Capital Allowances – Plant and Machinery

  • The cost of purchasing capital equipment in a business is not a revenue tax deductible expense. However, tax relief is available on certain capital expenditure in the form of capital allowances.
  • Plant and machinery allowances may be available on items such as machines, equipment, furniture, certain fixtures in a building (integral features1), computers, cars, vans and similar equipment used in a business. 
  • There are special rules for cars and certain 'environmentally friendly' equipment.
  • Plant and machinery allowances may be available to owners of commercial property which is let out to a business.
  • The Annual Investment Allowance (AIA) gives a 100% write-off on most types of plant and machinery (but not cars) up to an annual limit.
  • Writing down allowances (WDA) are given for expenditure for which AIA is not, or cannot be, claimed.
  • A Structures and Buildings Allowance of 3% (2% prior to April 2020) may be available for qualifying investments to construct new, or renovate old, non-residential structures and buildings.

AIA

  • Special rules apply to accounting periods straddling the dates shown in the tables below.
  • The AIA may need to be shared between certain businesses under common ownership.

AIA limits - companies

Expenditure incurred:Annual limit
 £
From 1 January 2016 to 31 December 2018200,000
From 1 January 20191,000,000

​​​AIA limits - sole traders and partnership

Expenditure incurred:Annual limit
 £
From 1 January 2016 to 31 December 2018200,000
From 1 January 2019 to 31 December 20201,000,000

​​​Other plant and machinery allowances

  • Expenditure upon which AIA is not given/claimed will obtain relief through the 'main rate pool2' or the 'special rate pool3' rather than each item being dealt with separately.
  • The annual rate of WDA is 18% in the 'main rate pool2' and 6% in the 'special rate pool3'. The 8% WDA is reduced to 6% from April 2019. Special rules apply to accounting periods straddling this date.
  • A 100% first year allowance (FYA) may be available on certain energy efficient plant and cars.

Cars

  • For expenditure incurred on cars, costs are generally allocated to one of the two plant and machinery pools.
  • AIA is not available on any car but a 100% first year allowance may be available on certain cars. To qualify for first year allowance, the car must be purchased new.

Cars acquired from April 2018

Emissions (g/km)PoolAllowance
≤50Main rate100% FYA
≤ 110Main rate18% WDA
>110Special rate6% WDA

 

1 Integral features: FA 2008 introduced a new classification of items in a building or structure, expenditure on the provision or replacement of which qualifies for writing down allowances at the lower rate available for the special rate pool. The main features that are normally integral to a modern building (such as electrical, cold and hot water systems) therefore qualify for plant capital allowances but at the lower rate.

2 Main rate pool: The main rate pool is one of the two general pools into which plant expenditure is allocated (the other being the special rate pool).

3 Special rate pool: The special rate pool is one of the two general pools into which plant expenditure is allocated (the other being the main rate pool). The main items in the special rate pool are integral features and some higher emission cars.

  • The cost of purchasing capital equipment in a business is not a revenue tax deductible expense. However, tax relief is available on certain capital expenditure in the form of capital allowances.
  • Plant and machinery allowances may be available on items such as machines, equipment, furniture, certain fixtures in a building (integral features1), computers, cars, vans and similar equipment used in a business. 
  • There are special rules for cars and certain 'environmentally friendly' equipment.
  • Plant and machinery allowances may be available to owners of commercial property which is let out to a business.
  • The Annual Investment Allowance (AIA) gives a 100% write-off on most types of plant and machinery (but not cars) up to an annual limit.
  • Writing down allowances (WDA) are given for expenditure for which AIA is not, or cannot be, claimed.
  • Structures and Buildings Allowance is introduced from 29 October 2018 at a rate of 2% on a straight line basis.

AIA

  • Special rules apply to accounting periods straddling the dates shown in the tables below.
  • The AIA may need to be shared between certain businesses under common ownership.

AIA limits - companies

Expenditure incurred:Annual limit
 £
From 1 January 2019 to 31 December 20201,000,000
From 1 January 2021200,000

​​​AIA limits - sole traders and partnership

Expenditure incurred:Annual limit
 £
From 1 January 2019 to 31 December 20201,000,000
From 1 January 2021200,000

​​​Other plant and machinery allowances

  • Expenditure upon which AIA is not given/claimed will obtain relief through the 'main rate pool2' or the 'special rate pool3' rather than each item being dealt with separately.
  • The annual rate of WDA is 18% in the 'main rate pool2' and 6% in the 'special rate pool3'. 
  • A 100% first year allowance (FYA) may be available on certain energy efficient plant and cars.

Cars

  • For expenditure incurred on cars, costs are generally allocated to one of the two plant and machinery pools.
  • AIA is not available on any car but a 100% first year allowance may be available on certain cars. To qualify for first year allowance, the car must be purchased new.

Cars acquired from April 2018

Emissions (g/km)PoolAllowance
≤50Main rate100% FYA
≤ 110Main rate18% WDA
>110Special rate6% WDA

 

1 Integral features: FA 2008 introduced a new classification of items in a building or structure, expenditure on the provision or replacement of which qualifies for writing down allowances at the lower rate available for the special rate pool. The main features that are normally integral to a modern building (such as electrical, cold and hot water systems) therefore qualify for plant capital allowances but at the lower rate.

2 Main rate pool: The main rate pool is one of the two general pools into which plant expenditure is allocated (the other being the special rate pool).

3 Special rate pool: The special rate pool is one of the two general pools into which plant expenditure is allocated (the other being the main rate pool). The main items in the special rate pool are integral features and some higher emission cars.