Capital allowances are a tax relief designed to allow the cost of some of your company or organisation’s assets to be written off against its taxable profits. They take the place of the depreciation shown in the financial (commercial) accounts, which isn’t allowable for Corporation Tax purposes.
There are different types of capital allowances. For each allowance, there are special rules to calculate how much, if any, relief you can claim. You have to follow these rules, rather than the method used in your accounts for calculating depreciation.
For Corporation Tax accounting periods ending after 31 March 2008, this guide tells you what expenditure you can claim capital allowances on, how and when to claim them, and how to calculate them in certain common situations. It also tells you where to look for more detailed guidance and help for accounting periods before 1 April 2008 and for those that span this date.
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Capital allowances are designed to allow the cost of some of your company or organisation’s assets to be written off against its taxable profits.
Capital allowances are available on:
The rate of the allowance, and how to calculate it, depends on the asset you have purchased. In some cases, the rate may be different in the year you made the purchase from the rate that applies in subsequent years.
If you sell, give away, stop using or otherwise dispose of an asset on which you’ve claimed capital allowances, then you may have to make a balancing adjustment that increases or reduces your company or organisation's taxable profits for Corporation Tax. The broad aim is to give relief for the loss of value of the asset caused by business use during the period of ownership.
Not all assets qualify for capital allowances. You can only claim capital allowances on an asset you’ve bought if it qualifies for one of the specific types of capital allowance mentioned in the list below. There isn’t a general allowance that you can use for all types of capital expenditure. So if it isn’t included in the list below, you can’t claim capital allowances.
The asset must be used by your company or organisation for its business activities. For certain types of asset, there may be special rules for how you use it, so it’s essential to read the detailed HM Revenue & Customs (HMRC) technical guidance. And capital allowance rules can change so you must check the HMRC website for up-to-date guidance, before you make your claim.
Work through this list in order to see if there’s an allowance for a specific asset then follow the links below to find out more. Allowances are generally given over a period that reflects their economic life; but some allowances have an element of incentive that results in earlier relief than would be given by economic depreciation.
So for example, a piece of plant or machinery that is considered environmentally beneficial, may qualify for the Enhanced Capital Allowance which gives you a greater deduction in the first accounting period than the standard Plant and Machinery Allowance. But even if a particular asset meets the conditions for more than one allowance, you can only claim for it once.
Most companies and unincorporated organisations can claim an Annual Investment Allowance for expenditure of up to £50,000 a year, if incurred on or after 1 April 2008. The AIA has replaced the 40 per cent and 50 per cent First-Year Allowances (FYA) which were available to small and medium-sized companies and organisations before April 2008. AIA is available to companies and organisations regardless of size.
You can read more about how AIA works later in this guide.
In certain circumstances, you can also claim First-Year Allowances of 100 per cent in the year your company or organisation makes the purchase of certain plant or machinery. This means you can deduct the whole purchase cost of the asset from your company or organisation’s trading profit in the accounting period when it was purchased. Examples of expenditure that may qualify for 100 per cent First-Year Allowances include:
In addition to the 100 per cent First-Year Allowances, there is a
new temporary 40 per cent First-year Allowance for expenditure on most
plant or machinery (other than cars) incurred in the year 2009-2010,
that is, between 1 April 2009 and 31 March 2010, in the case of companies.
Find general guidance on First-Year Allowances
More about First-Year Allowances for low-emission cars
More about Enhanced capital allowances for energy-saving plant and machinery
More about Enhanced capital allowances for environmentally-beneficial plant and machinery
More about the Enhanced Capital Allowance on the ECA website (Opens new window)
More about allowances for certain refuelling infrastructure
Find out more about the allowance for ring-fence plant and machinery
More about what assets you can claim the Plant and Machinery Allowance on
Read about First-Year Allowances for small and medium-sized businesses
If you’ve bought any plant or machinery that’s not covered by the allowances above then you may be able to claim a Plant and Machinery Allowance, called a Writing Down Allowance. Plant and machinery includes assets like machinery, computers, vans, cars, furniture and similar equipment. Some assets are specifically included, and some are excluded (in particular, most buildings, parts of buildings, structures and land are excluded) - there's more information if you follow the link below.
There are also new rules for cars with effect from 1 April 2009. (The old rules for cars continue to apply for five years for cars bought before 1 April 2009.)
You’ll find more information on Writing Down Allowance, and capital allowances on cars, later in this guide.
There are other allowances for other types of capital asset as follows:
You must make your claim for a capital allowance in your Company Tax Return.
Normally, you deduct the capital allowances you’re claiming when you calculate the trading profit figure for Box 3 of your return (or Box 122 if there is a loss rather than a profit), and include your capital allowances calculation with your return. Your calculation should show:
You can also make a claim in an amendment to your return. You can make your amendment online or on paper. You should tell HMRC what box numbers and figures you want to change - you should make it clear what you’re claiming and any balancing charges. Again you must include your calculation with the amendment.
More guidance on making claims for capital allowances
Claims and elections for Corporation Tax
More about completing your Company Tax Return form
You must claim capital allowances within 12 months of the filing date for the Company Tax Return for the accounting period you want to make the claim for. You may have more time if HMRC carries out a compliance check into your return (or any amendment to your return).
You may be able to make a claim for some capital allowances in a later accounting period provided that your company or organisation still owns and uses the asset in the business. For example, you may claim a Writing Down Allowance in a later period, but not AIA or First-Year Allowances, which can only be claimed in the period when the expenditure was incurred.
More about the time limits for claiming capital allowances
How to change a Company Tax Return you’ve already filed
HMRC compliance checks and enquiries for Corporation Tax
For accounting periods that end after 31 March 2008, most companies and organisations can claim an Annual Investment Allowance of up £50,000 a year. But for groups and related companies under common control, only one Annual Investment Allowance is available for the group or the related companies.
Read more about related companies
This allowance is proportionally increased or reduced if your accounting period is more or less than twelve months.
The Annual Investment Allowance applies to most items of plant and machinery but the main exceptions are:
Read more about plant and machinery expenditure excluded from Annual Investment Allowance
The Annual Investment Allowance allows you to write off 100 per cent of qualifying expenditure up to £50,000 each year, against your company or organisation’s taxable profits.
If you’ve spent more than £50,000 in the year 2009-10 you can claim a special, temporary 40 per cent First –Year Allowance for qualifying purchases of plant or machinery made in that year, that are not covered by AIA.
In other years, or for any balance of unrelieved expenditure carried forward from earlier years, you can normally claim a capital allowance known as a Writing Down Allowance on that balance of expenditure, on a ‘reducing balance basis’. The sections that follow cover this in more detail.
Writing Down Allowances may be given at different rates, and may apply from or to different dates. In particular, some of the allowances described here only apply to accounting periods, or to that portion of an accounting period, starting on or after 1 April 2008. So you’ll need to check through the following section of this guide carefully, and read the detailed technical guidance referred to.
The explanation below tells you how to calculate and claim allowances for plant and machinery your company or organisation has bought outright. The rules may be different for something that’s been hired, or leased or bought on hire purchase.
More on the Annual Investment Allowance
Find out more about allowances for assets bought on hire purchase
Find out more about allowances for assets you lease
First check to see what is the best option for you. You might be able to claim more than the standard Plant and Machinery Allowance - for example the Annual Investment Allowance, a First-Year Allowance or an Enhanced Capital Allowance. See the section in this guide on what you can claim capital allowances for.
You’ll now need to take all the assets you’ve bought in the period that are considered to be plant and machinery for Corporation Tax purposes and group the expenditure into different asset pools as follows:
Find out what the definition of a car is for capital allowances purposes
Find out more about integral features of a building or structure
Find out more about thermal insulation added to a building
Find the definition for long-life assets
Find out more about allowances for short-life assets
Your company runs several restaurants. In the accounting period to 31 December 2008, it spends £30,000 on integral features (for example electrical systems), £20,000 on a new computer system and £2,000 on crockery.
Here:
How to make an election for short-life assets
Find the definitions for integral features and thermal insulation (PDF 77K)
Find out what assets have to
go into the single asset pool
Add together your spending on assets for this accounting period in the special rate pool and main pool. If the total (excluding expenditure on cars and any other exceptions) is £50,000 or less, you can claim the Annual Investment Allowance and deduct the entire sum from your trading profits. If the total is more than £50,000, you can claim up to £50,000 of your expenditure as Annual Investment Allowance. The unrelieved balance will qualify for Writing Down Allowance.
This treatment is in contrast to the former First-Year Allowance for small and medium-sized businesses, where the unrelieved balance was transferred to the pool in the subsequent accounting period. However, for expenditure incurred in the year 2009-2010, when the temporary 40 per cent First-Year Allowance (FYA) may be available, this FYA may be claimed on any qualifying expenditure not covered by the AIA. Any unrelieved balance of new expenditure would be added to the pool in the subsequent accounting period.
But there are several important points to note:
Find out more about when companies under common control are ‘related’
Find out more about the First-Year Allowance
If your company or organisation meets all the conditions, and the total is less than or equal to £50,000 (or the proportionately reduced figure), then you can claim that amount as Annual Investment Allowance and deduct the whole amount from your trading profit figure. There’s nothing else to calculate, and nothing you need to carry forward to future accounting periods.
If the total of the special rate pool, main pool and any qualifying expenditure in any single asset pools is more than £50,000, you can choose how you wish to allocate the Annual Investment Allowance between the pools.
Because the Writing Down Allowance is less for special rate expenditure than for the main rate expenditure, if you allocate the Annual Investment Allowance first to the special rate expenditure, this will have the effect of increasing the total allowance you can claim for the accounting period.
However if you choose to allocate the Annual Investment Allowance between the special rate pool and the main pool, carry forward the balances of these pools to the next calculation step.
Put the total Annual Investment Allowance that you’re claiming in Box 172 on your Company Tax Return form.
More about the Annual Investment Allowance
A temporary 40 per cent First-Year Allowance is available for spending on some new plant and machinery if incurred in the 12-month period from 1 April 2009 to 31 March 2010.
This allowance applies to new expenditure not already wholly relieved
by the Annual Investment Allowance. But you can’t claim
this temporary First-Year Allowance for cars, special rate expenditure,
previous expenditure in pools brought forward, or items that you lease
to other businesses, (unless you are a landlord leasing fittings in
the building along with the building itself, in which case new expenditure
on the fittings may qualify as long as they are not 'integral features').
Your company buys a printing press for £100,000 on 30 June 2009. There is no other expenditure for the accounting period. You could take advantage of the temporary allowance as follows:
Enter the total amount of the First-Year Allowance claimed in Box 118 on your Company Tax Return.
If you can’t or decide not to claim the First-Year Allowance, put the total value of the main pool in Box 121 of your Company Tax Return form and leave Box 118 blank.
Find out more about the temporary 40
per cent First-Year Allowance (PDF 48K)
For each pool, now add the balance of that pool carried forward from the previous accounting period. If your accounting period starts after 1 April 2008 and you’ve brought-forward a long-life asset pool, this should be added to your special rate pool.
| Item | Result |
|---|---|
| Value of main pool carried forward from the previous accounting period | £5,000 |
| Expenditure added to the main pool value for the accounting
period: £51,000 Less AIA claimed: £50,000 Balance after claiming AIA £1,000 |
£1,000 |
| Main pool value to take forward to the next step | £5,000 + £1,000 = £6,000 |
If you’ve disposed of any plant and machinery assets, deduct the disposal value (usually, this is how much you sold the asset for) from the appropriate pool. But for each asset, the amount you can deduct from the pool is limited to a maximum value - the value of the asset when it was added to the pool.
If the total disposal values are more than the value of the pool, the difference is a balancing charge that you enter on your Company Tax Return as follows:
You may be able to claim the Small Pool Allowance of 100 per cent if the accounting period started after 1 April 2008.
The Small Pool Allowance applies to both the special rate pool and the main pool, but not single asset pools. You can claim the whole of a pool as an allowance, if the total left in the pool after step 6 is £1,000 or less. But this doesn’t apply where the 40 per cent First-Year Allowance has been claimed and the pools are less than £1,000. This is because the remaining 60 per cent of unrelieved expenditure must be carried forward to next year and added to the pool.
The Small Pool Allowance complements the Annual Investment Allowance. It prevents (small) main or special rate pools being carried forward, so that most expenditure can be covered by Annual Investment Allowance in later years.
Note that the allowance of £1,000 is for a 12-month period. If the accounting period is less than 12 months, you must reduce the allowance proportionately.
If you can claim the Small Pool Allowance, then you can deduct the entire amount of the pool from your trading profits. You don’t need to do any more calculations for that pool for this accounting period - the pool is now empty. But you can chose to claim any amount up to the maximum of the residue in the pool, provided this is £1,000 or less.
Put the total allowance claimed in Box 113 on your Company Tax Return form.
| Item | Result |
|---|---|
| Total main pool calculated in the previous step | £850 |
| Total Small Pool Allowance to claim in Box 113 | £850 |
| Main pool to carry forward to the next accounting period | £0 |
More about the Small Pool Allowance
For the balance of each asset pool, after carrying out the previous steps, you next have to calculate the Writing Down Allowance. This is how much you can deduct from your trading profits in this and future accounting periods, until the asset is accounted for (or written down) completely.
The Writing Down Allowance rates are as follows:
But if you’ve already claimed the temporary First-Year Allowance for your main pool, you can’t also claim the Writing Down Allowance in the same period.
Leave the £30,000 you carried forward from Step 4 out of your Writing Down Allowance calculations. It’s added to the pool in the following period.
These rates apply from 1 April 2008. If the accounting period spans 1 April 2008 you must calculate capital allowances at a special rate known as a 'hybrid rate'. HMRC has provided a tool to help you calculate what's due - see the link below.
These rates also apply to a 12-month accounting period. If your accounting period is shorter, you must reduce the rates proportionately.
Go to the capital allowances Hybrid Rate Ready Reckoner
For the single asset pool, there are specific rules about the different types of asset and how much you can write them down. And of course, although this is called a 'pool', in practice you must keep individual records and calculations for each asset in the 'pool'. (For short-life assets, see the link below.)
There are special rules for cars. Up to 31 March 2009, cars costing more than £12,000 are dealt with in single asset pools, and the Writing Down Allowance is restricted to a maximum of £3,000 per year. Cars costing less than £12,000 are allocated to the main pool and there is no restriction to the Writing Down Allowance. These rules will continue to apply for cars that were bought before 1 April 2009 until the first chargeable period to end on or after 31 March 2014. After this date the balance of the pool is moved into the main rate pool. New rules apply from 1 April 2009 for cars bought on or after that date.
Read more about how to treat cars for capital allowances (PDF 40K)
After calculating the Writing Down Allowance, put the amount you’re claiming on your Company Tax Return form as follows:
Now deduct the Writing Down Allowance claimed from the value of the pool, and carry the remainder of the pool forward to your capital allowance calculations for the next accounting period.
| Item | Result |
|---|---|
| Value of main pool brought forward from Step 5 - including £5,000 brought forward from the previous accounting period and £1,000 left from expenditure in this accounting period after claiming the AIA | £6,000 |
| Value of main pool you can claim Writing Down Allowance for | £5,000 |
| 20% main pool Writing Down Allowance | £5,000 × 20% = £1,000 |
| Writing Down Allowance to claim in Box 107 of the Company Tax Return | £1,000 |
| Remaining main pool to carry forward to next accounting period | £6,000 − £1000 = £5,000 |
More about Writing Down Allowances for cars
Completing your Company Tax Return form
Find out how to write down short-life assets
If your company or organisation ceases you may not claim the Annual Investment Allowance for any expenditure incurred in the final accounting period. You may have to make balancing adjustments.
The aim is to make sure that the amount of capital allowances given over the period when your company or organisation owned and used the asset covers its loss in value.
Your main rate pool contains expenditure on only one asset that cost £100,000 and is sold for £40,000 when your company closes.
If you’ve already claimed allowances of £50,000, you can have a balancing allowance of £10,000. (The asset lost £60,000 in value; you’ve only had £50,000 allowances so far, so another £10,000 can be given).
If you’ve already claimed allowances of £80,000, you must include a balancing charge of £20,000 in your Company Tax Return. (The asset lost £60,000 in value; you’ve claimed £80,000 in allowances to date so the £20,000 excess must now be recovered).
You can only claim capital allowances if the plant or machinery is used in the particular trade or other qualifying activity that your company or organisation carries on. If your company or organisation stops carrying on that trade or activity, you may have to make balancing adjustments.
Read more about balancing adjustments
Read detailed guidance on capital
allowances
Capital allowances terms defined
More about capital allowances on the Business Link website
