Capital Allowances Act 2001
What this means for your business
- Applies to
- United Kingdom
- On this page
- 12 compliance obligations, 4 practical guides across 2 topics
What you must do
12 compliance obligations under this legislation.
Risk assessment 1
Ensure balancing charge does not exceed prior capital allowances
When you sell, scrap or otherwise dispose of an asset for which you have claimed capital allowances, the tax charge (balancing charge) you may have to pay cannot be higher than the total allowances you have already received for that asset. You must work out the charge correctly and keep records of the allowances claimed.
Management duties 1
Limit lease‑back tax deductions to the permitted amount
When you calculate your corporation tax or income‑tax profit, you can only deduct lease‑back payments up to the finance charges shown in your accounts (plus a termination amount if the lease ends). In practice you must check each accounting period that the deduction you claim does not exceed this ceiling.
Notifications 2
Notify HMRC if you lose entitlement to defer capital allowance amounts
If your business has deferred a capital‑allowance amount under the Capital Allowances Act and later an event means you should no longer be allowed to defer that amount, you must tell HMRC about it. The notice has to be sent within three months of the end of the tax period when the event first occurred.
Notify HMRC of joint lease of plant or machinery
If your business spends money on plant or machinery that you lease jointly to other parties, you must tell HMRC. You need to send a notice with the lessees' names and addresses, the share of the cost each is responsible for, and which of them are UK‑resident. If later a joint‑lessee allowance recovery situation arises, you must also notify HMRC of any non‑resident lessees and the relevant assets. The notice must be filed within 3 months of the lease’s chargeable period (or within 30 days of you becoming aware of the situation).
Record keeping 1
Calculate and claim writing‑down allowance for dredging expenditure
If your business has spent money on dredging and is carrying on that trade, you can claim a tax allowance of 4% of the cost each year for up to 25 years. You must work out the correct amount each chargeable period, keep records, and ensure the total claimed never exceeds the original cost.
Reporting and filing 7
Account for disposal values of qualifying assets
When you sell, demolish or otherwise lose an asset that you have claimed capital allowances on, you must work out a 'disposal value' and include it in your tax calculations. The amount you use depends on how the asset was disposed of – sale proceeds, insurance or compensation, or market value if nothing was received. This ensures your capital allowances are correctly adjusted for tax purposes.
Account for disposal value when selling know‑how
If your business sells know‑how that you have claimed capital allowances on, you must record the net capital proceeds as a disposal value in the tax period the sale takes place. This amount is added to your corporation tax calculation unless the payment is treated as goodwill under the tax rules.
Calculate and report balancing adjustments on capital allowances
When you sell, scrap or otherwise dispose of an asset for which you have claimed capital allowances, you must work out whether you get a balancing allowance (if you get less money than the remaining expenditure) or a balancing charge (if you get more). The amount you can claim or must charge cannot exceed the total allowances you have already received for that asset, and you need to put the result onto your tax return.
Limit balancing charge to net allowances when disposing of assets
When you sell, scrap or otherwise stop using an asset that you have claimed capital allowances on, you must calculate any balancing charge and make sure it does not exceed the total net allowances you have claimed for that asset. In practice this means checking your tax return calculations and adjusting the charge down if it would be higher than the net allowances.
Notify HMRC of errors in your tax return within 3 months
If you discover that something in your Capital Allowances tax return is wrong because an approval has been withdrawn, another party has a prior right, a restriction applies, you have made an election, or a reduction applies, you must tell HMRC. You have to send a notice describing the required amendment within three months of becoming aware of the error.
Provide an allowance statement before claiming building allowance
If you want to claim a capital allowance for a building or structure, you must have a written allowance statement showing the building’s earliest construction contract date, the amount of qualifying expenditure and the dates it was first put into non‑residential use (and any later qualifying spend). If you didn’t incur the spend yourself, you must obtain the same statement from the previous owner. Without this statement the qualifying expenditure will be treated as zero when you make your first claim.
Provide evidence of fixed‑value and disposal‑value requirements to HMRC
If you own plant or machinery, you must be able to show whether the fixed‑value or disposal‑value rules apply and are satisfied. When HMRC asks, you must give them any tribunal decision, election or statement that proves the requirement is met.
Practical guidance
Our guides explain how to comply with the requirements above.
Claim business expenses as a sole trader
How to claim allowable expenses to reduce your tax bill, including simplified expenses options for vehicles, working from home, and …
Stop being self-employed
How to close your sole trader business, notify HMRC, and complete your final Self Assessment tax return. Includes deadlines, VAT …
File your final Self Assessment return
How to file your final Self Assessment tax return when you stop being self-employed. Covers deadlines, tax calculations, overlap relief, …
Claim capital allowances for your company
How to claim AIA, full expensing, and writing down allowances on your Corporation Tax return.
Sections and provisions
497 classified provisions from this legislation.
Duties 12
- s.120 Notice and joint lessees
- s.145 Requirement to notify where no entitlement to defer amounts
- s.187B Section 187A: supplementary provision person has ceased
- s.203 Amendment of returns etc.
- s.228B S's income or profits etc : deductions
- s.270IA Evidence of qualifying expenditure etc
- s.320 Overall limit on balancing charge
- s.360P Calculation of balancing adjustments initial allowances made
- s.387 Overall limit on balancing charge qualifying expenditure
- s.443 Disposal values and disposal events
- s.462 Disposal values
- s.487 Writing-down allowances
Powers 16
- s.45R Effect of failing to comply with ongoing requirements
- s.45E Expenditure on plant or machinery for gas refuelling station
- s.45P Power to amend conditions
- s.51A Entitlement to annual investment allowance
- s.56A Writing-down allowances for small pools
- s.70YJ Power to vary the meaning of certain expressions
- s.129 Election to use the appropriate non-ship pool
- s.130 Notice postponing first-year or writing-down allowance
- s.135 Claim for deferment
- s.140 Notice attributing deferred amounts to new expenditure
- s.142 Variation of attribution
- s.270BNC Power to amend meaning of “ special tax site qualifying expenditure ” etc
- s.309 Entitlement to writing-down allowance
- s.360L Grants affecting entitlement to allowances
- s.372 Entitlement to writing-down allowance
- s.441 Allowances
Definitions 122
- Schedule 3 Transitionals and savings
- s.6B “Northern Ireland firm” etc
- s.6D NI rate activity treated as separate trade
- s.10 Interpretation
- s.18 Managing the investments of a company with investment business
- s.19 Special leasing of plant or machinery
- s.21 Buildings
- s.24 Interests in land
- s.33 Personal security
- s.36 Restriction on qualifying expenditure in case of employment or office
- s.38A AIA qualifying expenditure Qualifying person The relevant date
- s.45EA Expenditure on plant or machinery for electric vehicle charging point
- s.45D Expenditure on cars with low carbon dioxide emissions
- s.45K Expenditure on plant and machinery for use in designated assisted areas
- s.45Q Exclusion of plant or machinery partly for use outside special tax sites
- s.51G Companies and groups: meaning of “related” NACE classification
- s.51M Special provision for long chargeable periods
- s.51JA Sixth restriction: allocation where profits chargeable at NI rate
- s.51I Qualifying activities: meaning of control
- s.60 Meaning of “disposal receipt” and “disposal event”
- ... and 102 more definitions
Exemptions 53
- s.3 Claims for capital allowances
- s.7 No double allowances
- s.9 Interaction between fixtures claims and other claims
- s.15 Qualifying activities
- s.37 Exclusion where sums payable in respect of depreciation
- s.45L Exclusion of plant or machinery partly for use outside designated assisted areas
- s.52A Prevention of double relief
- s.62A Cases in which disposal value is transition value
- s.64A Leased assets: arrangements reducing disposal value of asset
- s.64 Case in which no disposal value need be brought into account
- s.70YC Extension of term of lease that is not a long funding lease
- s.70H Lessee: requirement for tax return treating lease as long funding lease
- s.84 Cases in which short-life asset treatment is ruled out
- s.96 Cars
- s.150 Exclusions where expenditure not incurred by shipowner
- s.161D Exceptions to section 161C(2)
- s.176 Person with interest in relevant land having fixture for purposes of qualifying activity
- s.180A Energy services providers
- s.181 Purchaser of land giving consideration for fixture
- s.182 Purchaser of land discharging obligations of equipment lessee
- ... and 33 more exemptions
Official guidance
Authoritative sources from regulators explaining this legislation.
- Stop being self-employed Detailed Guidance
- Scottish income tax rates (gov.scot) Detailed Guidance