Capital Allowances
Review

Capital allowances can be claimed on a wide range of assets, including plant and machinery, business vehicles, IT equipment, and certain building fixtures. Some structures and buildings may also qualify under the Structures and Buildings Allowance (SBA), though at a different rate. A thorough review can help identify all eligible assets and maximise the relief available.

The Annual Investment Allowance (AIA) allows businesses to deduct the full cost of qualifying plant and machinery up to a set limit in the year the expenditure is made. Currently, the AIA limit is £1 million. This provides an immediate tax benefit by allowing a full deduction, rather than spreading the cost over several years.

Writing Down Allowances (WDA) apply when expenditure exceeds the AIA limit or for assets that do not qualify for AIA (for example cars). WDA allows you to claim a percentage of the asset’s cost each year—typically 18% for most plant and machinery or 6% for special rate assets (such as long-life assets, cars or integral features of buildings).

A capital allowance review can help identify unclaimed or under-claimed allowances from previous years. This review ensures that your business is taking full advantage of available reliefs, potentially reducing your tax liability and freeing up cash for reinvestment. It’s particularly useful if your business has undertaken significant capital expenditure or renovations.

Full expensing, introduced from 1 April 2023, allows companies to deduct 100% of the cost of qualifying new plant and machinery in the year of purchase, with no upper limit. However, special rate assets, such as long-life assets and integral features of buildings, are not eligible for full 100% expensing. Instead, they qualify for a 50% first-year allowance, with the remaining 50% subject to Writing Down Allowances (WDA) at 6%. Full expensing can provide an immediate tax benefit similar to the Annual Investment Allowance (AIA) for certain assets.

The best option depends on your business’s circumstances. The AIA allows you to deduct 100% of qualifying expenditure on plant and machinery, up to £1 million, including second-hand assets. Full expensing, on the other hand, has no upper limit, but only applies to purchases of new assets and is also only available to companies. If your total capital expenditure is below £1 million or includes second-hand assets, the AIA may be more advantageous. However, for companies making larger investments in new equipment, full expensing could provide greater relief. A careful review of your business’s capital expenditure will help determine which approach maximises your tax relief.