What is the Annual Investment Allowance (AIA)?

AIA lets you deduct the full cost of qualifying plant and machinery (including tools) from your profits in the year of purchase. The current AIA limit is £1,000,000 per year - more than enough for most tradespeople. It provides an immediate tax saving.

What qualifies for capital allowances?

Most tools, equipment, and machinery used in your trade qualify: power tools, hand tools, testing equipment, ladders, scaffolding, vehicles (different rules), computers, and mobile phones. Items must be used for business purposes.

When should I use WDA instead of AIA?

WDA (18% of reducing balance per year) is used when you have exceeded your AIA limit, or for assets in a special rate pool (8%) like integral features. For most sole traders, AIA covers everything as the £1m limit is very generous.

Can I claim for tools used partly for personal use?

You can only claim the business-use proportion. If a tool is used 80% for business and 20% personal, you claim 80% of the cost. Keep records of business vs personal use, especially for items like vehicles and phones.

Do I claim depreciation or capital allowances?

For tax purposes, you claim capital allowances (AIA/WDA), NOT accounting depreciation. They are separate concepts. Depreciation shows the economic cost over time, but HMRC uses capital allowances to determine your tax deduction.

TradeCalculator

Tool Depreciation Calculator

Calculate tax savings from tool purchases using AIA and capital allowances

Tool / Equipment Cost

Expected Useful Life

Your Tax Rate

How We Calculate This

Enter the cost of your tool or equipment purchase. Using AIA, the full cost is deductible from taxable profits in year one, giving an immediate tax saving equal to the cost multiplied by your tax rate. Under WDA, 18% of the reducing balance is deductible each year. The calculator shows the effective after-tax cost of the purchase and the annual depreciation for your accounts.

Frequently Asked Questions

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Last updated: March 2026

All calculations are estimates. Verify with your supplier.