Capital allowances: the basics

Capital allowances on plant and machinery

You can claim capital allowances on expenditure on plant and machinery (P&M), which includes vans, cars, machines, scaffolding, equipment such as ladders, tools and computers, furniture, and many other items you might use in your business.

It can also include expenditure on items of P&M you used privately before using them in your business and items that you only partly use for business purposes.

You cannot claim for things you buy or sell as your trade - these are claimed as business expenses. If you buy on hire purchase, you can claim a capital allowance on the original cost of the item but the interest and other charges count as business expenses.

Most businesses have an Annual Investment Allowance (AIA) of £50,000 for P&M. This allows them to write off 100 per cent of the cost of the qualifying plant and machinery, up to a value of £50,000, against their taxable profits in a standard accounting period.

On expenditure over this amount, the standard rate of capital allowance is 20 per cent, although there are other rates depending on the type of expenditure - see the page in this guide on capital allowances on plant and machinery - special cases.

Certain items of equipment qualify for special rate allowances at 10 per cent a year, such as:

• thermal insulation that you may have added to an existing building
• integral features, eg electrical systems, cold water systems, lifts, escalators and moving walkways
• long-life assets, ie equipment with a planned life of over 25 years

You may use your £50,000 AIA wholly or partly against this expenditure, in preference to expenditure that qualifies at the 20 per cent rate. Any balance of expenditure after the AIA has been taken off will be included in the 'special rate pool' and will qualify for allowances at 10 per cent.

To find out how to calculate capital allowances for P&M, see the page in this guide on calculating your claim for capital allowances for plant and machinery.

Subjects covered in this guide

• Introduction
• Capital allowances on plant and machinery
• Capital allowances on plant and machinery - special cases
• Calculating your claim for capital allowances for plant and machinery
• Capital allowances on buildings
• Capital allowances for research and development
• Claiming capital allowances
• Here's how I made the most of tax allowances and credits available for research and development

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