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:
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.
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.
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.
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.
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.
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.
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.
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.
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..
Businesses can claim 100 per cent Research and Development Allowances (RDAs) for capital expenditure on R&D.
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.
The main rates of capital allowances are:
| Rate | Description |
|---|---|
|
industrial buildings and structures, agricultural buildings and works, certain hotels - to write off the expenditure over 25 years |
|
plant and machinery, mineral exploration, patents and industrial know-how outside the new rules for intangible assets |
|
plant and machinery for certain overseas leasing, mineral assets |
|
plant and machinery long-life assets |
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.
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.
