Capital Allowances
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Claiming tax relief on your business assets
Capital allowances allow UK businesses to get tax relief when they spend money on certain capital items, including equipment, machinery and business vehicles. The cost of qualifying assets, in whole or in part, can be taken off your taxable profits, which lowers your Corporation Tax bill. This guide sets out what capital allowances are, how they operate and which assets usually qualify, so that your business can take full advantage of the reliefs on offer.
What is Capital Allowance?
A capital allowance is a type of tax relief through which UK businesses can deduct the cost of specific capital assets from their taxable profits. Ordinary business expenses are deducted as running costs, but capital allowances cover longer-term purchases such as equipment, machinery, business vehicles and fixtures within buildings. Claiming these allowances lets you spread the cost of an investment across several years or, in some cases, deduct the entire amount in the year you buy the asset. This can noticeably cut your Corporation Tax bill and release cash to reinvest in the business.
Getting Started with Capital Allowances
Before making a claim, it helps to know which types of capital allowance exist and how each applies to different assets. The Annual Investment Allowance (AIA), First-Year Allowances and Writing Down Allowances each come with their own rates and rules. Understanding which to use will help you maximise your relief and plan your spending.
Plant and machinery
Capital Allowances
Claim tax relief on qualifying plant and machinery used in your business, including equipment, computers, furniture and other eligible assets.
Qualifying Equipment
Use capital allowances for qualifying machinery and equipment, including certain integral features within buildings, when business spending meets the rules.
Commercial Property
Businesses letting commercial property may also qualify for plant and machinery allowances, subject to relevant property and spending conditions.
Cars & Green Equipment
Special capital allowance rules can apply to business cars and environmentally friendly equipment, helping eligible businesses reduce taxable profits.
Annual Investment Allowance
The Annual Investment Allowance can provide a 100% deduction for most qualifying plant and machinery costs, excluding cars, up to the annual limit.
Other Capital Allowances
Writing Down Allowances may provide relief where AIA cannot be claimed, while Structures and Buildings Allowance may cover qualifying building costs.
AIA
The AIA may have to be shared between certain businesses that are under common ownership
| Business Type | AIA limit |
|---|---|
| Companies | £1,000,000 |
| Sole traders and partnerships | £1,000,000 |
Who Qualifies for Capital Allowances?
Most UK businesses can claim capital allowances, as long as they pay tax on their profits and have invested in qualifying assets.
Limited Companies
UK-registered companies that pay Corporation Tax can claim capital allowances on eligible business assets. It is one of the main ways companies lower their taxable profits and manage cash flow.
Sole Traders and Partnerships
Self-employed individuals and business partnerships can claim through their annual Self Assessment tax return. The relief offsets taxable business profits and so reduces the overall Income Tax owed.
Property Owners and Landlords
Owners of commercial property may be able to claim capital allowances on certain fixtures and integral features in the building, such as electrical systems or air conditioning, as well as on equipment used for business.
Specific Sectors and Situations
Some sectors may qualify for additional allowances on specific investments. Many ECAs have been phased out, while R&D relief may overlap with capital allowances. Seek advice to confirm which reliefs apply to your business.
Exclusions to Keep in Mind
Not every cost qualifies. Land, buildings (apart from certain fixtures) and items bought for non-business use do not attract capital allowances. In addition, if you lease assets instead of owning them, you generally cannot claim.
Evidence to Support Your Claim
Keep clear records of asset purchases, including invoices, purchase dates, costs and how the assets are used in your business. These records help support your claim and ensure your capital allowance calculations are accurate.
Cars
Asset Pool Type
Spending on cars is generally placed in one of the two plant and machinery pools.
Tax Credits Car
AIA cannot be claimed on any car although a 100% FYA may be available on certain.
New Vehicle Buy
To qualify for the First Year Allowance claim, that car must be purchased as new.
Cars acquired before April 2027
| CO2 emissions (g/km) | Pool | Allowance |
|---|---|---|
| 0 | Main Rate | 100% FYA |
| 50 or below | Main Rate | 14% WDA |
| Over 50 | Special Rate | 6% WDA |
Other plant and machinery allowances
Main Rate Pool
Spending that does not qualify for AIA, or where AIA is not claimed, is generally included within the Main Rate Pool for capital allowance purposes.
Special Rate Pool
Certain qualifying expenditure falls into the Special Rate Pool, where capital allowances are calculated separately under the applicable special rate rules.
Writing Down Allowances
The annual Writing Down Allowance rate is 14% for the Main Rate Pool and 6% for the Special Rate Pool, subject to applicable rules.
Transitional Rules
Special transitional rules may apply to accounting periods that cross relevant tax dates, affecting the rates used to calculate available allowances.
Zero-Emission Cars
A 100% first-year allowance may be available for qualifying new and unused zero-emission cars purchased for business use.
Electric Charging Equipment
Qualifying new and unused electric vehicle charging equipment may also benefit from a 100% first-year allowance, subject to the relevant tax rules.
How to Claim Capital Allowances
Capital allowances are claimed through your business tax return, and the method depends on your business structure.
Limited Companies
A limited company claims capital allowances when completing its Company Tax Return (CT600). The claim goes into the Corporation Tax computation, showing how taxable profits have been reduced by the allowances. Keep detailed records of what was bought, when it was bought and how much it cost.
Sole Traders and Partnerships
If you are self-employed or in a partnership, you claim through your Self Assessment tax return. The figures go in the 'capital allowances' section, normally alongside your annual business accounts.
What You'll Need
To make a claim, you will need a clear list of the assets purchased, their purchase dates and costs, including installation costs where relevant. You must also specify the type of allowance being claimed AIA, First-Year Allowance or Writing Down Allowance and provide calculations showing how the claim was worked out.
Keep Good Records
HMRC may ask for proof, so keep invoices, receipts and records showing how assets are used in the business. If you sell or dispose of an asset, you may also need to make a balancing adjustment in future tax returns.