Capital allowances investment schemes

Since 1997, a number of capital allowances schemes have been introduced to encourage investment in particular assets or by particular sorts of businesses. This site provides a brief description of each scheme and a link to more detailed guidance. It also highlights the established incentive allowances for R&D and enterprise zones. Here is a list of the schemes:

First-year allowances for plant and machinery

Capital allowances allow the costs of capital assets to be written off against a business's taxable profits. They take the place of depreciation in the commercial accounts, which is not allowed for tax. First-year allowances (FYAs) enable a greater proportion of the capital expenditure on an asset to be set against the business's profits of the period during which the investment is made.

40 per cent FYAs for small and medium-sized businesses

Small and medium-sized businesses can claim 40 per cent FYAs on their investment in plant and machinery. Spending on certain assets such as cars, long-life assets and plant or machinery for leasing does not qualify. The rate of FYAs for small businesses has been increased from 40 per cent to 50 per cent for periods of one year. For businesses in the charge to corporation tax the increase applies to spending incurred on or after 1 April 2004 and on or after 1 April 2006. For businesses in the charge to income tax the increase applies to spending incurred and on or after 6 April 2004 and on or after 6 April 2006. Further information can be found in the Capital Allowances manual.

100 per cent FYAs for investment by small businesses in ICT

Small businesses can claim 100 per cent FYAs on their investment between 1 April 2000 and 31 March 2004 in information and communication technology (ICT), such as computers, software and next-generation internet enabled mobile phones. Spending on ICT for leasing does not qualify.

100 per cent ECAs (FYAs) for energy-saving investments

Businesses can claim 100 per cent FYAs on their investment in designated energy-saving plant and machinery. The qualifying technologies and products are specified in the Energy Technology List. The scheme started on 1 April 2001. This scheme is often refered to as the enhanced capital allowances (ECA) scheme.

100 per cent ECAs (FYAs) for water-efficient investments

Businesses can claim 100 per cent FYAs on their investment in designated water-efficient plant and machinery. The qualifying technologies and products are specified in the Water Technology List.

100 per cent FYAs for low CO2 emission cars and gas refuelling infrastructure

Businesses can claim 100 per cent FYAs on expenditure incurred between 17 April 2002 and 31 March 2008 on new cars with CO2 emissions not exceeding 120 gm/km, and equipment for refuelling vehicles with natural gas or hydrogen fuel.

FYAs for North Sea oil ring-fence plant and machinery and mineral extraction

Capital expenditure can qualify for FYAs if incurred from 17 April 2002 by a company wholly for the purpose of a trade of extraction of oil or gas in the UK or UK Continental Shelf (a "ring-fence" trade) which is subject to the supplementary charge for ring fence trades. The rates of FYAs are 100 per cent for general plant and machinery and mineral extraction. Expenditure on plant and machinery which are long-life assets qualifies for 24 per cent FYAs.

100 per cent FYAs for SMEs investing in Northern Ireland

Expenditure incurred between 12 May 1998 and 11 May 2002 by small or medium-sized businesses on plant and machinery for use primarily in Northern Ireland qualified for 100 per cent FYAs. Spending on certain assets such as cars, long-life assets and plant or machinery for leasing does not qualify.

Allowances for R&D, flat conversions and enterprise zones

100 per cent Flat Conversion Allowances

Property owners and occupiers can claim 100 per cent allowances on their capital spending from 11 May 2001 on the renovation or conversion of vacant or underused space above shops and other commercial premises to provide flats for rent..

100 per cent Research and Development Allowances

Businesses can claim 100 per cent Research and Development Allowances (RDAs) for capital expenditure on R&D.

100 per cent Enterprise Zone Allowances

100 per cent capital allowances can be claimed on the cost of constructing industrial and commercial buildings (including offices), and certain purchases of buildings in designated Enterprise Zones.

Background

General rates of capital allowances

The main rates of capital allowances are:

Rate Description
  • 4% straight-line

industrial buildings and structures, agricultural buildings and works, certain hotels - to write off the expenditure over 25 years

  • 20% reducing balance

plant and machinery, mineral exploration, patents and industrial know-how outside the new rules for intangible assets

  • 10% reducing balance

plant and machinery for certain overseas leasing, mineral assets

  • 6% reducing balance

plant and machinery long-life assets

Small, and small and medium-sized businesses

A business is small, or small or medium-sized in a period of accounts if it satisfies at least two of the following conditions for the period of accounts or the preceding period of accounts:

Category  Small

Small or medium-sized

annual turnover

not more than £2.8 million

not more than £11.2 million

assets

not more than £1.4 million

not more than £5.6 million

employees

not more than 50

not more than 250

For financial years ending on or after the 30 January 2004 the thresholds have been increased:

Category  Small Small or medium-sized

annual turnover

not more than £5.6 million

not more than £22.8 million

assets

not more than £2.8 million

not more than £11.4 million

employees

not more than 50

not more than 250

If the business is a company, this test is done at the level of the world wide group.

Claiming the allowances

There are no special rules for claiming FYAs. The allowances are claimed in the business's income or corporation tax return in the same way as claims for other capital allowances.