What are capital allowances

Capital allowances let your company deduct the cost of certain assets from its taxable profits, reducing your Corporation Tax bill. You cannot deduct the cost of buying an asset directly from your profits. Instead, you claim capital allowances through your CT600 return.

There are several types of capital allowance, each with different rates and rules. Claiming in the right order maximises your tax relief.

Annual Investment Allowance (AIA) rates and qualifying assets

Annual Investment Allowance permanent limit, qualifying plant and machinery, and excluded assets for Corporation Tax capital allowance claims.

AIA permanent limit: £1,000,000 per year (100% first-year relief on qualifying expenditure)
Qualifying assets: Most plant and machinery, including computers, office furniture, vans, tools, and equipment
Excluded from AIA: Cars, assets given to you, items you owned before using in business, and items bought in final accounting period before cessation
Associated companies: AIA shared equally between associated companies (e.g., 2 companies = \xA3500,000 each)
Short accounting periods: AIA pro-rated for periods shorter than 12 months
Effective date: Permanent from 1 April 2023 (previously fluctuated between \xA325,000 and \xA31,000,000)

The Annual Investment Allowance (AIA) gives 100% tax relief on qualifying plant and machinery expenditure in the year of purchase, up to the annual limit. This is the most straightforward capital allowance and should be used first before considering other allowances.

Order of priority: Claim AIA first on special rate pool items (which would otherwise only get 6% WDA), then on main rate pool items. Full expensing may be more beneficial for main rate pool assets in some cases as it has no annual cap.

Claim capital allowances

Full expensing for companies

Since April 2023, companies can claim full expensing on qualifying new plant and machinery. This is particularly valuable for large investments that exceed the AIA limit.

Full expensing and 50% first-year allowance

Full expensing (100% FYA) for main rate pool assets and 50% FYA for special rate pool assets, made permanent from April 2023.

Full expensing rate: 100% first-year allowance on qualifying main rate pool plant and machinery
50% first-year allowance: 50% on qualifying special rate pool assets (long-life assets, integral features)
Who can claim: Companies only (not unincorporated businesses or partnerships)
Qualifying expenditure: New and unused plant and machinery (not second-hand)
Excluded assets: Cars, assets for leasing, second-hand assets, assets with partial private use
No annual cap: Unlike AIA, full expensing has no annual expenditure limit
Effective date: Permanent from 1 April 2023 (originally temporary in Spring Budget 2023)

Full expensing allows companies to deduct 100% of qualifying main rate pool expenditure from taxable profits in the year of purchase. For special rate pool assets (integral features, long-life assets, thermal insulation), a 50% first-year allowance applies instead.

Key difference from AIA: Full expensing has no annual cap, making it particularly valuable for large capital investments. However, it only applies to new assets purchased by companies, while AIA is available to all businesses including sole traders and partnerships.

Disposal events: If you dispose of a fully expensed asset, you must bring the disposal value into your tax calculation as a balancing charge.

Full expensing guidance

Writing down allowances

For expenditure not covered by AIA or full expensing (such as second-hand assets, cars, or amounts exceeding the AIA limit for unincorporated businesses), writing down allowances provide annual tax relief on a reducing balance basis.

Writing down allowances (WDA) rates

Annual writing down allowance rates for main rate and special rate pools, used when AIA and full expensing are exhausted or unavailable.

Main rate pool WDA: 18% per year (reducing balance)
Special rate pool WDA: 6% per year (reducing balance)
Main rate pool assets: Most plant and machinery, cars with CO2 emissions 1-50 g/km
Special rate pool assets: Long-life assets (25+ years), integral features (electrical, plumbing, heating, lifts), thermal insulation, cars with CO2 emissions over 50 g/km
Zero-emission cars: 100% first-year allowance (not WDA)
Small pool allowance: £1,000 - pools below this can be written off in full instead of applying WDA percentage
Short accounting periods: WDA pro-rated for periods shorter than 12 months

Writing down allowances (WDA) provide annual tax relief on the declining balance of your capital allowance pools. They apply to expenditure that has not already been relieved through the Annual Investment Allowance or full expensing.

How it works: Each year, you claim the relevant percentage of the pool balance. The remaining balance carries forward to the next year. For example, a \xA310,000 main rate pool asset would give \xA31,800 WDA in year 1 (18% of \xA310,000), then \xA31,476 in year 2 (18% of \xA38,200), and so on.

Tip: Always claim AIA first on special rate pool items, as the 6% WDA means very slow tax relief compared to 100% immediate relief under AIA.

Work out your writing down allowances

1

Identify qualifying expenditure

Review purchases during the accounting period. Plant and machinery, computers, office furniture, tools, commercial vehicles, and business equipment generally qualify. Cars have separate rules based on CO2 emissions.
2

Allocate to the correct pool

Sort assets into pools: main rate (18% WDA) for most items, special rate (6% WDA) for long-life assets, integral features, and high-emission cars. Zero-emission cars get 100% FYA.
3

Claim in priority order

Claim AIA first on special rate pool items (to avoid the slow 6% WDA), then on main rate items. Consider full expensing for new assets where it provides greater benefit than AIA.
4

Include on your CT600

Complete the capital allowances computation as part of your Corporation Tax return. Most commercial accounting software calculates this automatically.

Cars and capital allowances

Cars have special capital allowance rules based on CO2 emissions:

Zero emissions (electric): 100% first-year allowance
1-50 g/km CO2: Main rate pool (18% WDA)
Over 50 g/km CO2: Special rate pool (6% WDA)

Cars are excluded from both AIA and full expensing.

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What are capital allowances

Full expensing for companies

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Identify qualifying expenditure

Allocate to the correct pool

Claim in priority order

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What are capital allowances

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