Capital allowances are how the UK tax system lets a business deduct the cost of capital expenditure. Accounting depreciation is added back in the corporation tax computation; capital allowances replace it. Knowing which pool an asset belongs to, and which allowance applies, can be the difference between a 100% deduction this year and 6% a year for the next two decades.
Capital allowances are one of the most valuable reliefs covered in our tax and VAT guides, and they sit at the heart of any sensible plan to reduce a business’s corporation tax bill. This guide explains the main allowances, how the pools work, and the practical decisions that make a real difference at year end.
The four main allowances
| Allowance | Rate | Used for |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% | Plant and machinery up to £1 million |
| Full expensing | 100% | New main-rate plant for companies (uncapped) |
| 50% First Year Allowance | 50% | New special-rate plant for companies |
| Writing-down allowance - main pool | Main rate | Most plant and fixtures (residual after AIA/FE) |
| Writing-down allowance - special pool | 6% | Long-life assets, integral features, cars >50 g/km |
| Structures and Buildings Allowance | 3% | New non-residential buildings |
The main-rate writing-down percentage is set in legislation and has changed over time, so check HMRC’s capital allowances guidance for the rate that applies to your accounting period.
Sole traders and partnerships use AIA but not full expensing - that is a company-only relief.
Annual Investment Allowance
The £1 million AIA is shared between a group of companies under common control. It applies to most plant and machinery purchases, including:
- Computers, servers, manufacturing machinery
- Office furniture and shop fittings
- Vans (but not cars)
- Lifts, air conditioning, integral features (special-rate)
Cars are excluded from AIA. Use the writing-down allowance based on CO2 emissions, or first year allowances for new low-emission and electric vehicles.
Full expensing
For limited companies, full expensing allows an unlimited 100% first-year deduction on new and unused main-rate plant and machinery. The complementary 50% first year allowance covers new and unused special-rate assets such as integral features.
| Scheme | Status |
|---|---|
| Full expensing | Permanent (Spring Budget 2024) |
| 50% FYA | Permanent (Spring Budget 2024) |
Disposal of a full-expensed asset triggers an immediate balancing charge equal to 100% of the disposal value, so plan exits carefully. Where a balancing charge or disallowed depreciation pushes a period into loss, our guide to UK tax losses explains how to carry the result back or forward.
Cars and the CO2 thresholds
| Vehicle | First year | Subsequent years |
|---|---|---|
| New zero-emission car | 100% FYA while the relief is available | n/a |
| Used zero-emission car | Main pool | Main rate, reducing balance |
| New car 1-50 g/km CO2 | Main pool | Main rate, reducing balance |
| New car > 50 g/km CO2 | 6% special pool | 6% reducing balance |
Electric vans qualify for AIA up to £1 million and full expensing if new and bought by a company.
Structures and Buildings Allowance
The SBA gives a flat 3% straight-line deduction on the cost of constructing or acquiring new non-residential buildings used in a qualifying activity. It runs from the date the building is brought into use and continues for 33 1/3 years. Land cost and the cost of any plant within the building (which goes in the main or special pool) are excluded.
Capital vs revenue spend
The biggest area of dispute is the boundary between capital and revenue. Repairs are revenue (deductible immediately); improvements are capital (claim through allowances). HMRC tests include:
- Restoring an asset to its original condition (revenue)
- Replacing a like-for-like component (revenue)
- Replacing the entirety of an asset (capital)
- Adding new functionality (capital)
Read our capitalisation policy for fixed assets for a practical framework.
Practical tips
- Keep a clean fixed asset register with date, cost and pool category
- Time AIA-eligible spend across accounting periods if you would otherwise breach the limit
- Reconcile your tax pool balances annually so disposals are computed correctly
- Read our overview of how the Annual Investment Allowance works for current limits
- Carry your final pool figures across to the capital allowances boxes when filing your CT600 return
Wrap-up
Capital allowances reward the businesses that plan their spend, not those that scramble at year end. Combine this guide with year-end tax planning and the HMRC capital allowances guidance for the latest rates. See our pricing if you want an asset register that keeps the cost and depreciation of every asset your accountant claims allowances on.