Capital allowances explained

• Annual Investment Allowance (AIA) — 100% deduction on up to £1m of plant and machinery per year, new or used. Covers the vast majority of small company purchases.
• Full expensing — 100% first-year deduction for companies on new main-rate plant and machinery, uncapped; 50% first-year allowance for special-rate assets.
• Writing down allowances (WDAs) — the fallback where the above don’t apply: 18% a year on the main pool, 6% on the special-rate pool (long-life assets, integral building features, high-emission cars).
• First-year allowances — targeted 100% deductions, most notably for new zero-emission cars and EV charge points.

More than the name suggests: computers and office equipment, tools, machinery, vans and lorries, office furniture, and integral features of business premises (electrical and heating systems, lifts). It does not include things you trade in (stock), land and buildings themselves, or cars — which have their own regime.

Cars are excluded from AIA and full expensing. Relief depends on emissions: a new zero-emission car can attract a 100% first-year allowance, other cars get 18% or just 6% a year depending on CO2. Add the benefit-in-kind charge on private use and the maths generally favours electric cars — or keeping the car personal and charging the company HMRC’s approved mileage rates. Run the numbers before buying any car through a company.

Allowances are claimed in the Company Tax Return for the period the expenditure is incurred — buy equipment just before your year end and the relief lands a year earlier than buying just after. Claims are adjustments in the tax computation, not the accounts themselves: the accounts show depreciation (not deductible), the computation swaps it for capital allowances. That swap is exactly the kind of thing we handle when preparing your CT600. Call 0114 327 1480.

Corporation Tax returns done for you →