Capital Allowances are a type of tax relief provided by the Government to encourage businesses to invest in assets like machinery, equipment, vehicles, and property. They reduce taxable profits, thereby lowering your Corporation Tax bill.
Common qualifying assets include:
- Machinery (e.g., computers, printers, lathes)
- Office equipment (e.g., desks, chairs)
- Vehicles (excluding most cars)
- Warehousing equipment (e.g., forklifts, shelving)
- Tools (e.g., ladders, drills)
- Construction equipment (e.g., excavators)
- Fixtures in non-residential buildings (e.g., kitchen fittings, fire alarms)
There are four main types:
- Full Expensing
- Annual Investment Allowance (AIA)
- Enhanced Capital Allowance
- Writing Down Allowance (WDA)
There are other schemes considered to be types of capital allowance, but these are the most commonly used options.
Full Expensing allows companies to deduct 100 per cent of qualifying plant and machinery costs in the year incurred. Special rate assets qualify for a 50 per cent first-year allowance. This applies only to incorporated companies, not unincorporated businesses.
The AIA allows businesses, including sole traders and partnerships, to deduct 100 per cent of qualifying expenditure on plant and machinery from profits up to a limit of £1 million annually. It covers new, second-hand, and refurbished assets.
Enhanced Capital Allowances provide full first-year deductions for eco-friendly and energy-efficient investments such as:
- Environmentally beneficial technology
- Zero-emission vehicles and electric vehicle charging equipment
Assets must be new and unused to qualify.
WDAs let businesses claim a percentage of asset value each year:
- Main pool rate: 18 per cent (general plant and machinery)
- Special rate pool: 6 per cent (integral features, long-life assets, high CO2 cars, thermal insulation, solar panels)
- Single asset pools: for specific assets with unique usage conditions
- Full Expensing is beneficial for incorporated companies investing heavily in new plant and machinery.
- AIA is flexible and useful for both incorporated and unincorporated businesses and includes second-hand items.
- Enhanced Capital Allowances are ideal for businesses investing in eco-friendly and energy-saving technologies.
- WDAs are suitable for assets not covered by AIA, Full Expensing, or Enhanced allowances, and for long-term depreciation.
Yes, by reducing taxable profits, Capital Allowances directly lower your Corporation Tax liability, freeing up capital for further business investment and growth.
Claiming Capital Allowances promptly allows your business to:
- Invest strategically in assets that boost productivity
- Reduce your immediate tax bill
- Remain competitive through technological advancements
At Seymour Taylor, we advise businesses on maximising their Capital Allowances, ensuring you benefit fully from available tax relief. Contact us today to optimise your investment strategy and minimise your tax liability.
If you require assistance with understanding your eligibility for capital allowances or would like to make a claim, our experienced team are here to help. Please contact us for advice and guidance.