Capital Allowances for Sole Traders: What You Can Claim

Capital allowances let you claim tax relief on business assets like equipment, vehicles, and tools. Here's what UK sole traders need to know.

What Are Capital Allowances?

Capital allowances are tax reliefs for business spending on assets that last longer than a year. Unlike day-to-day expenses (like stationery or software subscriptions), capital expenditure is claimed differently.

Instead of deducting the full cost in one year, you claim a portion over time — or in some cases, the full amount upfront.

What Qualifies for Capital Allowances?

You can claim capital allowances on most business assets, including:

• Equipment: Computers, laptops, printers, machinery
• Vehicles: Vans, lorries, and some cars (specific rules apply)
• Tools and furniture: Office furniture, workshop tools
• Business premises: Fit-out costs, building renovations
• Fixtures and fittings: Lighting, heating, security systems

Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA) lets you claim 100% of the cost of most business assets in the year you buy them.

How to use it: If you buy a laptop for £1,200, you can deduct the full £1,200 from your taxable profit in that tax year.

Writing Down Allowance (WDA)

If you've used up your AIA limit, or you're claiming on assets that don't qualify for AIA, you can claim Writing Down Allowance (WDA).

WDA allows you to claim a percentage of the asset's value each year:

• Main rate: 18% per year (most assets)
• Special rate: 6% per year (integral features, long-life assets)

Full Expensing for Companies

Full expensing is available for limited companies — not sole traders. As a sole trader, you'll use AIA and WDA instead.

However, some sole traders operate as limited companies, so it's worth knowing the difference.

Vehicles and Capital Allowances

Vehicle rules are more complex. Here's a quick breakdown:

• Electric vans or cars (new & zero-emission): 100% first-year allowance
• Vans (new & used): AIA eligible
• Cars (new, CO₂ ≤ 50g/km): 18% WDA (main rate)
• Cars (new, CO₂ 51-110g/km): 6% WDA (special rate)
• Cars (new, CO₂ > 110g/km): 6% WDA (special rate)
• Used cars: Not eligible for AIA — claimed under WDA only

How to Claim Capital Allowances

1. Identify qualifying assets: Make a list of business assets purchased in the tax year
2. Calculate AIA eligibility: Check if the asset qualifies for 100% relief
3. Apply WDA for remaining assets: Calculate the percentage deduction
4. Keep receipts and records: HMRC may ask for evidence
5. Submit on your Self Assessment: Capital allowances are claimed on your tax return

Common Mistakes to Avoid

• Claiming on cars incorrectly: Used cars don't qualify for AIA
• Forgetting to claim: Many sole traders miss out on capital allowances
• Claiming repairs as capital: Day-to-day repairs are expenses, not capital
• Not keeping records: HMRC may ask for proof of purchase

How Censitio Helps You Track Assets

• Import CSV bank statements — track purchases automatically
• Assign categories — separate assets from expenses
• Export HMRC-ready Excel — include capital allowances on your Self Assessment
• Works offline — desktop version auto-categorizes with HMRC rules