What are the main capital allowance options for UK businesses in 2025/26?

The main capital allowance options in 2025/26 are: (1) Annual Investment Allowance (AIA) — 100% relief in year one on qualifying plant and machinery, up to £1 million per year; (2) Writing Down Allowance (WDA) — 18% per year on main pool reducing balance, 6% on special rate pool; (3) First Year Allowance (FYA) — 100% relief on qualifying zero-emission vehicles and energy-efficient equipment, no cap; (4) Full Expensing (companies only) — 100% on main pool, 50% on special rate pool, from April 2023.

Which capital allowance gives the most tax benefit?

For most assets, AIA or FYA (both providing 100% year-one relief) give the greatest NPV of tax relief because they front-load the deduction. WDA at 18% or 6% spreads relief over many years, which is less valuable in present-value terms. The 'best' allowance depends on the asset type, eligibility, and how long you plan to hold the asset.

What is the difference between AIA and WDA for an asset costing £50,000?

AIA: full £50,000 deduction in year one; tax saving at 25% = £12,500. WDA 18%: year 1 deduction = £9,000, tax saving = £2,250. WDA 6%: year 1 deduction = £3,000, tax saving = £750. AIA gives £10,250 more tax saving in year one than 18% WDA for the same asset. Over time, total relief equals the same amount (cost minus disposal proceeds) — only timing differs.

When is WDA used instead of AIA?

WDA is used instead of AIA when: the asset does not qualify for AIA (e.g. cars), the total qualifying expenditure exceeds the £1 million AIA limit, or the business chooses not to claim AIA in a particular year (rare). Cars always use WDA (18% for low emission, 6% for high emission) or FYA 100% for zero-emission cars.

How is NPV used to compare capital allowances?

NPV (Net Present Value) discounts future tax savings back to today's value to account for the time value of money. A £1 tax saving today is worth more than £1 in 10 years. AIA and FYA (100% year-one) have a higher NPV than WDA (which spreads relief over many years) at any positive discount rate. The NPV comparison lets you quantify how much more valuable front-loaded relief is.

What assets qualify only for 6% WDA?

Assets attracting only 6% WDA include: cars with CO2 emissions above 50g/km, integral features of buildings (electrical systems, heating, lifts, cold water systems), long-life assets with expected useful life over 25 years, and thermal insulation added to buildings. These are in the special rate pool. If AIA is available, claiming it on these assets first is particularly valuable since 6% WDA is very slow.

What is Full Expensing and how does it differ from AIA?

Full Expensing (available to companies from April 2023) provides 100% first-year allowance on new main pool plant and machinery with no £1 million cap. For special rate assets, 50% first-year allowance is available. Full Expensing only applies to companies (not sole traders or partnerships) and only to new assets. AIA applies to all business types and both new and second-hand qualifying assets up to £1 million.

Can I mix different capital allowances on different assets in the same year?

Yes. In any tax year you can claim: AIA on some qualifying assets, FYA on qualifying zero-emission/green assets, and WDA on remaining pool balances from previous years. Each allowance applies to the relevant assets — the key is that AIA and FYA cannot both be claimed on the same individual asset, and cars use WDA (or FYA for zero-emission only).

What is the NPV benefit of AIA over WDA at 18%?

The NPV benefit depends on your discount rate and how long you hold the asset. As a rough guide at 5% discount rate: for a £100,000 asset held 10 years with nil disposal — AIA NPV ≈ £25,000 (all in year 1 at 25% tax); WDA 18% NPV ≈ £22,500 (relief spread over years). The NPV advantage of AIA is approximately £2,500 per £100,000 at 5% discount, rising to £4,000+ at 10% discount.

What is the NPV benefit of AIA over WDA at 6%?

For special rate pool assets (6% WDA), the NPV benefit of AIA is much larger. At 5% discount: £100,000 asset, AIA NPV ≈ £25,000 versus WDA 6% NPV ≈ £17,000 — an advantage of approximately £8,000. The slower the WDA rate, the more valuable the AIA front-loading. Use AIA on special rate assets first when you have multiple qualifying assets.

Do I always have to take the maximum capital allowance available?

No. Capital allowances are optional — you can claim less than the maximum or nothing in any year. Businesses sometimes do this when: profits are low (deductions would create unusable losses), relief is needed in a future high-profit year, or there are complex group/association restrictions. Unclaimed AIA or WDA is not lost — the pool balance carries forward for future years.

How does the disposal value affect the total capital allowances received?

Total capital allowances (net) = cost minus disposal proceeds. This is true regardless of whether AIA, WDA, or FYA is used. If you claim 100% AIA/FYA upfront and then sell the asset for £20,000, the £20,000 disposal proceeds create a balancing charge — taxed in the disposal year. Net relief remains: cost minus proceeds. The benefit of AIA/FYA is timing — you get the relief earlier, even though disposal creates a charge later.

What is the best allowance for a qualifying zero-emission car?

A qualifying zero-emission car (new, 0g/km CO2, registered from April 2021) can use 100% FYA. This is better than the 18% WDA that would apply if it lost qualifying status, as it gives the full cost deduction in year one. Use FYA for zero-emission cars rather than AIA, to preserve your AIA limit for other qualifying plant and machinery.

What is the best allowance for a car emitting more than 50g/km CO2?

Cars with CO2 above 50g/km go in the special rate pool at 6% WDA. They cannot use AIA or FYA. The slow 6% WDA makes these cars one of the least tax-efficient assets to purchase. Businesses are strongly incentivised to switch to zero-emission vehicles (100% FYA in year one).

What is the best allowance for a car emitting 50g/km or less?

Cars with CO2 of 50g/km or less (but not zero) go in the main pool at 18% WDA. They cannot use AIA. Zero-emission cars (0g/km) qualify for 100% FYA — so the best outcome is zero-emission. If the car is 1-50g/km (hybrid), only 18% WDA is available — a significant disadvantage versus zero-emission 100% FYA.

What discount rate should I use for the NPV comparison?

Use your business's cost of capital or required rate of return. For SMEs, 5-10% is common. For larger businesses with access to cheap finance, 5% may be appropriate. For businesses funding investment from retained profits, 8-10% better reflects the opportunity cost. A higher discount rate increases the NPV benefit of front-loaded allowances (AIA/FYA) compared to WDA.

What is a balancing charge on disposal after AIA?

After claiming 100% AIA or FYA, the asset has nil written-down value. On disposal, the full proceeds are treated as a balancing charge — added to taxable profits in the disposal year. This 'claws back' some of the relief claimed. Net relief = AIA claimed minus tax on balancing charge = (cost - proceeds) x tax rate. This is correct because net relief should equal (cost - proceeds) x tax rate.

Can a company use Full Expensing AND AIA?

Yes, but not on the same asset. A company could use Full Expensing (100%) for some main pool assets and AIA for others. In practice, for companies with expenditure under £1 million, AIA and Full Expensing give the same result. Full Expensing becomes more valuable than AIA for companies with qualifying expenditure over £1 million, as it has no cap.

How does the holding period affect the NPV comparison?

Longer holding periods reduce the NPV advantage of AIA over WDA because both scenarios produce relief for more years. For a 1-year hold: AIA is dramatically better (100% in year 1 vs 18% with WDA). For a 30-year hold: the difference is smaller (WDA has many years to accumulate relief) but AIA still wins on NPV because of the early heavy deductions.

What is the impact of inflation on the capital allowances comparison?

Inflation is embedded in the discount rate. A higher discount rate (reflecting inflation plus real return) increases the relative value of earlier (AIA/FYA) relief. In high-inflation environments, the NPV advantage of front-loaded allowances over WDA is larger, making AIA and FYA even more preferable.

Should I always use AIA before WDA for the same asset type?

Yes — if an asset qualifies for AIA, it is almost always better to use AIA (100% year-one) rather than WDA (18% or 6% per year). The only exceptions are: the AIA limit has been exhausted, profits are very low making immediate deductions inefficient, or the business plans to sell the asset soon and wants to avoid a large balancing charge.

What is the recommended order for allocating AIA across asset types?

Prioritise AIA in this order: (1) Special rate pool assets (6% WDA otherwise) — biggest NPV benefit; (2) Main pool assets (18% WDA otherwise) — still significant benefit; (3) Assets qualifying for FYA — use FYA on these instead and preserve AIA for non-FYA assets. Allocating AIA to special rate assets first maximises the present value of your overall capital allowances claim.

How does the 50% first-year allowance for companies compare to AIA?

For special rate assets, companies from April 2023 can claim 50% first-year allowance (under Full Expensing) instead of 6% WDA. 50% FYA is better than 6% WDA but worse than 100% AIA on the same asset. NPV of 50% FYA on £100,000 at 25% tax, 5% discount: approximately £20,000. NPV of AIA: £25,000. AIA gives £5,000 more NPV. Prefer AIA over 50% FYA where available.

What does the year-by-year relief table show?

The year-by-year relief table shows the annual capital allowance deductible under each scenario: AIA/FYA (all in year 1), WDA 18% (main pool, reducing balance each year), and WDA 6% (special rate, reducing balance). It shows cumulative relief and the tax saving in each year, allowing you to see how quickly relief accumulates under each option.

Why is the NPV of AIA better than WDA even though total relief is the same?

Because money received earlier is worth more than money received later — this is the time value of money. AIA gives the same total tax saving as WDA, but concentrated in year one. WDA spreads the same total saving over 10-20+ years. Discounting future cash flows back to present value shows that the AIA upfront saving is worth more in real terms. The discount rate quantifies how much more valuable earlier money is.

When would you choose WDA over AIA voluntarily?

Voluntarily choosing WDA over AIA is unusual but can make sense when: (1) profits are very low or negative and immediate allowances cannot be used; (2) you expect higher profits (and thus higher tax rate) in future years — deferring relief to those years may be more valuable; (3) your business has available losses that would be wasted if AIA creates more losses; or (4) cash flow is not a constraint and administrative simplicity is preferred.

What is the total tax saved on a £200,000 asset under each allowance?

At 25% corporation tax rate, with zero disposal value, total tax saving over the asset's life = £200,000 x 25% = £50,000 under ALL scenarios (AIA, WDA 18%, WDA 6%) — the total is identical. The difference is when you receive the saving: AIA = £50,000 in year 1; WDA 18% = £9,000 in year 1, declining each year; WDA 6% = £3,000 in year 1, very slowly declining. NPV converts these into comparable present values.

How should I interpret the 'Best Option' recommendation?

The 'Best Option' in our comparison calculator is the scenario with the highest NPV of tax relief. This is almost always AIA or FYA (100% year-one) over WDA, because front-loaded relief is more valuable. If the asset type is a car above 50g/km (AIA not available), the comparison is just between WDA rates. The recommendation highlights which allowance actually applies to your asset type and which gives the best NPV.

What if my asset qualifies for both FYA and AIA?

If an asset qualifies for both FYA (e.g. zero-emission car) and AIA, use FYA and reserve your AIA limit for other assets. Both give 100% year-one relief so the tax calculation is identical, but using FYA preserves your £1 million AIA limit for assets that do NOT qualify for FYA. This is the most efficient strategy for businesses investing in both green assets and standard plant/machinery.

What records should I keep to support my capital allowances claims?

For all capital allowances: purchase invoices, delivery notes, and evidence of business use; for AIA — confirmation asset qualifies (not a car, within limit); for FYA — evidence of qualifying condition (zero emissions certificate for vehicles, Energy Technology List entry for equipment); for WDA pools — annual pool schedules showing opening balance, additions, disposals, WDA claimed, and closing balance; disposal records when assets are sold or scrapped.

Capital Allowances Comparison Calculator 2025/26

Compare AIA (100%), WDA 18%, WDA 6% and FYA 100% for your asset. Year-by-year relief tables, NPV comparison, and best-option recommendation.

Compare Capital Allowances

Asset cost £

Asset type

Business profit before allowances £

Tax rate

Years to hold asset (1–10)

Expected disposal value £

Discount rate for NPV % (default 5)

Capital Allowances Comparison Explained

All capital allowances ultimately provide the same total relief: cost minus disposal proceeds. The difference is timing — when you receive the tax saving. Front-loaded allowances (AIA, FYA) give relief in year one; WDA spreads it over many years. NPV comparison quantifies the cash-flow advantage of earlier relief.

Priority Order for Capital Allowances

For best results: (1) Use FYA on qualifying zero-emission/green assets — preserves AIA limit. (2) Use AIA on special rate pool assets first (6% WDA otherwise). (3) Use AIA on main pool assets (18% WDA otherwise). (4) Fall back to WDA only when AIA/FYA is unavailable or exhausted. Cars can only use WDA (or FYA for zero-emission).

The NPV Advantage Explained

The NPV advantage of AIA over WDA is larger when: the discount rate is high (money is more valuable sooner), the WDA rate is low (6% vs 18%), and the holding period is long (WDA accumulates slowly). The comparison calculator shows the exact NPV for your specific inputs.

Capital Allowances Comparison Calculator 2025/26

Compare Capital Allowances

Capital Allowances Comparison Explained

Priority Order for Capital Allowances

The NPV Advantage Explained

Frequently Asked Questions