When a hospitality operator fits out a new kitchen, refurbishes a restaurant or installs commercial refrigeration, the tax treatment of that spend can be the difference between recovering most of the cost in year one and writing it off slowly over a decade. Finance Act 2026 changed the landscape materially, cutting the fallback writing-down rate and introducing a new first-year allowance at the same time. This guide sets out the rules, the sequencing logic and the boundary between what qualifies and what does not.
The short answer: what a kitchen or restaurant fit-out can claim, and what FA 2026 changed
Most of the plant and machinery in a commercial kitchen qualifies for capital allowances. The Annual Investment Allowance covers up to £1,000,000 of qualifying spend per year at 100% in year one, so the majority of fit-outs fall entirely within it. Where spend exceeds the AIA, Finance Act 2026 introduced a new 40% first-year allowance on qualifying main-pool additions, and simultaneously cut the fallback writing-down allowance from 18% to 14%. The practical effect is that the AIA and the 40% FYA together raise the incentive to spend above the £1m cap, while the WDA cut increases the cost of delay for any residue left to trickle through the pool. Claim order matters: AIA first, then FYA, then WDA.
What qualifies as plant and machinery in a hospitality fit-out
Capital allowances legislation uses "plant and machinery" as the qualifying category. In a hospitality context, items that typically qualify include:
- Commercial cooking equipment (ovens, ranges, fryers, griddles, combi-steamers)
- Refrigeration and cold-room units
- Extraction and ventilation systems specifically serving the kitchen (as distinct from general building ventilation, which may fall into a different pool)
- Dishwashing, glasswashing and pot-wash equipment
- Bar fixtures, gantries, beer-cellar equipment and draught dispense lines
- Fitted seating, counters and service furniture that are genuinely moveable or functionally distinct from the structure
- CCTV, fire suppression, intruder alarms and point-of-sale systems
- Signage where it is not integral to the building fabric
The boundary between qualifying plant and non-qualifying structure is genuinely complex. Items that are treated as part of the building fabric, such as walls, floors, ceilings, basic lighting circuits and the shell of a cold room that is structurally integrated into the building, may not qualify as plant. The boundary is determined by case law and technical analysis; for refits above £100,000, a capital allowances survey by a specialist typically recovers more than it costs.
Integral features such as general heating and electrical systems may qualify under a separate special-rate pool, but at a different rate. This post focuses on the main pool, which covers the majority of kitchen and restaurant fit-out expenditure.
The Annual Investment Allowance: up to £1,000,000 at 100% in year one
The Annual Investment Allowance allows businesses to deduct the full cost of qualifying plant and machinery in the year of purchase, up to £1,000,000. This limit has applied since 1 January 2019 and there is currently no expiry or reduction scheduled. A restaurant spending £600,000 on a full kitchen fit-out claims the entire £600,000 in year one, reducing taxable profit pound for pound.
The AIA is available to sole traders, partnerships and limited companies. It is shared across associated businesses, so a group operating multiple restaurant sites pools the AIA across the group rather than each site getting a full £1,000,000. Where two or more businesses are under common control, advice on splitting the AIA should be taken before purchase.
The AIA cannot be used against the special-rate pool (long-life assets and some integral features), but the majority of kitchen and front-of-house fit-out plant falls into the main pool and is fully eligible.
What Finance Act 2026 changed: WDA cut to 14% and a new 40% first-year allowance
Two changes took effect under Finance Act 2026 (c.11) s.28 and s.29, supported by the HMRC technical note.
The WDA cut (s.28). The main-pool writing-down allowance, which applies to plant that remains in the pool after AIA and FYA are used, fell from 18% to 14% per year on the reducing balance. For companies, the cut took effect from 1 April 2026. For income-tax businesses (sole traders and most partnerships), it took effect from 6 April 2026. Businesses whose accounting period straddles either date are subject to a blended rate: days before the change count at 18%, days after at 14%, weighted proportionately.
The new 40% first-year allowance (s.29). FA 2026 s.29 introduced a 40% FYA on qualifying main-pool additions. This sits between AIA (100%) and WDA (14%) in both generosity and scope. It applies to main-pool additions made in periods from the same commencement dates: 1 April 2026 for CT and 6 April 2026 for IT.
The 40% FYA applies to qualifying main-pool additions only. It does not extend to the special-rate pool. Do not apply it to special-rate items such as integral building features claimed under the special-rate pool.
| Allowance | Rate | Annual cap | Best suited to |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% | £1,000,000 per year | All qualifying main-pool spend up to the cap |
| 40% First-Year Allowance (FA 2026 s.29) | 40% | None (on main-pool additions above AIA) | Main-pool additions above the AIA cap |
| Writing-Down Allowance (main pool) | 14% reducing balance (from Apr 2026) | No cap | Residue after AIA and FYA; prior-year pool balances |
Sequencing a large refit: worked example over the £1m AIA cap
Consider a limited company with a 31 March year-end that completes a flagship restaurant refit in the year ending 31 March 2027. Total qualifying main-pool spend is £1,400,000.
| Step | Allowance | Spend claimed | Deduction | Residue to pool |
|---|---|---|---|---|
| 1 | AIA (100%) | £1,000,000 | £1,000,000 | £400,000 remaining |
| 2 | 40% FYA on main-pool additions above AIA | £400,000 | £160,000 | £240,000 enters main pool |
| 3 | 14% WDA on pool balance (year 1) | £240,000 | £33,600 | £206,400 carried forward |
Total deductions in year one: £1,193,600 from £1,400,000 of spend, an effective first-year relief rate of 85%.
Without the 40% FYA (that is, under the old rules with WDA at 18%), the same £400,000 above the AIA cap would have attracted only £72,000 in WDA in year one, giving total first-year deductions of £1,072,000 and an effective rate of 77%. The FA 2026 FYA closes most of that gap for large refits.
The pool balance of £206,400 continues to attract 14% WDA in subsequent years: £28,896 in year 2, £24,851 in year 3, and so on, until the pool is disposed of or reaches negligible value.
Sole trader or limited company: the commencement date split matters
The WDA cut and the 40% FYA apply from different dates depending on how the business is structured.
- Limited company (subject to corporation tax): changes apply from 1 April 2026. A company with a year ending 31 December 2026 has a nine-month period from 1 April 2026 at the new rates and three months before that at the old rate, giving a blended WDA for the straddling period. Corporation tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between; the rate at which capital allowances save tax depends on which band profits fall in.
- Sole trader or partnership (subject to income tax): changes apply from 6 April 2026. A sole trader with an accounting year ending 31 March 2027 straddles the commencement date by 5 days, so a blended rate applies for a very short pre-change period. Most sole-trader year-end choices mean the straddling is minimal, but it is worth checking if a year-end falls between January and March 2026.
The practical implication: equipment placed in service before 31 March 2026 (CT) or 5 April 2026 (IT) falls into the pool under the 18% rate for the days prior to the change. Large purchases should be timed with the rate change in mind.
For restaurants operating as companies, also see /contact for the interaction between capital allowances and choosing the right accounting period.
What you cannot claim outright
Not every pound spent on a fit-out qualifies as plant. The following categories are generally excluded from plant and machinery capital allowances:
- Building structure and fabric: the walls, floors, roof, foundations and structural elements of the building are not plant. Expenditure on these is capital with no tax relief in most cases (though some specific reliefs such as Structures and Buildings Allowance may apply at a much lower rate; that is a separate analysis).
- Decorative finishes: paint, tiles, wall cladding and similar finishes applied to permanent structural surfaces typically do not qualify.
- Land: no allowances are available on land values.
- Licensing costs (first application): the cost of obtaining a premises licence for the first time is capital expenditure and is not deductible as a trading expense, per HMRC BIM61405 and the principle established in Kneeshaw v Albertolli. Only renewal costs are deductible as a trading expense.
Items in the grey zone include fitted partition walls, suspended ceilings and certain ventilation ductwork. These require technical analysis. A capital allowances survey allocates spend between qualifying and non-qualifying categories using established case-law tests, and for refits over £100,000, the exercise typically identifies enough additional qualifying expenditure to justify the cost.
Timing your spend around the tax year
The date an asset is first brought into use (not the date of purchase or invoice) generally determines which chargeable period a capital allowance claim falls in. For a business with a March year-end, a kitchen refit completed in March 2027 falls in the 2026-27 pool. One completed in April 2027 falls in 2027-28 and the relief arrives a year later.
For spend above the AIA cap, getting the asset into use before the period end pulls the 40% FYA forward by a full year, which at 25% CT is worth roughly £25,000 of earlier tax relief on every £250,000 of over-cap spend. The argument for accelerating completion of a large refit, where it can be managed without quality compromise, is material.
Cash-basis sole traders should note that capital allowances interact with the accounting method. Under cash basis (the default for unincorporated businesses from 6 April 2024, per HP 25), capital expenditure is generally treated differently. Operators with significant fit-out spend should confirm whether an accruals election improves the overall position. See also our cash basis versus accruals explainer.
Maximising the claim: next steps for operators
Capital allowances on a fit-out are not self-executing. They require an accurate allocation of spend, a correctly maintained pool, and a decision on how to use AIA across the group where multiple sites are involved. For refits above around £100,000, the following are worth addressing before the year-end tax return is filed:
- Obtain a capital allowances analysis or survey from a specialist, particularly if the fit-out included structural or integral-features work.
- Confirm the date each asset was first brought into use (not the invoice date).
- Check AIA allocation if the business operates under common control with any other entity.
- Confirm whether the business is straddling the FA 2026 commencement date and calculate the blended WDA rate accordingly.
- Decide whether to elect for accruals (for unincorporated operators on the cash-basis default).
Our hospitality tax team works with restaurant, cafe and pub operators on capital allowances claims as part of annual accounts preparation and standalone refit reviews. If you have recently completed or are planning a fit-out, contact us via the hospitality accounts service page. For specific operator types, see our guides for restaurants and cafes and coffee shops.