Capital Allowances - Relief for Business Investment

The types of allowances available include:

Annual Investment Allowance (AIA):

100% relief for capital expenditure – subject to certain exclusions, notably cars (see below)

The current permanent limit for AIA is £1,000,000. This is pro-rated for long or short accounting periods.

Restrictions mean that groups of companies and, in certain circumstances, those under common control are entitled to a single AIA and so have to decide upon the allocation of the allowance between themselves.

Mixed partnerships (composed of both individuals and companies) do not get an AIA.

100% First Year Allowance:

You can only claim 100% first-year allowances on certain plant and machinery, if it’s bought new and unused. You can claim 100% first year allowances on the following if you buy before April 2027:

• electric cars and cars with zero CO2 emissions
• equipment for electric vehicle charging points

You can claim 100% first year allowances for the following if you bought it before April 2025:

• plant or machinery for gas refueling stations, for example, storage tanks, pumps and refueling equipment for gas, biogas and hydrogen
• zero-emission goods vehicles

Full expensing and 50% first-year allowance:

From 1 April 2023, Full Expensing replaced the super-deduction as the primary incentive for company investment in plant and machinery. Companies subject to corporation tax can claim:

• 100% first-year allowance on new and unused main rate plant and machinery
• 50% first-year allowance on new and unused special rate plant and machinery

It cannot be claimed on:

• the chargeable period the trade ceases;
• transactions between connected persons;
• assets used for other purposes before being brought into the trade;
• assets acquired as a gift;
• assets for letting or hire;
• cars (except new cars with zero carbon emissions) and taxis.

Plant and Machinery Writing Down Allowances (WDA):

WDA’s are given on a reducing balance basis

The WDA is proportionally reduced for accounting periods of less than 12 months in companies.

For individuals it is proportionally reduced or increased if the period is less than or more than 12 months.

There are two rates:

• Main  Rate – 14% (reduced from 18% with effect from 1 April 2026)     
• Special Rate – 6%

The Special Rate applies to Integral Features (see below), long-life assets, thermal insulation of buildings, cars that are not “main rate” cars (see below) and solar panels.
The Main Rate applies to everything else.

Integral Features:

Integral features are:

• an electrical system (including a lighting system),
• a cold water system,
• a space or water heating system,
• a powered system of ventilation,
• air cooling or air purification, and any floor or ceiling comprised in such a system,
• a lift, an escalator, or a moving walkway,
• external solar shading.

Short life assets:

Rather than treating an asset as part of a general pool, assets with an expected life of under 8 years can be recorded and receive tax relief on an individual basis. Relief will be accelerated when they are disposed of or scrapped. An election in writing is required to take advantage of this accelerated relief.

Cars

Capital allowances on cars are based on the cars CO2 emissions.

Depending on the car (there are very detailed rules) capital allowances can be claimed as follows:

• FYA on the full value of the car: For cars with zero CO2 emission
• Main rate allowances at 14%: After April 2021, cars with emissions of 50k/gm or less
• Special rate allowances at 6%: After April 2021, cars with emissions over 50k/gm

Cars do not qualify for AIA

Long life assets (LLA)

New plant and machinery with an expected life of 25 years or more is allocated to the special rate pool,
These LLA rules do not apply where total expenditure does not exceed £100,000 per year (prorated for 51% group companies as well as accounting periods shorter or longer than 12 months)

Structures and Buildings Allowance (SBA)

SBA is given at the rate of 3% on a straight line basis on qualifying expenditure incurred after 28 October 2018 on new non residential structures and buildings where the construction contract is entered into after that date.

No relief is available on the cost of land, rights over land or on obtaining planning permission.

No balancing charges or allowances apply on a disposal.

It is a 3% allowance for the first 50 years. Other conditions apply.

Research and Development

Capital allowances are available at 100% on expenditure incurred on Research and Development

Balancing Allowances and Charges

Most qualifying expenditure is pooled for purposes of WDA.

There are generally

• Main – most expenditure
• Single asset e.g Short life assets or assets with private use; and
• Class pools e.g special rate assets. (see above)

When an asset is sold, a balancing allowance is given for any amount by which the sales proceed fall short of the unrelieved expenditure/poo.l. Where proceeds are less than the pool balance, a balancing allowance will however only arise on the main pool on a cessation of trade.
If the proceeds exceed the unrelieved expenditure a balancing charge arises