Vans, tools and equipment: capital allowances for trades in 2026/27

Why capital allowances are the other half of your expenses claim

Day-to-day running costs, fuel, PPE, materials, insurance, phone, are revenue expenses: you deduct them in full against the year's income, and we cover them in detail in our guide to allowable expenses for CIS subcontractors. But the biggest numbers on most trade businesses' bank statements are not running costs at all. A £30,000 van, a £12,000 mini excavator, a £3,000 scaffold tower: these are capital, assets that will keep earning for years. The tax system gives relief for them through a separate machinery: capital allowances.^[1]

This guide is the capital side of that pair. It covers how the 2026/27 regime actually works after Finance Act 2026 changed two of the core rates, and it works through the specific decisions a construction trade faces: buy the van or lease it, mileage rate or actual costs, write off tools now or pool them, and what the rules say about plant, drainage and groundworks kit. Where a day-to-day cost is the question, use the expenses guide; this article deliberately does not repeat it.

What changed for 2026/27

Finance Act 2026, enacted on 18 March 2026, made two changes to plant and machinery allowances that matter to trades:^[2]

• The main-rate writing down allowance fell from 18% to 14% (section 28). Anything sitting in your main pool, typically kit bought without AIA cover, or the balance carried forward on a car, now writes off more slowly each year.
• A new 40% first-year allowance was introduced (section 29) for qualifying main-rate plant and machinery, giving 40% of the cost in year one with the remaining 60% written down at the new 14% rate.

Two things did not change. The Annual Investment Allowance stays at £1 million a year,^[3] and the special rate for the 6% pool is untouched. For the overwhelming majority of subcontractors and small construction firms, that combination means the practical position is: the AIA still gives you 100% relief in year one on almost everything you buy, and the rate cuts mostly punish whatever falls outside it. Getting your spending inside the AIA is now worth more than it was, because the alternative (the main pool) got slower.

The 2026/27 capital allowances toolkit at a glance

Allowance	Rate 2026/27	What it applies to
Annual Investment Allowance (AIA)	100% on first £1m of spend	Most plant and machinery including vans, tools, plant. Not cars.
First-year allowance (new, FA 2026 s.29)	40%	Qualifying main-rate plant and machinery, useful where AIA is unavailable or exhausted
Main pool writing down allowance	14% a year (was 18%)	Main-rate expenditure not fully relieved up front; balance carried forward
Special rate pool	6% a year	Integral features, long-life assets, thermal insulation, higher-emission cars
Small pools allowance	Write off pool up to £1,000	Either pool whose balance is £1,000 or less before the WDA
Structures and buildings allowance	3% a year straight line	Non-residential structures and buildings, including works excluded from plant and machinery treatment

Everything else in this article is about which row your spending lands in, and how to keep it in the top one.

First check: are you on the cash basis?

Before pooling anything, check which accounting basis you are on, because it changes the answer. Since the 2024/25 tax year the cash basis has been the default for sole traders and most partnerships: you record income when it is received and costs when they are paid, with no turnover ceiling.^[4]

On the cash basis, the cost of plant and machinery is simply deducted as a payment when you pay it, with the notable exception of cars. Buy a £4,000 tool package in February and you deduct £4,000 in that year's figures, no pools, no writing down. Capital allowances in the formal sense remain relevant on the cash basis mainly for cars, which must still go through the allowances rules.

Capital allowances proper, everything in the table above, apply in full if you use traditional (accruals) accounting, and always apply to limited companies, which cannot use the sole-trader cash basis for corporation tax. If your trade has gone limited, or you have elected out of the cash basis because of losses, interest costs or growth plans, the rest of this guide is your regime. If you are weighing that choice up, see sole trader versus limited company for CIS.

The van: bought, financed or leased

The van is the single biggest capital decision most subcontractors make, and the tax treatment splits three ways depending on how you get it.

Bought outright

A van is plant and machinery, not a car, so it qualifies for the AIA. Buy a £28,000 van and, provided you claim actual costs rather than mileage, you can deduct the full £28,000 from taxable profits in the year of purchase.^[3] If there is private use, commuting to a fixed yard, weekend use, you restrict the claim by the private percentage: 20% private use turns the £28,000 claim into £22,400, with the asset held in its own single-asset pool.

The distinction between a van and a car matters more than most people expect. Cars are excluded from the AIA and instead get writing down allowances, at the main rate (now 14%) or special rate (6%) depending on emissions.^[6] A double-cab or combi vehicle can sit close to the borderline, and HMRC looks at construction and payload, not what the brochure calls it. If a vehicle is primarily suited to carrying goods, it is a van for these purposes. If in doubt, get the classification confirmed before you buy, because the difference is 100% relief in year one versus a 14% trickle.

Hire purchase

Hire purchase is treated, for capital allowances, as if you had bought the van: you claim allowances on the full cash price once the van is brought into use, even though you are still paying instalments.^[1] The interest element of the instalments is a separate revenue deduction as it accrues. This is why HP is popular with trades in profitable years: full AIA relief up front, cash outflow spread over the term.

Leased or long-term rented

A leased van never becomes yours, so there are no capital allowances at all. Instead, each rental payment is a revenue expense, deducted as it falls due (restricted for any private use). The relief arrives evenly across the lease term rather than front-loaded into year one.

Neither route is automatically better. Buying with AIA suits a year when profits are high and you want the deduction now, which for a CIS subcontractor also means a bigger refund now. Leasing suits tight cash flow and predictable costs, and avoids a balancing charge later (more on that below). What you should not do is decide on the tax alone: compare the total financing cost of each option first, then let the tax treatment inform the timing.

The mileage-rate trap

One rule overrides all of the above. If you claim the flat mileage rate for a vehicle, 55p per mile for the first 10,000 business miles and 25p thereafter from 6 April 2026, that rate is all you get for that vehicle.^[5] No capital allowances on the purchase, no fuel, no insurance, no repairs. The mileage rate already includes an allowance for depreciation. Claiming AIA on a van and mileage for the same van is a classic error that HMRC systems are well placed to spot.

You choose the method per vehicle, and once you use mileage for a vehicle you stick with it for as long as you own that vehicle. For a high-value van doing modest miles, actual costs plus AIA is usually worth substantially more in the early years. For an older van doing big miles, 55p a mile can win. Run both numbers before the first return that includes the vehicle, because the choice locks in.

Tools and small equipment: not everything is capital

Not every tool goes through capital allowances, and getting the split right saves both tax and admin.

• Consumables and small tools: drill bits, blades, fixings, hand tools that get bought and replaced routinely are revenue expenses. Deduct them in full as ordinary trading costs, alongside the rest of your allowable expenses.
• Durable equipment: power tools, a laser level, a pipe threader, a breaker, items with a useful life of years, are capital in nature. On accruals accounting they qualify for the AIA, which in practice means the same outcome (full deduction in year one) via a different box on the return. On the cash basis they are simply deducted when paid.
• Bigger kit: generators, scaffold towers, compressors, welders, mixers, and site machinery are unambiguously plant. AIA applies.^[3]

Two practical points. First, keep the receipts and record what each item is, because the materials you buy for a job and bill on to the contractor are a different category again: they are trading stock, excluded from the CIS deduction base and deducted as cost of sales, as covered in our guide to splitting labour and materials on CIS invoices. Second, theft and loss are common in the trade: an insurance payout for stolen tools is treated as disposal proceeds for anything you claimed allowances on, so tell your accountant about the claim, not just the replacement purchase.

Plant and machinery: buy or hire

For diggers, dumpers, telehandlers and similar plant, the same buy-versus-lease logic applies at a bigger scale. Owned plant gets AIA on purchase. Hired plant is a straightforward revenue deduction of the hire charges.

There is a CIS wrinkle on the hire side that catches people out: plant hired with an operator is treated as a labour supply and falls inside CIS, while dry hire (plant only) sits outside the scheme entirely. That distinction changes what deductions are taken from payments up and down the chain, and we cover it fully in the CIS plant hire guide. It does not change the income tax treatment of the hire cost itself, which is deductible either way.

For businesses spending seriously on plant, the new 40% first-year allowance is worth understanding even though the AIA usually does the job. If your qualifying spend in a year passes £1 million, or a specific purchase fails an AIA condition, the 40% FYA gives 40% of the cost in year one with the remaining 60% entering the main pool at the new 14% rate.^[2] That is materially better than sending the whole cost to a 14% pool, which is precisely why Finance Act 2026 paired the two changes: a slower pool, but a faster front door.

The drainage question: kit qualifies, structures mostly do not

Drainage and groundworks contractors ask about capital allowances more than almost any other trade, because their work sits on the boundary between plant and structure. The rules split cleanly once you separate whose asset each thing is.

Your equipment qualifies. Jetting units, CCTV crawler cameras, excavators, trench boxes, shoring, pumps, pipe lasers: all plant and machinery in your hands, all AIA-eligible in the normal way. Nothing about working on drains changes the treatment of the kit you use to do it.

The drains you install for customers are not your capital asset at all. Pipework, chambers and fittings you buy for a job and install on a customer's site are materials: trading stock deducted as cost of sales, and excluded from the contractor's CIS deduction base when invoiced properly. Capital allowances never enter into it, because the finished drain belongs to your customer.

Drainage on your own premises is where the exclusions bite. Capital Allowances Act 2001 sections 21 and 22 exclude buildings and structures from plant and machinery allowances, and List B in section 22 expressly names "a dike, sea wall, weir or drainage ditch" as an excluded structure.^[7] So surface water drainage dug around your own yard is not plant, however essential it is. There are two escape routes. Section 23 preserves plant treatment for certain items in List C, including alterations of land for the purpose only of installing plant or machinery, and drainage provided mainly to serve plant (a wash-down bay's interceptor and drainage serving that plant is a stronger claim than general yard drainage).^[8] And anything that stays excluded may still earn the structures and buildings allowance at 3% a year straight line, provided the construction cost and use conditions are met.^[9] The practical advice: on any yard or depot project, have the cost breakdown itemised line by line before the invoices are paid, because a single-line invoice for "groundworks" makes every one of these distinctions harder to evidence later.

The special rate pool: the 6% slow lane

Some expenditure is shunted into the special rate pool, which writes down at just 6% a year, unchanged by Finance Act 2026. For a trade business the usual suspects are:

• Integral features of a building you own or fit out: electrical and lighting systems, cold water systems, space and water heating, ventilation, lifts.
• Thermal insulation added to an existing commercial building.
• Long-life assets (expected useful life of 25 years or more) where spending passes the relevant threshold.
• Higher-emission cars, which also sit at 6%.^[6]

The AIA can be allocated against special rate expenditure as well as main rate, and because the special rate is so slow, the priority order is clear: point your AIA at special rate items first, and let main-rate items take the 40% FYA or the 14% pool if anything has to spill over. At 6% a year it takes over a decade to relieve half the cost; allocation order is one of the few genuinely free wins in the system.

Selling up: balancing charges and the pool mechanics

Capital allowances are relief for the value an asset loses. When you sell an asset for more than its written-down value, the system claws the difference back. Sell the van you fully expensed under AIA three years ago for £8,000, and that £8,000 (capped at original cost) comes back into the computation as a disposal value. With a nil pool, it lands as a balancing charge: £8,000 of taxable income in the year of sale.

This is not a reason to avoid the AIA, the relief is still worth having early, but it is a reason to plan disposals. Points worth knowing:

• Trading in a van against a new one is a disposal of the old van at the trade-in value plus a purchase of the new one at full price. Both sides go through the computation.
• Part-exchange values, insurance payouts and scrap proceeds all count as disposal values.
• If a pool balance (main or special rate) falls to £1,000 or less before the writing down allowance, the small pools allowance lets you write the whole balance off at once rather than carrying trivial amounts forward at 14% or 6% forever.^[1]
• Timing matters at the margins: a disposal just after your accounting year end pushes the balancing charge into the following year.

The CIS angle: why allowances become refunds

For a CIS subcontractor, all of this connects directly to cash. A contractor deducts 20% (30% if you are unregistered) from the labour element of every payment, before a single expense or allowance is counted.^[10] Your real liability is only settled when the return goes in, with capital allowances included. A big AIA claim in a year when 20% has already been withheld from your labour income does not just reduce a bill, it usually converts straight into a repayment.

Worked example. A sole-trader groundworker on traditional accounting has £62,000 of income from contractors in 2026/27, all paid under deduction at 20% on the labour element, £48,000 of which is labour. CIS deducted at source: £9,600. During the year she buys a £26,000 van (no private use, actual-costs method) and £4,500 of plant and tools, all AIA-eligible: a £30,500 deduction in year one. Add £9,000 of ordinary running expenses and her taxable profit is £22,500 rather than £53,000. The tax and National Insurance actually due on £22,500 is far below the £9,600 already taken, so the difference comes back as a refund after the return is filed. The van did not create the refund out of nothing, it accelerated relief she would otherwise have received over years into one, and the CIS deduction mechanism means that acceleration is paid out in cash. The mechanics of getting it back are covered in how to claim your CIS tax refund, or start with our CIS refund service.

Two refinements. First, timing: capital allowances generally follow the date the obligation to pay becomes unconditional, so a van ordered and invoiced in late March can fall into the closing year, while one delivered in mid-April falls into the next. If a heavy-deduction year is closing, completing the purchase before your year end brings the relief, and the refund, forward by a full year. Second, structure: a limited company does not wait for Self Assessment at all. It offsets CIS deductions against its PAYE and NIC liabilities in-year through the Employer Payment Summary, as explained in our guide to CIS reclaims for limited companies via the EPS, and its capital allowances reduce corporation tax instead. The interaction between allowances, basis of accounting and CIS recovery is one of the stronger arguments for getting the sole trader versus limited company decision right before, not after, a major kit purchase.

Practical checklist for 2026/27

• Confirm your accounting basis first: cash basis deducts most kit when paid; accruals and companies use the allowances system in full.
• Route qualifying purchases through the AIA before anything else, and allocate AIA to special rate (6%) items ahead of main rate items.
• Remember the main pool now writes down at 14%, not 18%. Balances left in the pool are worth less each year than they used to be.
• Use the new 40% first-year allowance only where the AIA cannot do the job: spend past £1 million or expenditure outside AIA conditions.
• Pick mileage or actual costs per vehicle deliberately, before the first return that includes it, and never claim capital allowances alongside mileage.
• On any own-premises groundworks, get itemised invoices so plant, integral features, section 23 items and excluded structures can each be evidenced.
• Log disposals, trade-ins and insurance payouts, not just purchases: balancing charges are the half of the system people forget.
• If you expect a refund, file early. The deduction has already been taken; the only variable is how long HMRC holds it.

1. HM Revenue & Customs, "Claim capital allowances", GOV.UK. gov.uk/capital-allowances.
2. Finance Act 2026, sections 28 (writing down allowance main rate reduced to 14%) and 29 (40% first-year allowance), enacted 18 March 2026. legislation.gov.uk.
3. HM Revenue & Customs, "Claim capital allowances: annual investment allowance", GOV.UK. gov.uk/capital-allowances/annual-investment-allowance.
4. HM Revenue & Customs, "Cash basis", GOV.UK. gov.uk/simpler-income-tax-cash-basis.
5. HM Revenue & Customs, "Simplified expenses if you're self-employed: vehicles", GOV.UK. gov.uk/simplified-expenses-if-youre-self-employed. Rates of 55p and 25p per mile apply from 6 April 2026.
6. HM Revenue & Customs, "Claim capital allowances: business cars", GOV.UK. gov.uk/capital-allowances/business-cars.
7. Capital Allowances Act 2001, section 22 and List B (excluded structures, including item 6, "a dike, sea wall, weir or drainage ditch"). legislation.gov.uk/ukpga/2001/2/section/22.
8. Capital Allowances Act 2001, section 23 and List C (expenditure unaffected by sections 21 and 22). legislation.gov.uk/ukpga/2001/2/section/23.
9. HM Revenue & Customs, "Claiming capital allowances for structures and buildings", GOV.UK. gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings.
10. HM Revenue & Customs, "Construction Industry Scheme (CIS)", GOV.UK. gov.uk/what-is-the-construction-industry-scheme.