Tools & equipment

Conditions

1. Tools and trade equipment — drills, saws, hand tools, specialist instruments, and similar items kept for use in the business — are plant and machinery for capital-allowances purposes. HMRC's Capital Allowances Manual (CA21010) defines plant as 'apparatus used for carrying on the business', a well-established principle confirmed in UK tax case law.
2. Under traditional (accruals) accounting, tools and equipment are claimed through capital allowances. The Annual Investment Allowance (AIA) gives 100% relief in the year of purchase on qualifying expenditure up to £1 million per accounting period. From April 2026, a new 40% first-year allowance applies to qualifying new main-rate plant and machinery where spending exceeds the AIA; the main-pool writing-down rate drops to 14% (down from 18%). For most small businesses, the £1 million AIA gives full relief in the year of purchase.
3. Under the cash basis — the default method for unincorporated businesses from 2024/25 onwards — all tools and equipment (other than cars) are deducted directly as allowable expenses, rather than going through capital allowances.
4. Where tools or equipment are used partly for personal purposes — for example, a tradesperson who occasionally uses a work drill for home repairs — the claim is restricted to the business proportion. Keep a brief record of how the split was determined.
5. 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. They are deductible as ordinary expenses without a capital-allowances calculation.
6. Employees in certain trades can claim tax relief on tools they must buy themselves via two routes: actual costs with receipts, or an HMRC-agreed flat-rate expense for their trade (which requires no receipts). Flat-rate tool amounts vary by occupation; current rates for each trade are published in HMRC's guidance on uniform and tool expenses — check the GOV.UK 'uniforms, work clothing and tools' page for your trade's figure. Relief can be claimed for the current year and up to four previous tax years.
7. Employees claiming capital allowances on substantial tools must satisfy two conditions: the tools are necessarily required for the performance of their duties, and there is no significant private use. If the employer would provide the tools on request, the claim does not stand.

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 restricting to the business proportion.
• Employees assuming that buying the tools themselves is sufficient — the necessity test and employer-provision test must both be satisfied.

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 actual costs: evidence of expenditure submitted with the tax return or HMRC claim.

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