If you are a sole trader in the UK, you can claim tax relief on the cost of assets you buy for your business. This relief is called capital allowances. It reduces your taxable profit, which means you pay less income tax and Class 4 National Insurance.

Many self-employed people miss out on this relief because they do not know what qualifies or how to claim it. This guide explains how sole trader capital allowances work for the 2025/26 tax year, what you can claim on, and how to report it on your Self Assessment return.

What Are Capital Allowances for Sole Traders?

Capital allowances let you deduct the cost of business assets from your profits before tax. Instead of treating the full cost as a one-off expense in your accounts, you spread the relief over the asset's useful life or claim it immediately under specific schemes.

You cannot claim capital allowances on everyday running costs like rent, utilities, or stock. Those go through your profit and loss account as normal expenses. Capital allowances apply to tangible assets you keep in the business for more than a short period: equipment, machinery, vehicles, computers, tools, and similar items.

If you use the cash basis for your Self Assessment return, the rules are slightly different. We cover that below.

What Assets Qualify for Capital Allowances?

Most physical assets you buy and use for your business qualify. The main categories are:

  • Plant and machinery: computers, printers, office furniture, tools, machinery, commercial vehicles, vans, lorries, tractors
  • Fixtures and fittings: shelving, kitchen equipment in a catering business, display units in a shop
  • Certain building improvements: solar panels, air conditioning, security systems (but not the building itself)
  • Cars used for business: subject to specific rules on CO2 emissions and private use

Assets you owned personally before starting the business also qualify. If you start using your personal laptop for your new consultancy, you can claim capital allowances on its market value at the date you began using it for business. Keep a record of that valuation.

What Does Not Qualify?

Some assets are specifically excluded from capital allowances:

  • Land and buildings (except the fixtures listed above)
  • Structures and buildings allowances exist but at a lower rate (3% per year) and only for limited companies, not sole traders
  • Assets used only for personal purposes
  • Assets bought before you started the business and never used for it
  • Cars with CO2 emissions above 50g/km (these go into a special rate pool at 6% per year)

The Annual Investment Allowance (AIA)

The Annual Investment Allowance is the most generous relief for most sole traders. It lets you claim 100% of the cost of qualifying plant and machinery in the year you buy it, up to a limit.

For the 2025/26 tax year, the AIA limit is £1,000,000. That is a temporary limit introduced in 2019 and extended several times. It applies to most sole traders, partnerships, and limited companies.

If you spend £15,000 on a new van and tools for your landscaping business, you can deduct the full £15,000 from your profits in that tax year. Your taxable profit reduces by £15,000, saving you income tax at your marginal rate and Class 4 NIC.

The AIA applies to most plant and machinery except cars. Cars have their own rules, which we cover below.

AIA Example for a Sole Trader

Take a freelance photographer in Manchester turning over £62,000. In the 2025/26 tax year, she buys a new camera body for £3,400, a lens for £1,800, and a laptop for £1,200. Total spend: £6,400.

She claims the full £6,400 under the AIA. Her taxable profit drops from £62,000 to £55,600. At the basic rate of 20% and Class 4 NIC at 9%, the tax saving is roughly £1,856. That is a real cash saving from buying equipment she needed anyway.

Full Expensing for Sole Traders

Full Expensing was introduced for limited companies from April 2023. It allows a 100% first-year deduction on most main-rate plant and machinery, with no cap. However, Full Expensing is not available to sole traders or partnerships.

Sole traders use the AIA instead. The AIA cap of £1,000,000 is high enough that most sole traders will never hit it. If your annual capital spend exceeds £1,000,000, you are likely running a business large enough to consider incorporation anyway. For the vast majority of self-employed people, the AIA covers everything.

Writing Down Allowances

If you buy assets that do not qualify for the AIA, or if you exceed the AIA limit, you claim writing down allowances instead. These let you deduct a percentage of the asset's value each year.

There are two pools:

  • Main rate pool (18% per year): most plant and machinery, vans, tools, computers
  • Special rate pool (6% per year): cars with CO2 emissions above 50g/km, integral features (lifts, air conditioning), long-life assets

You calculate the writing down allowance on the reducing balance. If you have a van worth £10,000 in the main rate pool, you claim 18% (£1,800) in year one. The remaining £8,200 carries forward to year two, where you claim 18% of that (£1,476), and so on.

Capital Allowances on Cars for Sole Traders

Cars have their own rules. The treatment depends on the car's CO2 emissions and how much you use it for business.

New Cars (CO2 0g/km)

Zero-emission cars qualify for a 100% first-year allowance. You deduct the full cost in year one. This is generous but only applies to brand-new electric cars.

New Cars (CO2 1g/km to 50g/km)

These go into the main rate pool at 18% writing down allowance. No AIA is available on cars.

Cars (CO2 above 50g/km)

These go into the special rate pool at 6% writing down allowance. Again, no AIA.

Used Cars

Used cars follow the same CO2-based rules. Check the emissions figure from the manufacturer's data. If you cannot find it, HMRC accepts the figure from the V5C logbook.

Private Use Adjustment

If you use the car partly for personal journeys, you must restrict the capital allowance claim to the business-use proportion. If you use the car 70% for business and 30% privately, you claim 70% of the allowance.

This is different from claiming mileage or actual vehicle expenses. You cannot claim capital allowances on a car if you use the simplified mileage rate (45p per mile). The mileage rate already includes an element for depreciation. If you claim mileage, you give up the right to claim capital allowances on that vehicle.

Capital Allowances Under the Cash Basis

If you use the cash basis for your Self Assessment return, you have a simpler option. Instead of claiming capital allowances, you can deduct the full cost of qualifying assets as an expense in the year you pay for them. This is effectively the same as claiming 100% AIA, but without the paperwork of maintaining a capital allowances pool.

The cash basis is available to sole traders and partnerships with a turnover below £150,000 (from 2024/25 onwards, the threshold is removed for most businesses). If you use the cash basis, you do not need to track pools or calculate writing down allowances. You simply deduct the cost of the asset in the year you buy it.

There is one catch. If you buy an asset that has significant personal use, you must restrict the deduction to the business-use proportion. And if you sell the asset later, you must bring the proceeds into your income as a receipt.

Most sole traders find the cash basis simpler. If you use accruals accounting, you must use the capital allowances system.

How to Claim Capital Allowances on Your Self Assessment

You claim capital allowances on your Self Assessment tax return. The relevant pages are the self-employment pages (SA103).

On the short version (SA103S), there is a box for capital allowances. You enter the total amount you are claiming. On the full version (SA103F), you break down the claim by AIA, writing down allowances, and any first-year allowances.

You need to keep records of what you bought, the cost, the date of purchase, and the business-use proportion. HMRC can ask for these records if they check your return. Keep receipts, invoices, and bank statements.

If you use accounting software like Xero, QuickBooks, or FreeAgent, most packages have a fixed asset register that tracks capital allowances for you. This saves time and reduces errors.

Common Mistakes Sole Traders Make

These are the errors we see most often when reviewing Self Assessment returns:

  • Claiming capital allowances on assets you already claimed as an expense. You cannot double-dip.
  • Claiming the full cost of a car used partly privately without restricting for personal use.
  • Forgetting to claim capital allowances on assets you owned personally before starting the business.
  • Using the mileage rate and claiming capital allowances on the same vehicle. Pick one method per vehicle.
  • Not claiming the AIA on assets that qualify, then carrying forward a pool unnecessarily.

When to Speak to an Accountant

Capital allowances are straightforward for most sole traders. If you buy a laptop and some tools, you claim the AIA and move on. But the rules get more complex if you buy a high-value car, sell assets during the year, or have a mix of business and personal use.

If your capital spend exceeds £50,000 in a year, or if you are buying a car costing over £40,000, the calculations change. Cars over £40,000 have a cap on the writing down allowance. And if you sell an asset, you may need to calculate a balancing charge or balancing allowance.

Our ICAEW qualified team at Holloway Davies can help you review your capital allowances position. We work with sole traders across the UK, from a freelance consultant in Bristol to a tradesperson in Leeds. If you are unsure whether you are claiming correctly, get in touch.

For more guidance on running your self-employed business, read our other articles on sole trader and self employment topics. You can also use our online calculators to estimate your tax position.

Summary

Sole trader capital allowances are a valuable relief that reduces your tax bill. The Annual Investment Allowance covers most assets up to £1,000,000 per year. Cars have separate rules based on CO2 emissions. If you use the cash basis, you can deduct the full cost as an expense instead.

Keep records of everything you buy. Claim the relief in the year you buy the asset. Restrict claims for private use. And if you are unsure, ask an accountant.