What capital allowances can I claim?

What are capital allowances?

Expenses in your business will either be revenue (trading) expenses or capital expenditure. Normally if an item will have a lasting benefit for the business, certainly longer than a year, it will be classed as capital expenditure. We explain how revenue expenses are dealt with on our What business expenses are allowable? page.

Capital allowances are a way of obtaining tax relief on some types of capital expenditure. They are treated as another business expense and so reduce your taxable profit within your basis period. You can find out more about accounting and basis periods on our How do I work out my taxable profits? page.

Example

Matthew draws up his accounts for the year to 31 March 2023. Those accounts form his basis period for the 2022/23 tax year. Any capital expenditure in the year to 31 March 2023 is eligible for capital allowances in the 2022/23 tax year.

Does all capital expenditure qualify for capital allowances?

No. The expenditure must be on a particular type of asset. Generally, you must own the asset on which the capital allowances are claimed. In other words if you have hired or leased the asset, capital allowances may not be claimed, but you may obtain tax relief on the rental costs as revenue expenditure.

There are special rules relating to assets acquired on hire purchase or finance leases. Generally, these assets are treated as belonging to the person using them, even though legal ownership may not pass until a final payment is made at the end of the contract term. In order to claim capital allowances, these assets must have been brought into use. Any interest on hire purchase items is a revenue (trading) expense and not part of the capital expenditure.

⚠️ Please note the super-deduction capital allowance for the two year period 1 April 2021 to 31 March 2023 is available for companies only and not for unincorporated businesses such as self-employed individuals or partnerships.

How do I claim capital allowances?

They must be claimed in your Self Assessment tax return and they must normally be claimed by 12 months after the 31 January filing deadline for the return.

How do I find out what types of expenditure qualify?

On this webpage we are only going to look at plant and machinery allowances but you can find out about other types of allowances on GOV.UK.

The most common assets which you may purchase and that will qualify for plant and machinery capital allowances are as follows:

• Motor car
• Van
• Computer, printer, etc
• Tools, for example lawnmower, saw, etc
• Specialist machinery

The main items that do NOT attract plant and machinery capital allowances include the cost of buildings or property, although it is possible that part of the cost of the building might relate to integral features or to fixtures which do qualify.

What are integral features?

Integral features are fittings within the building that cannot easily be removed, for example cold water systems, electrical systems, heating or ventilation systems, etc. See GOV.UK for more information.

What are fixtures?

These are items that are fitted into a building but could be removed more easily than integral features, for example fire alarm systems.  See GOV.UK for more information.

What capital allowances are given on plant and machinery?

There are currently two main types of capital allowances for plant and machinery:

• Annual investment allowance
• Writing down allowance

What is the annual investment allowance?

The annual investment allowance (AIA) provides 100% tax relief on assets qualifying as plant and machinery, subject to an annual maximum and excluding cars. It is not possible to claim AIA on assets which you owned and used for another reason (such as for personal use) before using them within the business or on assets that were given to you for your business. (In these circumstances you may use the small pools allowance or claim a writing down allowance in the main (general) pool or special rate pool.)

The maximum amounts have varied since AIA was introduced. The maximum amount from 1 January 2019 to 31 March 2023 is £1,000,000. AIA can only be claimed in the year the asset is purchased. If capital allowances are not claimed in that year, then the assets will need to be added to the main pool. There is more information on AIA on GOV.UK.

What is writing down allowance?

Expenditure on assets that don’t qualify for AIA is pooled together, unless the expenditure is for an asset which is used partly for business and partly for private purposes, as this expenditure has to be kept separately (see I use my car for private purposes as well as business purposes. Can I still claim capital allowances? below.) Writing down allowance gives tax relief on the value of assets held in the pool.

The 'normal' allowance is a writing down allowance of 18% of expenditure in the pool, and there is a writing down allowance of 6% for expenditure in the special rate pool. 

Example

Cedric has a capital allowances pool brought forward of £2,400 before claiming allowances for 2022/23. If he has no additions or disposals of assets during that year, his claim for capital allowances would be as follows:

Written down value brought forward Writing down allowance (18%) Written down value carried forward

£2,400 - £432 £1,968

 

So Cedric can claim a writing down allowance of £432 and deduct that from his profits for tax purposes.

As most assets now qualify for the annual investment allowance it is less common to see additions being made to the main writing down allowance pool. 

What happens when I have an asset that does not qualify for the annual investment allowance?

If you have an asset that does not qualify for the annual investment allowance (AIA) it will need to be added to the main writing down allowance pool. Look at the example above with Cedric again. Now assume that in 2022/23 he is given a second-hand van worth £4,000 for use in his business. This does not qualify for AIA, so the market value of the asset of £4,000 must be added to the main writing down allowance pool. His capital allowances calculation for the main writing down allowance pool would be as follows: 

Written down value brought forward Additions   Writing down allowance (18%) Written down value carried forward

£2,400 £4,000 £6,400 - £1,152 £5,248

What items fall into the special rate pool?

The main items in this pool will be long-life assets (see GOV.UK), integral features or cars with higher carbon dioxide (CO2) emissions.

These items only attract a writing down allowance at 6% each year but with the exception of cars you should be able to claim the annual investment allowance first before using the special rate pool.

What happens to writing down allowances if accounts are drawn up for a period that is not 12 months?

Writing down allowances are pro-rated to the length of the period of the accounts. So if accounts are prepared for a 15 month period (say, at the start of trading), writing down allowances are 15/12 of the usual amounts. Similarly, if accounts are prepared for a 6 month period writing down allowances would be 6/12 of the usual amount.

What is the small pools allowance?

If you have a balance of £1,000 or less in your main (general) pool or special rate pool then you can claim capital allowances (called the small pools allowance) on the full amount. You cannot claim the small pools allowance and writing down allowances.

What capital allowances will a car get?

The government continues to use capital allowances to try and encourage the use of more environmentally friendly cars. Broadly new and unused cars with zero CO2 emissions will attract a full 100% first year allowance; cars with CO2 emissions below 50g/km can claim 18% writing down allowance in the main pool; cars with higher CO2 emissions will be placed in the special rate pool (6% rate of capital allowances).

Any car that you use privately will be placed in a separate pool as allowances will be restricted by the amount of private use you have.

Example - Amber

Amber wants to purchase a car during the 2023/24 tax year, to use in her self-employed business. She wants to know how the capital allowances would be calculated if she buys a car with zero CO2 emissions (such as an electric car), or a car with low CO2 emissions.

If Amber purchases a new zero CO2 emissions car which costs £15,000 then the car would be eligible for first year allowances (cars are not eligible for the annual investment allowance). The first year allowance means that the full cost (£15,000) of the zero CO2 emissions car can be claimed as a capital allowance on Amber’s 2023/24 Self Assessment tax return.

If Amber purchases a car with higher CO2 emissions (so above 110g/km) which costs £8,000 then the expenditure would not be eligible for first year allowances instead it would fall under the special rate pool and receive capital allowances at 6%. This means that in 2023/24 Amber would receive capital allowances of £480 (£8,000 x 6%).

There is more information on how to calculate capital allowances on cars based on purchase date, CO2 emissions and whether the car was new or second-hand on GOV.UK.

I use my car for private purposes as well as business purposes. Can I still claim capital allowances?

Yes, but you can only claim for the proportion of business use of the car.

Continuing the example of Amber above, Amber wants to know what would happen if she uses the new car for private use as well as on business.

If Amber wants to use the car for private purposes, then she will need to apportion the capital allowances between her business and private use and only claim capital allowances for the business element.

So, if she uses her car for private purposes for 25% of the time, then she must restrict the capital allowances that she claims on her Self Assessment tax return to exclude the amount relating to the private use.

If Amber purchases the new zero CO2 emissions car for £15,000 then she will be able to claim a first year allowance of £15,000 x 75% business use i.e. £11,250. If Amber purchases the higher emissions car above for £8,000 then she will be able to claim writing down allowances in 2023/24 of £480 x 75% i.e. £360. 

So Amber will not get tax relief for the ‘private usage’ element of the capital allowances.

If Amber buys the higher emissions vehicle, and her special rate pool expenditure was nil prior to this purchase, her special rate pool calculation will be as follows:

	Special rate pool	Amount of writing down allowance on tax return
Written down value brought forward	£0
Additions	£8,000
	£8,000
Writing down allowance (6%)	- £480	£360 (£480 x 75%) restricted for private usage
Written down value carried forward	£7,520

 

As shown above, the special rate pool balance carried forward to the next tax year (2024/25) for tax purposes is reduced by the full £480, even though the actual allowances Amber is entitled to is only £360.

How do I find the actual levels of CO2 emissions of cars that decide what allowances I can claim?

You can look on GOV.UK.

What happens when I sell an asset?

If you sell an asset you deduct the sales proceeds from the balance of the main writing down allowance pool, but you cannot deduct more than the original cost of the asset. In most cases the annual investment allowance (AIA) will previously have been claimed for the full cost of the asset at the time of its original purchase. 

Example – Dario

Dario has a main pool balance brought forward of £1,500. He sells a machine during the year for £1,200 (it had originally cost £3,500) and AIA had been claimed at the time in respect of this.
 
His capital allowances calculation for the main pool would be as follows:

Written down value brought forward Less: proceeds from sale of machine   Writing down allowance (18%) Written down value carried forward

£1,500 - £1,200 £300 - £54 £246

What happens if the sale proceeds are more than the balance of expenditure in the main pool?

If you deduct the sale proceeds of the asset on which you have previously claimed the annual investment allowance from the main (general) pool and the sale proceeds are more than the balance in the pool so it makes the balance on the main pool negative, then instead of a capital allowance, a balancing charge has been generated and that is an amount that is added to trading profits rather than being deducted from them.

Example - Brianna

Brianna has a main pool balance brought forward of £1,500 at 6 April 2022. During the 2022/23 tax year she sells an item of equipment for £2,200 which she had bought for £4,000. Brianna had previously claimed AIA of £4,000.

Written down value brought forward Less: proceeds from sale of equipment Balancing charge

£1,500 - £2,200 £700

 

So Brianna has £700 to add to her profits for 2022/23.

What if I receive a payment for my vehicle under a vehicle scrappage scheme (eg under the ULEZ scheme in London)?

In some parts of the UK such as London, Birmingham, Sheffield and Glasgow, clean air zones have been introduced by the local authorities in recent years. As part of the introduction of these schemes some local authorities have provided cash grants to encourage people who have vehicles which do not meet the required low emissions standard to scrap them and replace them with a newer vehicle that does meet the required standards.

If you receive a payment from a local authority for scrapping a car or van that you use for business this will have implications with regard to the capital allowances you can claim for tax purposes. This is because in this situation the grant, together with any sums received for actually scrapping the vehicle, make up the ‘sale proceeds’ for the scrapped vehicle for capital allowances purposes.

If the vehicle that has been scrapped is a car in respect of which capital allowances have previously been claimed (see ‘What capital allowances will a car get?’ and ‘I use my car for private purposes as well as business purposes. Can I still claim capital allowances?’ above), then see ‘What happens when I sell an asset?’ below. 

If the vehicle that has been scrapped is a van then the capital allowances treatment depends on whether or not you are using the cash basis. If you are not using the cash basis and the van is one in respect of which annual investment allowance (AIA) capital allowances have previously been claimed (see ‘What is the annual investment allowance?’ above) and you have a balance of expenditure in your writing down allowance pool then see ‘What happens when I sell an asset?’ below. 

If the vehicle that has been scrapped is a van in respect of which annual investment allowance (AIA) capital allowances have previously been claimed (see ‘What is the annual investment allowance?’ above) and you do not have a writing down allowance pool balance then there is a clawback of some of the AIA previously claimed. The amount of the clawback is equal to the sale proceeds, which forms taxable income (known as a balancing charge) for your business. However the clawback cannot be more than the AIA that was originally claimed.

If exceptionally, the sale proceeds are more than the original cost of the van, then there may be capital gains tax implications. If the difference between the sale proceeds and the original cost is less than the capital gains tax annual exemption for the tax year and you have no other capital gains in the tax year there should not be any further tax consequences. But if the difference is larger than the capital gains tax annual exemption or your annual exemption is being used against other capital gains in the tax year then the van must be treated as what is known as a chattel. We explain about the capital gains tax treatment of chattels in our section ‘What if I sell my personal belongings?’

If you prepare your accounts on the cash basis and you claimed the original cost of the van as an expense in the accounting period in which you bought the van, then the sale proceeds must be treated as additional taxable income in the accounting period in which it is received.

If you are using the accruals basis when you buy a vehicle for your business to replace the scrapped vehicle, this should qualify for AIA capital allowances if it is a van or WDA capital allowances if it is a car in the usual way. If you use the cash basis then the cost of a replacement van is an allowable expense or the cost of a replacement car can qualify for WDA capital allowances, as usual.

Where can I find out more information about capital allowances?

This page gives you an outline of the rules on capital allowances but we cannot cover every scenario.

HMRC’s helpsheets HS222 and HS252 provide gives further information about capital allowances and there is further information on GOV.UK.

HMRC also produce webinars periodically which cover capital allowances and also have e-learning packages available. For more information on these learning tools, see GOV.UK.