💡 Capital Allowance vs Expense – What’s the Difference?

Not all business costs are treated equally when it comes to tax. If you’re self-employed or running a business, understanding the difference between an expense and a capital allowance is key to getting your tax right.

Here’s a simple breakdown:

Expenses – Everyday Running Costs

These are the regular costs of operating your business — the essentials that keep things ticking.

Examples:

• Mobile phone bills
• Office rent
• Printer ink
• Postage
• Utility bills

Tax treatment:
You deduct the full amount in the same tax year you spend it.

Capital Allowances – One-Off Asset Purchases

These are bigger investments in equipment or tools that will last for a while and help your business operate over the long term.

Examples:

• Computers and laptops
• Machinery
• Office furniture
• Business vehicles

Tax treatment:
You claim the cost back over time through capital allowances because HMRC sees them as business assets, not day-to-day expenses.

A Simple Way to Think About It

Buying fuel is an expense – it’s used up straight away.
Buying a van is a capital allowance – it’s a long-term asset.

Both reduce your tax bill, just in different ways.