How an accountant for Sole Trader calculates its client capital allowances:

The simplest allowances a Trader could claim when using the accrual method of accounting is the Annual Investment Allowance (AIA)

The Sole Trader has until £1m to claim (as of 2025) which means that He/She would get 100% of the cost as a deduction from trading profits. But let’s suppose you have bought a car which is petrol and high emissions. In such case a car would NOT classify for the AIA and as such you need to claim Witting Down Allowances. It works as follows:

Suppose your car cost £25,000 plus VAT. As VAT on cars is irrecoverable from Tax Authorities you will need to include the VAT on the cost of the car (£5,000)

Year 1 your capital allowances would be 30,000x18% = 5,400

The following year your car for Tax purposes will have a value of £30,000 less your capital allowance of the first year of £5,400. This amount is what the Sole Trader will deduct from Trading profits if using the accrual method. Be careful, if you deduct the cost of the Car from your trading profits you are confusing Revenue with Capital expenditure and your tax filing and payment will be incorrect, this is why an accountant for Sole Trader can help saving you time and money. Below you can see the effect of how the Written down allowances will be less as the business "consumes" the car and its value is depreciated.

Now suppose that the Car is your only asset in the main pool and you sell it after 5 year for £15,000. As your sale proceeds are higher than your Tax written down value of £9,120, the Sole Trader will now get a "Balancing Charge" which is "added" to the trading profits as "income"