Capital Allowances are the mechanism by which tax relief is obtained on the depreciation of assets and equipment and can result in substantial tax savings. There are several ways in which Capital Allowances can be claimed, and businesses should seek to maximise these where possible in order to minimise tax.
When businesses buy equipment, they can't deduct the cost from their taxes as a business expense. However, they can get tax relief through something called capital allowances.
These allowances apply to a variety of assets like machinery, furniture, computers, and vehicles used for business purposes. There are special rules for cars and eco-friendly equipment.
Owners who rent out commercial properties to businesses can also qualify for these allowances.
Annual Investment Allowance
The Annual Investment Allowance (AIA) lets businesses write off 100% of the cost of most equipment, except cars, up to a set yearly limit. If they can't claim AIA, they may be able to use Writing Down Allowances (WDA) for their expenses.
AIA limits - companies
Annual limit |
|---|
| £ |
| 1,000,000 |
AIA limits - sole traders and partnerships
Annual limit |
|---|
| £ |
| 1,000,000 |
Other Capital Allowances
As well as the generous Annual Investment Allowances, there are various other Capital Allowances available to business owners.
|
First Year Allowance (FYA) on certain plant, machinery and cars of 0g/km (for cars purchased before 1 April 2025) |
100% |
|
Corporation tax FYA (‘full expensing’) on certain new, unused plant and machinery from 1 April 2023 |
100% |
|
Corporation tax FYA on new, unused long-life assets, integral features of buildings, etc. from 1 April 2023 |
50% |
Structures and Buildings Allowance
The Structures and Buildings Allowance was introduced in the 2018 Budget and applies to new non-residential structures and buildings. Relief is provided on eligible construction costs incurred on or after 29 October 2018 at an annual rate of 2% on a straight-line basis. This means that costs which historically may not have qualified for Capital Allowances may now do so. Business owners should not assume that costs do not qualify just because they have not qualified in the past.
Cars
When businesses spend money on cars, they usually put the costs into one of two groups for tax purposes. The Annual Investment Allowance (AIA) can't be used for cars, but some cars might qualify for a 100% allowance in the first year if they're bought brand new.
Cars acquired from April 2021
Emissions (g/km) |
Pool |
Allowance |
|---|---|---|
| 0 | Main rate | 100% FYA |
| ≤ 50 | Main rate | 18% WDA |
| >50 | Special rate | 6% WDA |
We are here to help
Our dedicated tax planning team regularly help clients with capital allowance queries. If you require any advice, then begin your journey with us today; drop us a line and let's start talking about how we can save you tax.
Adam Zaman
I head up the Corporate tax compliance department at Shorts, dealing with owner-managed businesses and larger corporate groups. My role ensures that companies are accurately preparing and reporting their corporation tax returns to HMRC, whilst also maximising their tax efficiencies.
View my articlesTags: Business Taxes
