Claims and Amounts
6
GOV.UK. Capital Allowances: New First-Year Allowance and Reducing Main Rate Writing-Down Allowances
7
GOV.UK. Capital Allowances: Extension of First-Year Allowances for Zero-Emission Cars and Chargepoints
8
GOV.UK. Capital Allowances When You Sell an Asset
9
GOV.UK. Work Out Your Writing Down Allowances: Work Out What You Can Claim
10
GOV.UK. Claiming Capital Allowances for Structures and Buildings