Capital Allowances in MTD: What Sole Traders and Landlords Can Actually Claim

If you bought a van for your business, replaced a boiler in your rental property, or invested in equipment last year, you might be sitting on a tax relief you haven't claimed yet - and if you're filing MTD yourself, you might not even know where to put it. Capital allowances are one of the most misunderstood parts of the UK tax system for DIY filers. They don't go in your quarterly updates. They're not like normal expenses. And the rules are genuinely different depending on whether you're a sole trader or a landlord. This guide explains exactly what capital allowances are, what you can claim, and when and where to claim them in MTD - in plain English, no accountant required.

What Are Capital Allowances?

Most business expenses are straightforward: you spend £200 on printer paper, you claim £200 as an expense. It's used up in the year, so you deduct it in full.

Capital allowances work differently. They apply to things you buy that last several years - assets rather than consumables. Think of a van, a laptop, machinery, or a piece of specialist equipment. HMRC doesn't let you deduct the full cost in one go in the normal expenses boxes, because the asset has a working life beyond the current tax year. Instead, capital allowances are the mechanism for getting tax relief on those purchases.

The good news is that for most sole traders, there's a relief called the Annual Investment Allowance (AIA) that lets you deduct the full cost of most qualifying assets in the year you buy them - up to a very generous limit (currently £1 million per year). So in practice, you often do get full relief straight away. But it comes through a specific capital allowances claim, not through your regular expense entries.

Do Capital Allowances Apply to You?

Sole traders: yes, almost certainly

If you're self-employed and you've bought anything with a working life of more than a year - tools, a vehicle, office furniture, computers, cameras, machinery - you're likely entitled to claim capital allowances. This applies whether you're a plumber, a photographer, a consultant, or a cleaner.

The key test is whether the asset is used for your business. If it's used partly for personal use too (for example, a laptop you also use at home), you'll need to work out the business percentage and only claim that portion. There's more on that in our post on mixed-use expenses and MTD.

Landlords: it's more complicated

This is where a lot of people get confused - and where HMRC's rules are genuinely tricky.

As a landlord, capital allowances on furniture and fixtures in residential property are generally not available. HMRC removed them for residential lettings a while back. Instead, there's a separate relief called the Replacement of Domestic Items Relief (sometimes called replacement relief), which allows you to claim the cost of replacing items like sofas, fridges, or curtains - but not the initial purchase.

However, capital allowances can still apply to landlords in some situations:

• If you let commercial property, capital allowances on fixtures and fittings within the building are available.
• The furnished holiday let (FHL) regime was abolished from 6 April 2025. Former FHLs are now taxed like other residential lets, so new furniture in them is generally covered by Replacement of Domestic Items Relief rather than capital allowances.
• Equipment used to manage your rental portfolio - a laptop or phone used exclusively for your property business, for example - may also qualify.

If you're a residential landlord with a standard buy-to-let, the most relevant allowance you're likely to encounter is the Replacement of Domestic Items Relief rather than capital allowances in the traditional sense. We cover landlord expenses in more depth in our guide to what counts as a landlord expense in your MTD quarterly update.

Concrete Examples: What Qualifies?

For sole traders

• A van or car used for work: Vehicles are one of the most common capital allowance claims. Vans get straightforward capital allowance treatment. Cars are handled slightly differently (they go into a "pool" rather than qualifying for AIA), and the CO2 emissions level affects the rate of relief. If you're claiming for a vehicle used partly for personal journeys, you'll need to apportion the business element - or use the simpler mileage rate instead (which you can't combine with capital allowances on the same vehicle).
• Tools and equipment: A carpenter buying a new saw, a plumber buying a pressure testing kit, a photographer buying a camera - these all qualify. If they cost more than a few hundred pounds and will last several years, capital allowances are the right route.
• Computers and laptops: A computer bought for business use qualifies. If it's also used personally, only the business-use proportion can be claimed.
• Office furniture: A desk, chair, or filing cabinet bought for a dedicated home office can qualify. A kitchen table you occasionally use for work generally doesn't.
• Machinery and specialist equipment: Anything used in a trade that has a working life beyond a year is worth checking against the capital allowances rules.

For landlords

• Replacing a sofa or fridge in a residential let: This is replacement relief, not capital allowances, but the mechanism is similar - you claim the cost of the replacement (not the original purchase) as an expense.
• Fixtures in a commercial property: Integral features like heating systems, electrical systems, and lifts in commercial buildings can qualify for capital allowances.
• Equipment in commercial property: Plant and machinery in commercial lets (not residential dwellings) can qualify for capital allowances, including the AIA.
• Laptop or phone used to manage your portfolio: If you use a device specifically for your rental business, the business-use proportion can be claimed.

What Doesn't Qualify?

Not everything is claimable through capital allowances. These are commonly misunderstood:

• Land: Never qualifies. You're buying capital allowances on assets that depreciate or wear out. Land doesn't.
• Buildings themselves: The structure of a building doesn't qualify under capital allowances (though there is a separate relief called Structures and Buildings Allowance for some new commercial buildings).
• Purely personal items: A gym membership, a personal mobile phone, or furniture in your own home doesn't qualify, even if you occasionally answer work emails from the sofa.
• Stock: Goods you buy to sell are not capital assets - they're stock, and handled as normal expenses.
• Initial fixtures in residential buy-to-lets: As mentioned above, you can't claim capital allowances on the first sofa or fridge you buy for a residential rental property. Only replacement items get relief, and that's through replacement relief, not capital allowances.

The MTD Timing Question: When Do You Claim Capital Allowances?

This is where many DIY MTD filers go wrong - and it's understandable, because the structure of MTD isn't obvious at first.

Capital allowances are not claimed in your quarterly updates.

Your quarterly updates are for reporting income and allowable revenue expenses - day-to-day costs like rent, materials, phone bills, and professional subscriptions. Capital allowances are an end-of-year adjustment, not a quarterly one.

You claim capital allowances as part of your final declaration - the annual step where you finalise everything, confirm your total income and expenses across all sources, and submit your complete tax position to HMRC. Think of the final declaration as the equivalent of the old Self Assessment tax return, but done within MTD. You do it once a year, after your fourth quarterly update for the tax year.

If you're not sure what the final declaration involves, our guide on the final declaration deadline explained covers the whole process. There's also a step-by-step walkthrough in our post on how to complete your MTD final declaration.

Where Does the Capital Allowances Claim Actually Go?

In your MTD final declaration, there will be fields or sections for adjustments and allowances beyond your quarterly figures. Capital allowances are entered there. The exact field labels depend on the software you're using, but you'll typically be asked to enter the total capital allowances you're claiming for the year.

You don't need to enter each asset separately in most cases - you enter the total allowable amount after working out your claim.

To work out the claim, you (or your software) will need to know:

1. What assets you bought during the year
2. The cost of each asset
3. The business-use percentage for any assets used partly personally
4. Whether you're claiming AIA (full cost in year one) or writing down allowance (spread over several years)

For most sole traders with straightforward purchases, the Annual Investment Allowance covers the full cost of the asset, and the calculation is just: cost multiplied by business-use percentage. So a £3,000 laptop used 80% for work gives you a £2,400 capital allowances claim.

Keeping the Right Records

HMRC requires you to keep records that back up your capital allowances claim. For each asset:

• Keep the purchase invoice or receipt
• Note the date of purchase
• Record the cost
• If business use is partial, keep a note of how you worked out the business percentage

You don't submit these records when you file - but HMRC can ask for them if they look into your return. Keep them for at least five years after the filing deadline for the relevant tax year.

Our post on what proof HMRC needs for MTD expenses has more detail on what good evidence looks like.

The Simplified Expenses Alternative for Vehicles

Before you go down the capital allowances route for a vehicle, it's worth knowing about the alternative: simplified mileage rates.

HMRC allows sole traders to claim a flat rate per business mile instead of working out actual costs and capital allowances. The current rate for the first 10,000 miles is 55p per mile, dropping to 25p per mile beyond that.

If you use simplified mileage rates, you cannot also claim capital allowances on the same vehicle. It's one or the other, and you need to make the choice in the first year you use the vehicle for your business.

For lower-mileage drivers or those with a relatively modest vehicle, mileage rates are often simpler. For high-mileage drivers or those with an expensive vehicle, working out actual costs and capital allowances might give a bigger deduction. This is worth checking before you commit to one method.

We cover mileage rates in more detail in our post on mileage allowances for MTD.

The Trading Allowance and Capital Allowances: Can You Claim Both?

No. If you're using the trading allowance (the £1,000 flat deduction available to sole traders with very small businesses), you cannot also claim capital allowances. The trading allowance replaces all other expense and allowance claims for that business. If you have significant capital expenditure, it almost certainly won't be worth using the trading allowance.

What About the Annual Investment Allowance Limit?

The current AIA limit is £1 million per year. For the vast majority of sole traders and landlords filing MTD independently, this limit is far beyond what they'll spend on capital assets in a year. In practice, the AIA limit is only relevant for larger businesses. If you're spending more than £1 million on capital assets in a year, you are almost certainly already working with an accountant.

A Quick Summary Before You File

Capital allowances are a genuine tax relief that many DIY filers miss or misplace. To recap the key points:

• Capital allowances apply to assets - things that last more than a year and are used for your business.
• Sole traders can claim on vans, equipment, computers, and more.
• Landlords' access is more restricted - residential landlords generally use replacement relief instead, while commercial landlords can claim capital allowances (the furnished holiday let regime ended in April 2025).
• You claim capital allowances in your final declaration, not your quarterly updates.
• Keep purchase receipts and a note of business-use percentages for every asset you plan to claim on.
• If you use simplified mileage rates for a vehicle, you cannot also claim capital allowances on it.

If you're preparing for your final declaration, our guide on what to gather before your MTD final declaration will help you pull everything together. And if you're still working through your quarterly updates, our self-employed business expenses guide covers what goes in those - capital allowances aside.