Tools & equipment

Conditions

1. Tools and trade equipment — drills, saws, hand tools, specialist instruments, and similar items you keep to use in your business — are plant and machinery for capital-allowances purposes. The legislation does not define plant: CA21010 states that, according to case law, plant is apparatus used for carrying on the business (a 'tool of the trade'), is not stock in trade, and is kept for permanent employment in the business.
2. Under traditional (accruals) accounting, tools and equipment are claimed through capital allowances. The Annual Investment Allowance (AIA) lets you deduct the full value of the item from your profits before tax. The AIA amount is £1 million, and you get a new allowance for each accounting period. A 40% first-year allowance is available for expenditure incurred on or after 1 January 2026 on plant or machinery that was bought new and unused, qualifies for the main rate of writing-down allowance and is not a car; second-hand assets are excluded, and there is a specific exclusion for overseas leasing. The relief is available to all businesses, not just incorporated ones. In the next accounting period you claim writing-down allowances on the remaining 60% of the cost.
3. The main rate of writing-down allowance changed from 18% to 14% on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. If your accounting period includes the day the rate changed, you must work out a hybrid rate for that period. For most small businesses the £1 million AIA gives full relief in the year of purchase, so the rate change mainly affects larger spends.
4. Under the cash basis — the default method of accounting for sole traders and partnerships without corporate partners from 6 April 2024 — tools and equipment are deducted directly as an allowable expense in the year you pay for them, rather than going through capital allowances. Cash basis users can only claim capital allowances on business cars.
5. Where tools or equipment are used partly for personal purposes — a tradesperson who occasionally uses a work drill for home repairs — the claim is restricted. If you are a sole trader or in a partnership you cannot claim the full value of an item you also use outside the business: reduce the capital allowances you claim by the amount of that outside use, and keep a brief record of how the split was determined.
6. Short-lived consumable items worn out in the course of work — drill bits, abrasives, grinding wheels, sanding discs — are revenue running costs rather than capital items. Where a tangible asset has an economic life of less than one year, HMRC accepts that expenditure on it is of a revenue nature (BIM35415).
7. Employees take a different route, and the two halves of it are separate. For small tools, GOV.UK allows tax relief on the cost of repairing or replacing small tools you need to do your job — an electric drill is HMRC's own example — claimed either as the actual amount you have spent, with receipts, or as an agreed fixed amount known as a flat rate expense, which needs no receipts. Flat rate amounts are set by industry and job; where your industry and job are not on HMRC's list you can claim a flat rate expense amount of £60. A claim can cover the current tax year and the 4 previous tax years.
8. For substantial equipment an employee buys, the route is capital allowances under the Annual Investment Allowance instead, and the test is demanding: you must need the equipment to do your job, and you cannot claim at all where the employer gives you all the money back or offers you an alternative. HMRC's manual puts the statutory test as 'necessarily provided' for use in the performance of the duties, and it will not have been necessarily provided by the employee if the employer is willing to provide or pay for it (EIM36540). Small items that will last less than 2 years are claimed in the different way described above, not as capital allowances.
9. On private use, the two HMRC sources state the position as follows. GOV.UK's employee guidance: you can only claim tax relief for equipment expenses where you use the equipment for work and there's no significant private use. HMRC's Employment Income Manual: the plant or machinery does not have to be 'wholly and exclusively' used for the performance of the duties, and if there is private use the allowances can be apportioned (EIM36540); apportionment is made on a 'just and reasonable' basis having regard to all the circumstances, principally the actual use made of the item in the year of assessment (EIM36570).

Common mistakes

• Deducting the full cost of durable tools as a day-to-day running expense under traditional accounting rather than claiming through capital allowances.
• Claiming 100% on tools that also see personal use, without reducing the claim by the extent of use outside the business.
• Claiming the AIA on tools you already owned personally before you started using them in the business. You cannot claim AIA on items you owned for another reason beforehand — claim writing-down allowances instead, based on the market value when you brought them into the business.
• Employees assuming that buying the tools themselves is sufficient. For capital allowances the necessity test and the employer-provision test must both be satisfied, and the flat-rate route is framed around repairing or replacing small tools rather than kitting yourself out from scratch.

What to keep

• Purchase invoices or receipts showing the item, date, and cost.
• A note of the business-use proportion where tools also have personal use.
• For employees claiming the actual amount spent: copies of receipts or other evidence proving you paid for the items. A flat rate expense claim needs no receipts.
• Where tools you already owned are brought into the business, a record of their market value at that point.

Real-world example

A self-employed plumber on traditional accounting buys £3,800 of specialist tools during the year, used exclusively for business. The full £3,800 is claimed under the Annual Investment Allowance in the year of purchase. Consumable items — PTFE tape, solder, and cutting discs bought throughout the year — are deducted separately as ordinary running costs.

Frequently asked

Related allowances