Capital allowances for laptops and equipment: what a small business can claim

If you are about to buy a new laptop, a phone, a till or a server this year, the way you claim the cost on your tax return can change how much tax you pay. The rules are called capital allowances. They sound technical, but for most small businesses the answer is simpler than the name suggests. This guide is based on HMRC's own gov.uk guidance, and it is general information rather than tax advice.

What capital allowances are, and what they are not

Capital allowances are tax relief that lets a business deduct some or all of an item's value from its profits before tax is worked out. According to gov.uk, they mainly cover "plant and machinery", which includes equipment and business vehicles.

They do not cover everything you spend. Day-to-day running costs, items your business trades in, and interest or finance costs for buying assets do not qualify. Those are claimed as ordinary business expenses (for sole traders and partnerships) or deducted as business costs (for limited companies).

The allowance most small businesses use: the Annual Investment Allowance

The Annual Investment Allowance, or AIA, lets you deduct the full value of qualifying items from your profits before tax, up to £1 million. For a small business, that ceiling is far above what you will spend on equipment in a year, so in practice the AIA usually means the whole cost is deducted in the year you buy.

Who can claim it:

• Sole traders
• Partnerships, as long as all the partners are individuals
• Limited companies

Most plant and machinery qualifies, up to the limit. Computers, printers, tills and tools are the everyday examples. Three things do not qualify for the AIA:

• Business cars, which use writing down allowances instead
• Items you already owned for another reason before using them in the business
• Items given to you or your business

A worked example

Say you run a limited company and buy two laptops and a card terminal for a combined £2,400 during your accounting period. If everything qualifies and nothing else uses up your AIA, you can claim the £2,400 against that period's profits, rather than spreading it over several years. That is a bigger first-year deduction than a slow annual percentage would give. The figures are invented to show the mechanics, so check your own numbers.

If you buy something above the AIA limit, gov.uk says you claim first-year allowances or writing down allowances on the excess, and a single item can be split between allowance types.

Details that catch people out

• Timing. You can claim only in the period the item was bought. The purchase date is the date the contract is signed if payment is due within four months, or the payment due date if that is later.
• Mixed use. Sole traders and partnerships must reduce the claim by the proportion of use outside the business. A laptop your family also uses for games is not fully deductible.
• Short accounting periods. The AIA is pro-rated if your period is not 12 months. gov.uk gives the example of a nine-month period, which gives £750,000.
• Hire purchase. You can claim on the capital payments once you start using the item, but not on the interest.
• Selling later. Selling an item after claiming the AIA may create a tax liability, so keep a record of what you claimed on.
• Closing the business. The AIA cannot be claimed for items bought in the final accounting period. You use a balancing charge or allowance on the final return instead.
• Linked businesses. Limited companies under common control share one AIA. If one person runs several businesses as a sole trader or partnership, only one AIA applies where the businesses share premises or similar activities.

Other allowances, and how to choose

The AIA is not the only option. gov.uk lists full expensing and a 50% first-year allowance for qualifying investments from 1 April 2023, and a 40% first-year allowance for qualifying purchases after 1 January 2026. Writing down allowances apply to items that qualify for nothing else, or to value left over after you claim the maximum of another allowance. gov.uk says that if an item qualifies for more than one allowance you can choose which to use, but you cannot claim more than one allowance against the same expenditure.

gov.uk says writing down allowances should be the last resort, because other allowances, including the AIA, may give more tax relief, so check those first. If you are a company planning a large purchase, ask your accountant to compare them before you buy.

If you are a sole trader on the cash basis

Many sole traders and partnerships use the cash basis, where you record income and expenses only when money is received or a bill is paid. Under it, the cost of equipment is claimed as a normal allowable business expense, not as a capital allowance. gov.uk lists "machinery, computers and vans" among the things you use in your business. A business car is different: you can claim it as a capital allowance, but only if you are not using simplified expenses for that vehicle.

So if you are on the cash basis, you will probably never touch the AIA for a laptop. If you use traditional accounting instead, or you run a company, the allowances above apply.

What about software?

HMRC's Capital Allowances Manual says computer software is treated as plant, whether or not it would normally count as plant, and that includes rights to use software and software delivered by download. It does not include the data stored in it, such as the contents of a spreadsheet.

There is an important condition: allowances are only available where capital expenditure has been incurred. The manual points to separate guidance on the line between capital and revenue spending on software. For limited companies, the intangible fixed assets regime generally takes priority, with only a few situations where capital allowances still apply. If you are paying for a one-off build, such as a bespoke website, app or booking system, ask your accountant how it should be treated before assuming you can claim it. If your project involves a new website or app, ask for an invoice that separates the build from ongoing costs, which makes that conversation easier.

What to do this week

• Check how you are accounted for: cash basis, traditional accounting, or a limited company.
• List planned equipment purchases and the date each contract will be signed or paid.
• Keep invoices showing the date, supplier, and what was bought, and note any personal use.
• Note which items are new and which were already owned before business use.
• Ask your accountant about software and any build costs before you order.

The gov.uk pages are worth a read in full, and they are updated when rates change, so check them again at the time of purchase.