One of the most important distinctions in UK business taxation is the difference between accounting depreciation and HMRC’s tax depreciation system capital allowances. Many business owners and even some non-specialist accountants assume that the depreciation rates they apply in their accounts automatically translate into tax deductions. This is incorrect, and misunderstanding HMRC depreciation rates can result in significant underclaiming of tax relief. This comprehensive AccFirm guide explains exactly how HMRC depreciation rates work, how capital allowances replace commercial depreciation for tax purposes, and the specific rates that apply to different types of assets in 2025/26.
Does HMRC Allow Accounting Depreciation as a Tax Deduction?
No. HMRC depreciation rates are not based on the depreciation charged in your financial accounts. Accounting depreciation whether calculated on a straight-line, reducing balance, or other basis is specifically disallowed as a deduction for Corporation Tax and Income Tax purposes under HMRC rules. This is confirmed in HMRC’s Capital Allowances Manual (CA10000 onwards) and the Capital Allowances Act 2001.
Instead, HMRC substitutes its own system of tax depreciation called capital allowances which operates independently of your accounting policies. Capital allowances are deducted from taxable profits in place of accounting depreciation, and they follow HMRC’s own rates and rules rather than the useful economic life assessments made by your accountant or management.
What Are Capital Allowances?
Capital allowances are the UK’s tax-approved equivalent of depreciation. They allow businesses to deduct the cost of qualifying capital expenditure from taxable profits, reducing their Corporation Tax (for limited companies) or Income Tax (for sole traders and partnerships) liability. Capital allowances apply to expenditure on plant and machinery a broad category that includes equipment, vehicles, computers, machinery, and most business assets other than land and many buildings.
HMRC Capital Allowance Rates 2025/26
| Allowance Type | Rate | Assets Covered |
| Annual Investment Allowance (AIA) | 100% in year of purchase (up to £1m limit) | All qualifying plant and machinery immediate full deduction |
| Main Rate Pool (Writing Down Allowance) | 18% per year (reducing balance) | General plant and machinery not qualifying for AIA or special rates |
| Special Rate Pool (Writing Down Allowance) | 6% per year (reducing balance) | Integral features, long-life assets (over 25 years), thermal insulation |
| First Year Allowance (FYA) Full Expensing | 100% in year of purchase | New (not second-hand) plant and machinery for limited companies only |
| First Year Allowance Electric Vehicles | 100% in year of purchase | New zero-emission cars and electric charge points |
| Structures and Buildings Allowance (SBA) | 3% per year (straight-line) | New commercial structures and buildings constructed after 28 October 2018 |
Annual Investment Allowance: The Most Important HMRC Depreciation Rate
The Annual Investment Allowance (AIA) is the most commonly used and most valuable HMRC depreciation mechanism for small and medium-sized businesses. It allows businesses to deduct 100% of qualifying plant and machinery expenditure in the year of purchase up to a limit of £1 million per year (a limit that has been permanent since April 2023 following several years of changes).
The AIA effectively provides a 100% HMRC depreciation rate in year one far more generous than typical accounting depreciation rates of 10–33% per year. For a business spending £50,000 on new equipment, AIA provides an immediate £50,000 deduction from taxable profits, saving £12,500 in Corporation Tax at 25% (or £9,500 at the 19% small profits rate).
Key AIA rules:
- Applies to plant and machinery of all types equipment, vans, computers, specialist machinery, fixtures, and fittings in commercial property
- Cannot be used for cars passenger cars have separate, lower HMRC depreciation rates based on CO2 emissions
- Available to sole traders, partnerships, and limited companies
- Annual limit of £1 million covers all plant and machinery spending in the year any expenditure above £1 million falls into the main rate or special rate pool
- Not available for assets bought and sold in the same tax year (anti-avoidance)
Writing Down Allowances: The Ongoing HMRC Depreciation Rates
For assets not covered by AIA or FYA including cars and expenditure above the AIA limit HMRC uses a reducing balance system known as Writing Down Allowances (WDA). Assets are pooled by category and a fixed percentage is applied to the pool balance each year:
Main Rate Pool (18% per Year)
The main rate pool covers most plant and machinery including general equipment, machinery, vans, lorries, and computer equipment. A WDA of 18% per year is applied to the reducing pool balance. The main rate pool HMRC depreciation rate of 18% compares to typical accounting depreciation rates for similar assets of 25–33% meaning the HMRC rate is generally slower than accounting depreciation, particularly in early years.
Special Rate Pool (6% per Year)
The special rate pool applies to assets with a very long useful life or specific types of building installations. At 6% per year, HMRC depreciation rates for special rate assets are very slow a £100,000 asset would take over 25 years to be fully written off at the 6% rate. The AIA provides an important shortcut, allowing special rate expenditure to be fully deducted in year one.
Car Allowances by CO2 Emissions
| Car CO2 Emissions | First Year Allowance / WDA Rate | Pool Used |
| 0g/km (zero-emission electric car, new) | 100% FYA in year 1 | Separate single-asset pool |
| 1–50g/km (new car) | 18% WDA from year 2 | Main rate pool |
| Over 50g/km | 6% WDA | Special rate pool |
Full Expensing: The 100% HMRC Depreciation Rate for Companies
From April 2023, the government introduced Full Expensing a permanent 100% first-year allowance for new (not used) plant and machinery purchased by limited companies. Full Expensing is separate from AIA and has no annual cap, making it particularly valuable for larger capital expenditure programs that exceed the £1 million AIA limit. Full Expensing replaced the previous Super-Deduction (130%) which expired in March 2023.
Structures and Buildings Allowance
The Structures and Buildings Allowance (SBA) provides a 3% straight-line HMRC depreciation rate on the cost of constructing or purchasing new commercial buildings offices, factories, warehouses, retail units. Introduced in October 2018, SBA fills a historic gap in UK capital allowances that previously provided no relief for commercial building costs. Residential buildings and land remain ineligible.
Frequently Asked Questions: HMRC Depreciation Rates
Can I use my own depreciation rates for tax purposes?
No. Accounting depreciation at whatever rate you choose is specifically disallowed as a tax deduction. HMRC’s capital allowances system applies instead, using the rates and rules set out in the Capital Allowances Act 2001.
What is the HMRC depreciation rate for computers and laptops?
Computers and laptops are plant and machinery eligible for AIA at 100% in the year of purchase (up to the £1 million AIA limit). If AIA is not used, they fall into the main rate pool at 18% per year WDA.
What is the HMRC depreciation rate for company cars?
HMRC depreciation rates for company cars depend on CO2 emissions: new zero-emission electric cars qualify for 100% FYA; cars at 1–50g/km CO2 go into the main rate pool at 18% WDA; cars over 50g/km go into the special rate pool at 6% WDA. AIA is not available for cars.