Depreciation booked is not an allowable expense for tax purposes; instead capital allowances (that can be loosely described as ‘taxable depreciation’), can be claimed for qualifying expenses. To qualify for Plant and Machinery (P&M) allowances, the asset must be used in the trade rather than merely a part of the setting in which the trade is carried on. Capital allowances cannot be claimed for P&M used for business entertainment.

Additions

Additions are added to the relevant pool of taxable capital expenditure at cost. If the business is VAT registered the VAT-exclusive amount is used. It should be noted that when cars are purchased VAT-inclusive amounts are used. Capital allowances may be claimed on the capital cost (i.e. the cash price of the asset) if acquired under a hire purchase agreement.

Disposal

Any sales proceeds of a disposed asset (restricted to the original cost) are deducted from the relevant pool. In cases where the asset is given away, sold for less than market value, or ceases to be used in the business the market value (restricted to the original cost) is used instead of the sale proceeds.

Current Rates for Capital Allowances

• Annual Investment Allowance (AIA)(1): 100%
• First Year Allowance (FYA)(2): 100%
• Written Down Allowance (WDA) on P&M in the main pool(3): 18%
• WDA on P&M in the special pool(4): 6%
• WDA on Structural and Building Allowance (SBA): 3%

(1) An AIA of £1,000,000 is available if the investment in P&M is made. AIA is not available on cars and is also not available if the P&M is acquired from a connected person.
(2) A 100% FYA is available to all businesses on expenditures such as, capital expenditure incurred by a person on research and development (R&D), and new zero-emission goods vehicles, new fully electric cars, and electric vehicle charging points (until April 2025).
(3) The main pool applies to cars with CO2 emissions of no more than 50g/km, as well as second-hand electric cars.
(4) The special rate pool applies to cars with CO2 emissions greater than 50g/km.

FYA Available to Companies Only (Full Expensing)

A 100% FYA is available on new qualifying P&M (other than cars) between 01/04/23 and 31/03/26. A 50% FYA is available on assets in the special rate pool (other than cars) during the same period.

Items in Special Rate Pool

Special rate pool expenditures on integral features qualify for 100% AIA. The balance of any special rate pool should be set against the 50% FYA (other than cars), with the remaining balance included in the special rate pool, giving a 6% WDA. Items included in the special rate pool are:

• Integral features of a building, such as lifts, air conditioning, and electrical systems.
• Solar panels.
• Thermal insulation.
• Long-life items, i.e., those with a useful life of at least 25 years.
• Cars with CO2 emissions of more than 50g/km.

Miscellaneous Points

• If the business has a small balance in the general pool or the special rate pool of £1,000 or less after dealing with any additions and disposals during the period, it can claim the full amount as WDA.
• If the business acquires an asset that is not expected to last more than eight years, it can de-pool the asset and place it in its own separate column. The advantage of de-pooling an asset is that a balancing allowance will arise if the asset is sold within eight years, hence accelerating the relief.
• No WDA, FYAs, or AIA are given in the period of cessation.
• FYA 100% is not available if the asset is acquired from a connected person or purchased second-hand.

Speak to an Expert

If you have any questions about capital allowances for your business or company, please get in touch with our tax team, and we will be happy to help.