Capital Allowances

Capital allowances are an invaluable tool for U.K. businesses, offering substantial tax relief on investments in essential business assets. Designed to support growth and financial stability, capital allowances allow you to deduct the cost of qualifying assets—such as machinery, equipment, property improvements and certain property acquisitions—from your taxable profits, effectively reducing your tax liability.

Annual Investment Allowance (AIA) – Allows 100% tax relief on qualifying plant and machinery up to a set annual limit (£1 million).

Writing Down Allowance (WDA) – Provides tax relief on assets not fully claimed under AIA, with rates of 18% (main rate) and 6% (special rate pool) annually.

Full Expensing (FYA) – Gives 100% tax relief in the first year for qualifying assets in the year they are purchased, without any cap.

Structures and Buildings Allowance (SBA) – Allows a 3% annual deduction on construction or renovation costs of commercial buildings over 33.5 years.

In the U.K., capital allowances can be claimed by most entities involved in generating taxable income, including limited companies, commercial landlords, and organisations engaging in taxable trading activities. Generally, if your business invests in qualifying assets—such as machinery, equipment, or property improvements—you may be eligible to claim capital allowances.

In terms of capital allowances, Plant and Machinery refers to a broad category of tangible assets that are used in the course of business operations. These are generally physical assets that are not part of the building itself but are necessary for the business to function. Plant and machinery does not include the actual building itself or land, but it includes any items that are integral to the running of the business and are subject to wear and tear over time. These assets can be eligible for capital allowances, helping businesses reduce their taxable profits.

In the context of capital allowances, “Fixtures” refer to items that are attached or fixed to a building, but are not considered part of the building’s main structure. These are assets that are installed or fitted to the building to enable it to be used for business purposes. Fixtures are distinct from the building itself and typically qualify for capital allowances.

Integral Features are specific systems or installations within a building that are essential for its operation but are not part of the building’s basic structure. These include systems such as electrical wiring, heating, ventilation, air conditioning, plumbing, drainage, lifts, and fire or security alarms. While they are integral to the functioning of the building, they are treated separately for tax purposes and qualify for capital allowances.