Claim capital allowances
Contents
- Overview
- What you can claim on
- Annual investment allowance
- First year allowances
- Business cars
- How to claim Writing down allowances -Rates and pools- Work out what you can claim
1. Overview
You can claim capital allowances when you buy assets that you keep to use in your business, for example:
- equipment
- machinery
- business vehicles, for example cars, vans or lorries
These are known as plant and machinery.
You can deduct some or all of the value of the item from your profits before you pay tax.
If you’re a sole trader or partner and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead. Please refer to accounting methods in Starting Up a New Business tab for cash basis accounting
Work out the value of your item
In most cases, the value is what you paid for the item. Use the market value (the amount you’d expect to sell it for) instead if:
- you owned it before you started using it in your business
- it was a gift
Other business costs
You claim for the cost of things that are not business assets in a different way. This includes:
- your business’s day-to-day running costs
- items that it’s your trade to buy and sell
- interest payments or finance costs for buying assets
Claim these costs as business expenses if you’re a sole trader or partner, or deduct from your profits as a business cost if you’re a limited company.
Other capital allowances
As well as plant and machinery, you can also claim capital allowances for:
- renovating business premises in disadvantaged areas of the UK
- extracting minerals
- research and development
- ‘know-how’ (intellectual property about industrial techniques)
- patents
- dredging
- structure and buildings
If you let out residential property
You can only claim for items in residential property if your business qualifies as a furnished holiday lettings business. In each year the property must be:
- available for holiday letting for 210 days
- let for 105 days or more
2. What you can claim on
You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.
In most cases you can deduct the full cost of these items from your profits before tax using annual investment allowance (AIA).
If you’re a sole trader or partner and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.
What does not count as plant and machinery
You cannot claim capital allowances on:
- things you lease – you must own them
- buildings, including doors, gates, shutters, mains water and gas systems
- land and structures, for example bridges, roads, docks
- items used only for business entertainment, for example a yacht or karaoke machine
What counts as plant and machinery
Plant and machinery includes:
- items that you keep to use in your business, including cars
- costs of demolishing plant and machinery
- parts of a building considered integral, known as ‘integral features’
- some fixtures, for example fitted kitchens or bathroom suites
- alterations to a building to install other plant and machinery – this does not include repairs
Claim repairs as business expenses if you’re a sole trader or partner – deduct from your profits as a business cost if you’re a limited company.
Integral features
Integral features are:
- lifts, escalators and moving walkways
- space and water heating systems
- air-conditioning and air cooling systems
- hot and cold water systems (but not toilet and kitchen facilities)
- electrical systems, including lighting systems
- external solar shading
Fixtures
You can claim for fixtures, for example:
- fitted kitchens
- bathroom suites
- fire alarm and CCTV systems
You can claim if you rent or own the building, but only the person who bought the item can claim.
When you buy a building from a previous business owner you can only claim for integral features and fixtures that they claimed for.
You must agree the value of the fixtures with the seller. If you do not you cannot claim for them. Agreeing the value also means the person selling the assets can account correctly for them.
If you let residential property
You can only claim for items in residential property if either:
- you run a furnished holiday lettings business
- the item is in the common parts of a residential building, for example a table in the hallway of a block of flats
Care workers
There are special rules if you run a care business
3. Annual investment allowance
You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.
If you sell the item after claiming AIA you may need to pay tax.
What you can claim on
You can claim AIA on most plant and machinery up to the AIA amount.
What you cannot claim on
You cannot claim AIA on:
- cars
- items you owned for another reason before you started using them in your business
- items given to you or your business
Claim writing down allowances instead.
The AIA amount
The AIA amount has permanently increased to £1 million from 1st April 2023
Changes to the AIA
The AIA amount has changed several times since April 2008.
If the AIA changed in the period you’re claiming for, you need to adjust the amount you can claim.
| AIA | Sole traders/partners | Limited companies |
|---|---|---|
| £1 million | 1 January 2019 – 31 December 2021 | 1 January 2019 – 31 December 2021 |
| £200,000 | 1 January 2016 – 31 December 2018 | 1 January 2016 – 31 December 2018 |
| £500,000 | 6 April 2014 – 31 December 2015 | 1 April 2014 – 31 December 2015 |
| £250,000 | 1 January 2013 – 5 April 2014 | 1 January 2013 – 31 March 2014 |
| £25,000 | 6 April 2012 – 31 December 2012 | 1 April 2012 – 31 December 2012 |
| £100,000 | 6 April 2010 – 5 April 2012 | 1 April 2010 – 31 March 2012 |
| £50,000 | 6 April 2008 – 5 April 2010 | 1 April 2008 – 31 March 2010 |
You get a new allowance for each accounting period.
If your accounting period is more or less than 12 months
Adjust your AIA if your accounting period is more or less than 12 months.
ExampleIf your accounting period is 9 months the AIA will be 9/12 x £200,000 = £150,000.
You may also need to take into account changes to the AIA in that time.
The rules are different if your accounting period is longer than 18 months or you have a gap or overlap between accounting periods.
When you can claim
You can only claim AIA in the period you bought the item.
The date you bought it is:
- when you signed the contract, if payment is due within less than 4 months
- when payment’s due, if it’s due more than 4 months later
If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.
If your business closes, you cannot claim AIA for items bought in the final accounting period.
If you do not want to claim the full cost
If you do not want to claim the full cost, for example you have low profits, you can claim:
- writing down allowances instead
- part of the cost as AIA and part as writing down allowances
Items you also use outside your business
You cannot claim the full value of items you also use outside your business if you’re a sole trader or partner. Reduce the capital allowances you claim by the amount you use the asset outside your business.
ExampleYou buy a laptop for £600. You use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.
If you spend more than the AIA amount
Claim writing down allowances on any amount above the AIA. If a single item takes you above the AIA amount you can split the value between the types of allowance.
Mixed partnerships
AIA is not available for partnerships where one of the partners is a company or another partnership.
More than one business or trade
If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA.
You only get one AIA if the businesses are both:
- controlled by the same person
- in the same premises or have similar activities
If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA
4. First year allowances
If you buy an asset that qualifies for first year allowances you can deduct the full cost from your profits before tax.
You can claim first year allowances in addition to annual investment allowance – they do not count towards your AIA limit.
What qualifies
You can claim ‘enhanced capital allowances’ (a type of first year allowances) for the following energy and water efficient equipment:
- some cars with low CO2 emissions
- energy saving equipment that’s on the energy technology product list, for example certain motors
- water saving equipment that’s on the water efficient technologies product list, for example meters, efficient toilets and taps
- plant and machinery for gas refuelling stations, for example storage tanks, pumps
- gas, biogas and hydrogen refuelling equipment
- new zero-emission goods vehicles
You cannot normally claim on items your business buys to lease to other people or for use within a home you let out.
How to claim
Claim on your tax return.
If you do not claim all the first year allowances you’re entitled to, you can claim part of the cost in the next accounting period using writing down allowances
5. Business cars
You can claim capital allowances on cars you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.
Use writing down allowances to work out what you can claim – cars do not qualify for annual investment allowance (AIA).
Sole traders and partners
If you’re a sole trader or a partner you can claim simplified mileage expenses on business vehicles instead – as long as you have not already claimed for them in another way.
Employees
If you’re an employee you cannot claim capital allowances for cars, motorbikes and bicycles you use for work, but you may be able to claim for business mileage and fuel costs.
What counts as a car
For capital allowances a car is a type of vehicle that:
- is suitable for private use – this includes motorhomes
- most people use privately
- was not built for transporting goods
What does not count
Because they do not count as cars you can claim AIA on:
- motorcycles – apart from those bought before 6 April 2009
- lorries, vans and trucks
Rates for cars
The rate you can claim depends on the CO2 emissions of your car and the date you bought it.
The main and special rates apply from 1 April for limited companies, and 6 April for sole traders and partners. The first year allowances rate applies from 1 April for all businesses.
Cars bought from April 2021
| Description of car | What you can claim |
|---|---|
| New and unused, CO2 emissions are 0g/km (or car is electric) | First year allowances |
| New and unused, CO2 emissions are between 1g/km and 50g/km | Main rate allowances |
| Second hand, CO2 emissions are between 1g/km and 50g/km (or car is electric) | Main rate allowances |
| New or second hand, CO2 emissions are above 50g/km | Special rate allowances |
Cars bought between April 2018 and April 2021
| Description of car | What you can claim |
|---|---|
| New and unused, CO2 emissions are 50g/km or less (or car is electric) | First year allowances |
| New and unused, CO2 emissions are between 50g/km and 110g/km | Main rate allowances |
| Second hand, CO2 emissions are 110g/km or less (or car is electric) | Main rate allowances |
| New or second hand, CO2 emissions are above 110g/km | Special rate allowances |
Cars bought between April 2015 and April 2018
| Description of car | What you can claim |
|---|---|
| New and unused, CO2 emissions are 75g/km or less (or car is electric) | First year allowances |
| New and unused, CO2 emissions are between 75g/km and 130g/km | Main rate allowances |
| Second hand, CO2 emissions are 130g/km or less (or car is electric) | Main rate allowances |
| New or second hand, CO2 emissions are above 130g/km | Special rate allowances |
Cars bought between April 2013 and April 2015
| Description of car | What you can claim |
|---|---|
| New and unused, CO2 emissions are 95g/km or less (or car is electric) | First year allowances |
| New and unused, CO2 emissions are between 95g/km and 130g/km | Main rate allowances |
| Second hand, CO2 emissions are 130g/km or less (or car is electric) | Main rate allowances |
| New or second hand, CO2 emissions are above 130g/km | Special rate allowances |
Cars bought between April 2009 and April 2013
| Description of car | What you can claim |
|---|---|
| New and unused, CO2 emissions are 110g/km or less (or car is electric) | First year allowances |
| New and unused, CO2 emissions are between 110g/km and 160g/km | Main rate allowances |
| Second hand, CO2 emissions are 160g/km or less (or car is electric) | Main rate allowances |
| New or second hand, CO2 emissions above 160g/km | Special rate allowances |
Move the balance of any cars bought before April 2009 to your main rate allowances pool.
If your car does not have an emissions figure use the special rate – use the main rate if it was registered before 1 March 2001.
Using cars outside your business
If you’re a sole trader or partner and you also use your car outside your business, calculate how much you can claim based on the amount of business use.
If your business provides a car for an employee or director you can claim capital allowances on the full cost. You may need to report it as a benefit if they use it personally.
How to claim
When you’ve worked out your capital allowances, claim on your:
- Self Assessment tax return if you’re a sole trader
- partnership tax return if you’re a partner
- Company Tax Return if you’re a limited company – you must include a separate capital allowances calculation
Employees must claim in a different way.
The amount you can claim is deducted from your profits.
When you can claim
You must claim in the accounting period you bought the item if you want to claim the full value under:
If you do not want to claim the full value you can claim part of it using writing down allowances. You can do this at any time as long as you still own the item.
When you bought it
The date you bought it is:
- when you signed the contract, if payment is due within less than 4 months
- when payment’s due, if it’s due more than 4 months later
If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.
6. Writing down allowances
When you buy business assets you can usually deduct the full value from your profits before tax using annual investment allowance (AIA).
Use ‘writing down allowances’ instead if:
- you’ve already claimed AIA on items worth a total of more than the AIA amount
- the item does not qualify for AIA (for example, cars, gifts or things you owned before you used them in your business)
Writing down allowances let you deduct a percentage of the value of an item from your profits each year.
The percentage you deduct depends on the item. For business cars the rate depends on their CO2 emissions.
Work out the value of your item
In most cases, the value is what you paid for the item. Use the market value (the amount you’d expect to sell it for) instead if:
- you owned it before you started using it in your business
- it was a gift
How to claim
Group the things you’ve bought into ‘pools’ based on the percentage rate they qualify for.
When you know the rate for your items, work out how much you can claim and deduct it from your profits before tax on your tax return.
The amount left in each pool becomes the starting balance for the next accounting period.
Rates and pools
If you’re claiming writing down allowances, group items into pools depending on which rate they qualify for.
The 3 types of pool are the:
- main pool with a rate of 18%
- special rate pool with a rate of 6%
- single asset pools with a rate of 18% or 6% depending on the item
Main rate pool
Add the value of all ‘plant and machinery’ you’ve bought to the main rate pool, unless they’re in:
- the special rate pool
- a single asset pool (for example, because you have chosen to treat them as ‘short life’ assets or you’ve used them outside your business)
Special rate pool
You can claim a lower rate of 6% on:
- parts of a building considered integral – known as ‘integral features’
- items with a long life
- thermal insulation of buildings
- cars with CO2 emissions over a certain threshold – check the threshold for your car, which depends on the car and when you bought it
You can claim annual investment allowance (AIA) on these items apart from cars. Only claim writing down allowances at 6% if you’ve already claimed AIA on items worth a total of more than the AIA amount.
Integral features
Integral features are:
- lifts, escalators and moving walkways
- space and water heating systems
- air-conditioning and air cooling systems
- hot and cold water systems (but not toilet and kitchen facilities)
- electrical systems, including lighting systems
- external solar shading
Buildings
You cannot claim the full 6% rate on buildings themselves. You may be able to claim an allowance of 3% on money you spend on buying, constructing or renovating some non-residential buildings.
Items with a long life
These are items with a useful life of at least 25 years from when they were new.
Put them in the special rate pool if the value of all the long-life items you buy in a single accounting period (the tax year if you’re a sole trader or partner) adds up to £100,000. Put them in the main rate pool if their total value is less than £100,000.
This £100,000 limit is adjusted if your accounting period is more or less than 12 months.
ExampleIf your accounting period is 9 months the limit will be 9/12 x £100,000 = £75,000.
Single asset pools
You might need to create one or more separate pools for single assets that:
- have a short life (for assets you are not going to keep for a long time)
- you use outside your business if you’re a sole trader or a partner
Short life assets
It’s up to you to decide whether you want to treat something as a short life asset. You cannot include:
- cars
- items you also use outside your business
- special rate items
Large numbers of very similar items can be pooled together (for example, crockery in a restaurant).
The pool ends when you sell the asset. This means you can claim the capital allowances over a shorter period.
Move the balance into your main pool in your next accounting period or tax year if you’re still using the item after 8 years.
Let HMRC know
Let HM Revenue and Customs (HMRC) know on your tax return if you’re a limited company and you decide to create a short life asset pool. You must do this within 2 years of the end of the tax year when you bought the item.
Let HMRC know in writing if you’re a sole trader or partner – include how much the item cost and when you acquired it. The deadline is the online filing deadline (31 January) for the tax year after the one you bought the item in.
Things you also use outside your business
If you use an item outside your business and you’re a sole trader or partner, put it in a separate pool.
Work out your capital allowances at the main rate (18%) or the special rate (6%) depending on what the item is.
Reduce the amount of capital allowances you can claim by the amount you use the asset outside your business.
ExampleYou buy a laptop and use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.
If your accounting period is more or less than 12 months
You need to adjust the amount of writing down allowances you can claim if your accounting period is more or less than 12 months.
Items you’ve claimed AIA or first year allowances on
Record any items you’ve claimed annual investment allowance (AIA) or first year allowances on in the pool they qualify for. If you claim the full cost of an item you’ll need to write down their value as zero. This will help you to work out whether you owe tax if you sell them.
Items not claimed
Add costs you have not claimed first year allowances or annual investment allowance (AIA) on to the pool in the following year.
What to do next
Work out what you can claim
You can claim the full cost of the item if you’re claiming:
You claim based on the rate for items that do not qualify for AIA or first year allowances.
Work out your allowance
Work out what you can claim separately for each pool.
- Take your closing balance from your last accounting period.
- Add the value of anything you’ve bought or been given in the current period that qualifies for this pool. Only include VAT if you’re not VAT registered.
- Deduct the value of anything you sold or ‘disposed of’ that originally qualified for this pool.
- Work out how much you can claim using the correct rate.
- Deduct the amount you can claim from the pool to get the closing balance. This is known as the ‘tax written down value’.
ExampleThe opening balance in your main pool is £9,000. You buy a machine worth £1,200. The total for this pool is then £10,200 (£9,000 plus £1,200).
You sell a desk for £200. The total for this pool is then £10,000 (£10,200 minus £200).
Apply the rate for the main pool (18%). The amount you can claim for this pool in this period is £1,800 (18% of £10,000).
The rest (£8,200) is your closing balance or tax written down value. This is carried over and becomes your opening balance in this pool for your next accounting period.
Items you use outside your business
For items that are in a single asset pool because you’ve used them outside your business, reduce the amount you can claim by the amount you use them privately.
You still deduct the full amount from your pool to get the closing balance.
ExampleYou have a single asset pool for a car that qualifies for the main rate (18%). The opening balance is £10,000. You use the car for your family for half the time.
If you did not use it outside your business, you could’ve claimed £1,800 (18% of £10,000) for the car. Because you use it for your family half the time, you can only claim £900 (half of £1,800).
You still deduct the full amount of capital allowances (£1,800) from your balance – even though you can only claim half of them (£900) on your tax return.
The closing balance in this pool is £8,200 (£10,000 minus £1,800). This is the starting balance for the next year.
Items you use privately that are not in a single asset pool
If you start using something outside your business that you’ve already claimed capital allowances on:
- add the market value of the item (the amount you’d expect to sell it for) to a single asset pool
- deduct the same amount from the pool it was in
If the amount you deduct is more than the balance in the pool, the difference is a ‘balancing charge’ – you must put it on your tax return.
Claiming less than you’re entitled to
You do not have to claim the full amount you’re entitled to. If you only claim part, the rest stays in your closing balance.
If you have £1,000 or less in your pool
You can claim the full amount if the balance in your main or special rate pool is £1,000 or less before you work out your allowance.
This is called a small pools allowance. It does not apply to single asset pools. You can either claim a small pools allowance or writing down allowances – you cannot claim both.
This amount is adjusted if your accounting period is more or less than 12 months.
ExampleIf your accounting period is 9 months the limit will be 9/12 x £1,000 = £750.