Capital Allowances

Capital Allowances allow businesses to claim tax relief on the cost of certain capital assets — typically plant and machinery — used in the trade. Instead of deducting the full cost of an asset as a revenue expense, you spread the tax relief over several years through capital allowances. The system is complex, with different pools and rates depending on the type of asset and when it was purchased. Getting capital allowances right can significantly reduce your taxable profits and is one of the most valuable reliefs available to UK businesses.

Annual Investment Allowance (AIA)

The Annual Investment Allowance provides 100% tax relief on the first £1 million of expenditure on most plant and machinery in a chargeable period. This means the full cost of qualifying assets is deducted from your taxable profits in the year of purchase. The £1 million AIA limit is temporary (extended until March 2026) but has been set at this level since January 2019. The AIA is available to most businesses, but certain assets are excluded — cars, assets acquired before the business started trading, and assets given to the business or received as a gift. The AIA limit is proportionally reduced if your accounting period is shorter than 12 months or if you have multiple associated companies. See our dedicated AIA guide for full details.

Writing Down Allowances

Expenditure on plant and machinery that is not covered by the AIA is allocated to one of three pools. The main rate pool (18% per year on a reducing balance basis) covers most general plant and machinery — computers, office furniture, fixtures, and equipment. The special rate pool (6% per year) covers assets with a longer useful life — integral features (lifts, air conditioning, electrical systems), thermal insulation, solar panels, cars with CO2 emissions over 110 g/km, and long-life assets (expected life of 25 years or more). The single asset pool is for assets that are used partly for private purposes. Writing down allowances are calculated at the end of each accounting period on the pool balance after adding new acquisitions and deducting disposals. Unrelieved expenditure carries forward to the next period.

Structures and Buildings Allowance (SBA)

The Structures and Buildings Allowance (SBA) provides relief on the cost of constructing, converting, or renovating commercial buildings used for business purposes. The SBA gives a flat 3% per year on a straight-line basis (not reducing balance) based on the qualifying cost of the structure. This means that after 33 years and 4 months, the entire cost is relieved. The SBA applies to new builds and certain conversions completed after 29 October 2018. It covers the structure itself but not the plant and machinery within it (which qualifies for AIA or WDA instead). The SBA is claimed on a straight-line basis — the full annual allowance is given regardless of when in the chargeable period the expenditure was incurred. Disposal of the building before the full allowance has been claimed results in a balancing adjustment.

First-Year Allowances

Certain types of expenditure qualify for first-year allowances (FYAs), giving 100% tax relief in the year of purchase. These include: zero-emission goods vehicles (100% FYA), electric vehicle charge points (100% FYA), and energy-efficient and water-efficient technologies under the Enhanced Capital Allowance (ECA) scheme. The ECA scheme covers assets on the Energy Technology List (ETL) and Water Technology List (WTL). First-year tax credits of 19% are available for loss-making companies claiming FYAs on energy-efficient or environmentally beneficial plant and machinery. From April 2021 to March 2023, the temporary "super-deduction" provided 130% first-year relief on qualifying plant and machinery — this has now expired and been replaced by full expensing (100% FYA) for most plant and machinery.

Claiming Capital Allowances

Capital allowances are claimed on your tax return — the CT600 for companies or the Self Assessment return for sole traders and partnerships. You must maintain an asset register or capital allowance pool statement to support your claim. The register should record each asset, its cost, the date of acquisition, the pool it is allocated to, and the allowances claimed each period. HMRC may request this information during an enquiry. A capital allowance review conducted by a specialist can identify assets that have been overlooked — particularly in property acquisitions where the purchase price includes fixtures and fittings that qualify for allowances.

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