Updated on 20th July 2025
Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.
You cannot claim capital allowances, if you’re claiming the Trading income allowance. Trading income allowance relates to Total receipts from self-employment of up to £1,000, which are exempt from tax and do not need to be reported on a tax return.
If you use cash basis accounting you can claim capital allowances only on:
If you use traditional accounting you can claim capital allowances on:
- equipment, tools, computers and machinery,
- shelves, furniture and electrical fittings,
- business vehicles, for example vans, lorries or business cars.
These are known as ‘plant and machinery’.
Plant and machinery allowances do not cover:
- stock — items that your business buys and sells as part of its trade,
- furniture, fixtures and equipment in a let residential property, unless it is a qualifying furnished holiday letting,
- land, buildings and parts of buildings, apart from certain parts of buildings such as electrical, lighting, heating and ventilation systems.
The capital allowances (also known as plant and machinery allowances) are:
- Annual investment allowance (AIA) – you can claim up to £1 million on certain plant and machinery,
- 100% first-year allowances (Zero-emission car allowance) – you can claim the full amount for certain plant and machinery in the year that it was bought (for example electric car and goods vehicle),
- Full expensing and 50% first-year allowance – you can claim these on qualifying plant and machinery investments from 1 April 2023, available only for companies,
- Writing down allowances – you can claim these if your plant and machinery does not qualify for AIA or you’ve already claimed the maximum amount.
If an item qualifies for more than one capital allowance, you can choose which one to use.
A. Annual investment allowance
You can claim AIA on most plant and machinery (except cars) up to the £1 million in a 12 month period.
You cannot claim AIA on:
- business cars,
- items you owned for another reason before you started using them in your business,
- items given to you or your business.
If you cannot claim AIA, you can claim Writing down allowances instead.
Where you use an item of equipment for both business and private purposes, you must reduce the AIA claimed by the private use proportion.
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.
For example: If your accounting period is 9 months, the AIA will be 9/12 x £1,000,000 = £750,000.
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 yet made when you start using the item. You cannot claim on the interest payments or charges.
If your business closes, you cannot claim AIA for items bought in the final accounting period. Instead, you need to enter a balancing charge or a balancing allowance on your tax return for the year you close your business.
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.
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.
B. 100% first-year allowances (Zero-emission car allowance)
If you buy an asset that qualifies for 100% first-year allowances you can deduct the full cost from your profits before tax.
You can claim 100% first-year allowances in addition to annual investment allowance (AIA), as long as you do not claim both for the same expenditure.
If you use a car outside of your business, you must reduce the claim in proportion to the non-business use.
First-year allowance is never time apportioned.
What qualifies
You can claim ‘enhanced capital allowances’ (a type of 100% first-year allowance) for the following equipment, which must be new and unused:
- electric cars and cars with zero CO2 emissions,
- plant and machinery for gas refuelling stations, for example, storage tanks, pumps and refuelling equipment for gas, biogas and hydrogen,
- zero-emission goods vehicles,
- equipment for electric vehicle charging points,
- plant and machinery for use in a special tax site in UK Freeports or Investment Zones, if you’re a company.
C. Full expensing and 50% first-year allowance
Only companies can claim full expensing and the 50% first-year allowance.
You can claim them against the cost of certain plant and machinery. It must:
- have been bought from 1 April 2023,
- be new and unused,
- it must not be provided for leasing (unless the lease is of background plant or machinery within a building).
You cannot claim both allowances against the same expenditure.
100% full expensing
Full expensing lets you deduct 100% of the cost of qualifying main rate plant and machinery from your profits before tax in the year it was bought.
Companies cannot claim full expensing for special rate assets, such as integral features of buildings or structures, solar panels and assets with an expected life of at least 25 years. These may qualify for the 50% special rate allowance instead.
Companies will be liable to a balancing charge, if they sell an asset for which full expensing has been claimed.
50% special rate first-year allowance
The 50% first-year allowance lets you deduct 50% of the cost of qualifying special rate plant and machinery from your profits before tax in the year it was bought.
The balance of the expenditure, after the special rate allowance has been claimed, can be added to the special rate pool in the following accounting period.
Companies will be liable to a balancing charge, if they sell an asset for which a 50% special rate allowance has been claimed.
Check if you can claim
Check if you can claim the full expensing or 50% first-year allowance.
D. Writing down allowances (WDA)
The cost of most plant and machinery that has not qualified for AIA (or Full expensing and 50% first-year allowance) will be allocated to a pool of expenditure that will then be eligible for an annual WDA of either 18% (main pool) or 6% (special rate pool).
WDA is available on a reducing balance basis. WDA will be time apportioned where the accounting period is other than 12 months.
What you can put in the pool
You can include:
- the cost of the item, less VAT — unless you are not registered for VAT
- the cost of improving plant or machinery
- the cost of installing plant or machinery
- the original cost (not interest or charges) of plant or machinery bought on hire purchase or other finance methods, such as a loan
If your item was a gift, you add to the pool the market value of the item on the day your business started to use it. If you bought the item for another purpose before using it in your business, you add to the pool the lower of the original cost and the market value on the day your business started to use it.
Rates and pools
To claim 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
You can claim 18% tax relief on all ‘plant and machinery’ you buy, unless the items need to go into:
- 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).
Do not include cars with higher CO2 emissions.
Special rate pool (Class pools)
You can only claim 6% tax relief on the special rate pool (class pool) used for expenditure incurred on the following items:
- certain building fixtures or integral features of buildings,
- long-life assets — equipment with an expected business life of 25 years or more,
- cars with higher CO2 emissions,
- solar panels,
- thermal insulation added to existing buildings.
Integral features
Integral features are:
- lifts, escalators and moving walkways,
- space and water heating systems,
- air-conditioning and air cooling systems, purification and ventilation systems,
- hot and cold water systems (but not toilet and kitchen facilities),
- electrical systems, including lighting systems,
- external solar shading.
Items with a long life
These are items with a useful life of at least 25 years from when they were new.
If the value of all long-life items you buy in an accounting period is more than £100,000, put the costs in the special rate pool.
If the value totals £100,000 or less, put the costs in the main rate pool unless there’s another factor that would qualify it as special rate – for example, it’s an integral feature.
This £100,000 limit is adjusted if your accounting period is more or less than 12 months.
For example, if your accounting period is 9 months the limit will be 9/12 x £100,000 = £75,000.
If you’re in a partnership where one or more of the members is a limited company (not an individual), put all costs of long-life items in the special rate pool.
Single asset pools
Certain expenditure must be put in a single asset pool instead of going into the main or class pool.
Items of equipment, including cars, you use for both business and private purposes do not go into your main or special rate pool. Instead, you put the cost of each into its own single asset pool.
The small pools allowance (up to the value of £1,000) does not apply to single asset pools.
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.
Example
You 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.
Employee
If you’re an employee and receive a payment from your employer to cover any fall in the value of an asset that you own and use in your work, you put the asset in a single asset pool and take off your employer’s payment from the pool’s value. This will reduce your annual investment allowance (AIA) and writing down allowance (WDA).
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.
Short life assets
Single-asset pools must also be used for expenditure on short-life assets and for contribution allowances claimed on plant and machinery. This allows the acceleration of capital allowances on short-life plant and machinery where they are sold at a low residual value or scrapped within 8 years following the end of the accounting period in which it was acquired.
Any plant and machinery that would normally go to the main pool, except cars, can be treated as a short-life asset.
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.
Capital allowances on each short-life asset are calculated separately.
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.
On disposal within 8 years of the end of the accounting period in which the acquisition took place a balancing allowance or charges arises, which would not occur if the item was pooled.
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. The transfer is immediately after the 8th anniversary of the end of the accounting period in which it was acquired.
AIA is available against expenditure on short life assets. Given the amount of AIA available at £1,000,000 pa, it is very unlikely that the de-pooling election would now be worthwhile for most unincorporated traders.
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 in a partnership – 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.
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. Allowance is available on a straight line basis with total relief given over a 33 years and 4 months.
Qualifying buildings will include factories, warehouses and offices along with both wholesale and retail properties and will further include the cost of walls, tunnels and bridges.
On disposal, the allowances that have been claimed are effectively clawed back by adding them to the sales proceeds in order to determine the chargeable gain/allowable loss arising.
There is no balancing allowance or balancing charge. Instead the purchaser simply continues to claim 3% allowance for the remainder of the 33.3 year period based on the original cost.
Enhanced structures and buildings allowance relief in UK Freeport or Investment Zone special tax sites
Special tax sites are sometimes known as Freeport tax sites or Investment Zone tax sites. A Freeport tax site is independent and separately authorised from a Freeport customs site, but they can cover the same area of land.
You can claim 10% of the special tax site qualifying expenditure each year, if you meet all the required conditions. You can make a claim for the relief for 10 years from the allowance period start date.
You can claim enhanced structures and buildings allowance relief when you incur qualifying expenditure on structures and buildings in a special tax site.
The relief can be claimed for expenditure incurred from the date a special tax site is designated until:
• 30 September 2031 for English Freeport special tax sites,
• 30 September 2034 for Scottish Green Freeport, Welsh Freeport and Investment Zone special tax sites.
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 or it was a gift.
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 balance of qualifying expenditure for which a claim to a first-year allowance (FYA) was made in the previous chargeable period (this will be nil for a 100% FYA).
- 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 claim made to AIA.
- 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 for that pool.
- Deduct the amount you can claim from the pool to get the closing balance. This is known as the ‘tax written down value’.
- Use the amount left in each pool as the opening balance for the next accounting period.
Example
The 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.
Capital allowances when you sell an asset
When you sell or ‘dispose of’ something you claimed capital allowances on, include the value in your calculations for the accounting period you sell it in.
You do not need to do this, if you give it to a charity or community amateur sports club (CASC).
You dispose of an asset if you:
- sell it,
- give it away as a gift or transfer it to someone else,
- swap it for something else,
- get compensation for it – like an insurance payout, if it’s been lost or destroyed,
- use it for anything other than your business,
- close your business.
The value is usually how much you sold it for.
Use the market value (the amount you’d expect to sell it for) if you:
- gave it away,
- kept it to use for something other than your business,
- sold it for less than it was worth to someone who’s unable to claim allowances.
If you originally claimed 100% of the item
Add the full value to your profits in your tax return if both of the following apply:
- you originally claimed 100% of the item under annual investment allowance (AIA) or first-year allowances,
- you have nothing in the pool your item qualifies for.
This is known as a ‘balancing charge’. Balancing charges may arise following a disposal or balancing event, such as the sale, loss or destruction of assets or on the cessation of business use, where the proceeds from the events are more than their tax value.
If you have a balance in the pool your item qualifies for
Deduct the full value from that pool, if you originally claimed 100% of the item and you have a balance in the pool your item qualifies for.
If there’s a balance left in your pool, you can claim writing down allowances on it.
For items in single asset pools, claim any amount that’s left as a capital allowance. Do this in your tax return. The leftover amount is known as a ‘balancing allowance’.
You can only get a balancing allowance in your main or special rate pool when you close your business. You can get a balancing charge in any pool in any year.
When plant and machinery is sold in the accounting period the lower of the sale proceeds and original cost of the asset, is deducted from the pool before computing the Written down allowances of the accounting period in the normal way. You can only deduct the original cost of the item even if you sell it for more.
In the year you close your business, enter a balancing charge or a balancing allowance on your tax return instead of claiming capital allowances.
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.
The £1,000 is prorated if the accounting period is other than 12 months.
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.
The cost of most business cars that has not qualified for 100% first-year allowance will be allocated to a pool of expenditure that will then be eligible for an annual WDA of either 18% (main pool) or 6% (special rate pool) depending on the CO2 emissions.
There’s a different way to work out what you can claim if the car qualifies for the 100% first-year allowances – for example, if it’s an electric car or a car with zero CO2 emissions.
Cars do not qualify for annual investment allowance (AIA), super-deduction, full expensing or 50% first-year allowances.
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 annual investment allowance (AIA) on:
- motorcycles – apart from those bought before 6 April 2009,
- lorries, vans and trucks.
Rates for cars
You can claim one of the following:
- the full value of the car as 100% first-year allowances
- 18% of the car’s value (main rate allowances)
- 6% of the car’s value (special rate allowances)
Which rate you can claim depends on when you bought the car and its CO2 emissions
| Cars | 100% first-year allowances | Main rate allowances | Special rate allowances |
| Cars bought from April 2021 | New and unused, CO2 emissions are 0g/km (or car is electric) | Second hand electric car New or second hand, CO2 emissions are 50g/km or less | New or second hand, CO2 emissions are over 50g/km |
| Cars bought between April 2018 and April 2021 | New and unused, CO2 emissions are 50g/km or less (or car is electric) | Second hand electric car New or second hand, CO2 emissions are 110g/km or less | New or second hand, CO2 emissions are over 110g/km |
| Cars bought between April 2015 and April 2018 | New and unused, CO2 emissions are 75g/km or less (or car is electric) | Second hand electric car New or second hand, CO2 emissions are 130g/km or less | New or second hand, CO2 emissions are over 130g/km |
| Cars bought between April 2013 and April 2015 | New and unused, CO2 emissions are 95g/km or less (or car is electric) | Second hand electric car New or second hand, CO2 emissions are 130g/km or less | New or second hand, CO2 emissions are over 130g/km |
| Cars bought between April 2009 and April 2013 | New and unused, CO2 emissions are 110g/km or less (or car is electric) | Second hand electric car New or second hand, CO2 emissions are 160g/km or less | New or second hand, CO2 emissions are over 160g/km |
| Cars bought before April 2009 | – | If your car was registered before 1 March 2001 | If your car does not have an emissions figure |
Check your car’s CO2 emissions.
Main and special rates apply from 1 April for businesses that pay Corporation Tax, and 6 April for businesses that pay Income Tax. The 100% first-year allowances rate applies from 1 April for all businesses.
If your business provides a car for an employee or director you can claim capital allowances on the full cost. You may need to tell HMRC the car is a company benefit, if they use it personally.
Source:
Capital allowances, gov.uk, detailed information
Videos explaining capital allowances
Links to other parts related to the video above:
Capital Allowances (part 2) – ACCA TX-UK Taxation (FA 2023)