If you run a construction business, you spend serious money on kit — diggers, vans, tools, scaffolding, power equipment. The good news is that the tax system is designed to give you relief on most of it. The bad news is that the rules around vehicles in particular have changed recently, and a lot of firms are either missing relief they're entitled to or walking into traps that cost them.
Here's a plain-English guide to where you stand in 2026.
What Capital Allowances Actually Are
When you buy equipment that lasts more than a year, you can't usually deduct the whole cost as a normal expense. Instead, you claim capital allowances — a way of writing the cost off against your taxable profit. Get it right and a £30,000 digger can wipe £30,000 off the profit you pay tax on, often all in one year. Get it wrong and you spread that relief thinly over many years, or miss it altogether.
The Annual Investment Allowance — Your Main Tool
For most small construction firms, the Annual Investment Allowance (AIA) does the heavy lifting. It gives 100% relief on up to £1 million of qualifying plant and machinery in the year of purchase, and that limit is now permanent. Vans, excavators, tools, generators, scaffolding, welfare units — the vast majority of what a builder buys qualifies.
One important catch: if you're VAT-registered, you claim on the net cost — the price before VAT — not the VAT-inclusive figure on the invoice.
Full Expensing — for Limited Companies
If you trade through a limited company, there's an additional route called full expensing. It lets companies deduct 100% of the cost of qualifying new main-pool plant and machinery in the year of purchase, with no monetary cap. For most small firms the AIA already covers everything, but full expensing matters if you ever spend beyond the £1m AIA limit in a year. Note it only applies to companies, and only to new (not second-hand) assets.
A New Allowance from January 2026
There's a fresh option worth knowing about. For expenditure on or after 1 January 2026, a new 40% first-year allowance is available to both companies and unincorporated businesses, including assets bought for leasing. It mainly helps where the AIA or full expensing aren't available — but it's another tool in the box.
Vehicles — Where Firms Get Caught Out
This is where construction businesses lose money. Vans and commercial vehicles qualify for the AIA — but cars never do. Cars instead get slower relief based on CO₂ emissions, except for brand-new fully electric cars, which currently attract 100% first-year relief, now extended to April 2027. Here's how the main vehicle types compare:
| Vehicle type | How the relief works |
|---|---|
| Vans & commercial vehicles | Qualify for the AIA — up to 100% relief in the year you buy |
| Cars (petrol, diesel, hybrid) | No AIA — slower writing-down allowances based on CO₂ emissions |
| Brand-new fully electric cars | 100% first-year relief — now extended to April 2027 |
| Double-cab pickups (from April 2025) | Now treated as cars — no AIA, slow allowances, and a much higher benefit-in-kind charge |
The big trap is double-cab pickups. For years these were treated as vans, qualifying for the full upfront relief. That has changed. For expenditure incurred on or after 1 April 2025 (companies) or 6 April 2025 (income tax), most double-cab pickups are now treated as cars for both capital allowances and benefit-in-kind purposes. That means no AIA — instead they get slow writing-down allowances based on their emissions, and the company car benefit charge on the driver is far higher than the old van charge.
Replacing a pickup? This needs planning before you buy, not explaining afterwards. Moving from van to car treatment changes both the relief the business gets and the tax the driver pays — so the decision belongs before the order goes in.
Timing Matters More Than Ever
When you buy can be as important as what you buy. The writing-down allowance on the main pool — the rate that applies to anything not getting 100% relief — drops from 18% to 14% from April 2026. So the timing of larger purchases around your year-end can genuinely shift your tax bill.
Claim every pound — before you buy
We work with owner-managed construction businesses across Hampshire to make sure every pound of relief is claimed — and that the vehicle decisions in particular are made before the money's spent, not explained afterwards. Here's how I can help:
- A capital allowances review — make sure every pound of relief on your plant, kit and vehicles is actually claimed
- Vehicle decisions, planned first — the van-vs-car and double-cab pickup call made before you order, not after
- The right route for how you trade — AIA, full expensing or the new 40% allowance, matched to your business
- Timing around your year-end — purchases planned to make the most of the allowances and the falling write-down rate
- Plain English — direct access to a chartered accountant, no jargon, just clear advice
This post is intended as general guidance only and reflects the rules and rates applying in 2026. Capital allowances and the tax treatment of vehicles depend on your specific circumstances — always seek advice tailored to your own business and refer to the latest HMRC guidance.