Taxation (UK) · Income from self-employment

Capital Allowances: AIA, WDA and FYA Explained

Updated 11 October 2026 · Fact-checked

Capital allowances give tax relief for plant and machinery, because accounting depreciation is not deductible. Claim the annual investment allowance (AIA) first, then first year allowances, then writing down allowances (WDA) of 18% on the main pool and 6% on the special rate pool. Cars never qualify for AIA. Balancing adjustments arise on cessation.

Understand Capital Allowances: AIA, WDA and FYA

Depreciation in the accounts is not allowed as a tax deduction. You add it back in the adjustment of profits. Instead, the tax system gives its own relief for spending on plant and machinery. This relief is called capital allowances.

Most plant and machinery goes into a pool. The main pool gets a writing down allowance (WDA) of 18% a year on a reducing balance. The special rate pool gets 6%. The special rate pool holds items such as integral features and cars with CO2 emissions over 50 grams per kilometre. Cars with emissions of 1 to 50 grams per kilometre go in the main pool.

The annual investment allowance (AIA) gives 100% relief on qualifying spending up to £1,000,000 a year. It is the best relief for most businesses, so you claim it first. Spending that gets the AIA never enters a pool. Any spending above the limit goes into a pool and gets WDA. Cars do not qualify for AIA.

A first year allowance (FYA) is a 100% or 50% allowance in the year of purchase. For companies, the main pool FYA is 100% (full expensing) and the special rate pool FYA is 50%. Sole traders and partners do not get these company FYAs. A new car with zero CO2 emissions gets a 100% FYA. A second-hand zero-emission car gets only the 18% WDA.

When you sell an asset, you deduct the lower of sale proceeds and original cost from the pool. When the business ceases, there is no AIA or WDA. The pool is simply closed. Proceeds above the balance give a balancing charge. Proceeds below the balance give a balancing allowance.

Key rules to remember

Main pool WDA: WDA = 18% × (TWDV b/f + additions not covered by AIA or FYA − disposal proceeds); Reducing balance. Time-apportion for a period shorter or longer than 12 months.
Special rate pool WDA: WDA = 6% × (TWDV b/f + additions − disposal proceeds); Covers integral features and cars with CO2 emissions over 50 g/km.
Annual investment allowance: AIA = 100% of qualifying expenditure, up to £1,000,000 a year; Not available on cars. Time-apportion the limit for short or long periods. Allocate it to the special rate pool first if the limit is short.
Company FYAs: Main pool 100% (full expensing); special rate pool 50%; Companies only. Brand new qualifying plant.
Car rates: New zero CO2: 100% FYA. Second-hand zero CO2: 18%. 1 to 50 g/km: 18%. Over 50 g/km: 6%; Cars never qualify for AIA.
Disposal value: Deduct the lower of sale proceeds and original cost; Capital profit above cost is chargeable gain territory, not a pool deduction.
Balancing adjustment on cessation: Balancing allowance = TWDV − proceeds (if positive). Balancing charge = proceeds − TWDV (if positive); No AIA, FYA or WDA in the final period.
Structures and buildings allowance: 3% straight line; Applies to qualifying construction cost, not to land or plant.

How to solve Capital Allowances: AIA, WDA and FYA questions

Use a columnar computation: AIA or FYA column, main pool, special rate pool and total allowances. Work in the same order every time.

1Check the length of the accounting period. If it is not 12 months, adjust the WDA and the AIA limit by months ÷ 12.
2Write down the brought-forward pool balances (TWDV) and list every addition and disposal with its date.
3Classify each addition: main pool, special rate pool, car, or private use asset. Put cars with over 50 g/km in the special rate pool.
4Claim AIA on qualifying non-car spending up to the limit. If spending exceeds the limit, put it against special rate pool items first, because they only get 6% WDA.
5Claim FYAs where available, such as 100% for companies on main pool plant or 100% for new zero-emission cars.
6Enter any remaining additions and subtract disposal proceeds, limited to cost. Then work out the WDA at 18% or 6% on the balance. Take the whole balance if a pool is £1,000 or less.
7In a cessation period, claim no AIA or WDA. Deduct proceeds from the balance and show a balancing allowance or charge.
8Total the allowances and carry forward the pool balances. State the final figure clearly.

Quickest way: Pool-by-pool shortcut

When to use it: Use this in objective test questions and in the first part of a Section C computation.

Separate cars and everything else at once. Cars skip AIA.
Take the AIA on everything else if it is within £1,000,000.
Pool balance = b/f + non-AIA additions − disposals. Multiply by 18% or 6%.
Total allowances = AIA + FYA + WDAs. Carried-forward balance = pool balance − WDA.
Scale by months ÷ 12 if the period is not 12 months.

Common mistakes in Capital Allowances: AIA, WDA and FYA

Claiming AIA on a car.
Cars look like plant and the AIA is the first thing students think of.
Fix: Cars never get AIA. Put them in the main pool (1 to 50 g/km) or special rate pool (over 50 g/km). Only a new zero-emission car gets a 100% FYA.
Applying WDA in the year of cessation.
Students follow the normal columns out of habit.
Fix: In the final period, no AIA or WDA. Work out the balancing allowance or charge only.
Deducting full sale proceeds when they exceed cost.
Students forget the cap.
Fix: Deduct the lower of proceeds and original cost. Any extra is a possible chargeable gain.
Forgetting to time-apportion for short or long periods.
Students focus on the rates, not the period length.
Fix: Always check the period length first. Multiply the WDA and the AIA limit by months ÷ 12.
Using full expensing for a sole trader.
Full expensing is widely discussed, but the 100% main pool FYA is for companies.
Fix: Check the entity. Sole traders and partners use AIA and WDA, with a 100% FYA only for new zero-emission cars.
Putting qualifying spending over the AIA limit in the wrong pool or ignoring the allocation choice.
Students rush when the limit is exceeded.
Fix: Put the AIA against special rate pool spending first. Put the remainder in the pools and claim WDA.

Worked examples

Example 1

Ravi is a sole trader. He prepares accounts for the year ended 31 March 2026. At 1 April 2025 his main pool TWDV was £40,000 and his special rate pool TWDV was £30,000. In the year he bought equipment for £60,000, an integral feature for £20,000, a car with CO2 emissions of 40 g/km for £18,000 and a car with CO2 emissions of 120 g/km for £15,000. He sold a machine from the main pool for £5,000 (original cost £9,000). Calculate the capital allowances for the year.

Show the solution

The period is 12 months, so no time apportionment is needed.
AIA: equipment £60,000 plus integral feature £20,000 gives £80,000. This is within the £1,000,000 limit, so it all qualifies. The cars do not qualify.
Main pool: b/f £40,000 + car (40 g/km) £18,000 − disposal £5,000 (lower of proceeds and cost) = £53,000. WDA at 18% = £9,540. TWDV c/f = £43,460.
Special rate pool: b/f £30,000 + car (120 g/km) £15,000 = £45,000. WDA at 6% = £2,700. TWDV c/f = £42,300.
Total allowances = £80,000 + £9,540 + £2,700 = £92,240.

Answer: Total capital allowances are £92,240. TWDV carried forward is £43,460 (main pool) and £42,300 (special rate pool).

Example 2

Meera ceases trading on 31 December 2025. At the start of the final period her main pool TWDV was £14,000 and her special rate pool TWDV was £6,000. She sold the main pool plant for £6,500 and took the rest for her own use at a market value of £2,500, all below cost. She sold the special rate pool assets for £7,500, which is below cost. Calculate the balancing adjustments.

Show the solution

No AIA or WDA is given in the final period.
Main pool: total disposal value = £6,500 + £2,500 = £9,000. TWDV £14,000 − £9,000 = £5,000 balancing allowance.
Special rate pool: TWDV £6,000 − proceeds £7,500 = −£1,500, so a balancing charge of £1,500.
Net effect: balancing allowance £5,000 less balancing charge £1,500 = £3,500 deduction against final period profit. The allowance and the charge are each shown against trading profit in the period.

Answer: Balancing allowance of £5,000 (main pool) and balancing charge of £1,500 (special rate pool), a net allowance of £3,500.

Exam tips

Set up the computation columns before reading the detail. Marks go for correct classification as well as the numbers.
In objective questions, check for the traps first: car, short period, cessation, and company or sole trader.
Show the limit on disposal proceeds explicitly. Examiners reward a clear statement of the lower of proceeds and cost.
In cessation questions, write 'no WDA or AIA in final period' as a note so the marker sees you know the rule.
Use the rates and allowances provided in the exam. Do not rely on memory for the rates.

Practice questions from Income from self-employment

Capital Allowances: AIA, WDA and FYA: frequently asked questions

What is the difference between the AIA and the WDA?

The AIA gives 100% relief on qualifying spending up to £1,000,000 in the year of purchase. The WDA is a reducing-balance allowance of 18% or 6% on the pool. You claim AIA first and put the rest in the pools.

How are cars treated for capital allowances in TX-UK?

Cars never qualify for AIA. A new zero-emission car gets a 100% FYA. A second-hand zero-emission car and a car with 1 to 50 g/km go in the main pool at 18%. A car with over 50 g/km goes in the special rate pool at 6%.

What is a balancing allowance and a balancing charge?

These arise when the business ceases. If the pool balance is greater than the disposal proceeds, there is a balancing allowance. If proceeds are greater, there is a balancing charge, which is added to profit.

Do sole traders get the 100% first year allowance on plant?

No. The 100% main pool FYA (full expensing) is for companies. A sole trader uses AIA and WDA. A new zero-emission car gets a 100% FYA for any business.