Capital allowances: the basics

Capital allowance on plant and machinery

You can claim capital allowances on:

• the cost of vans and cars, machines, scaffolding, ladders, tools, equipment, furniture, computers and similar items you use in your business
• expenditure on plant and machinery
• items you used privately before using them in your business

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.

Use our interactive tool to find out what capital and incentive allowances your business could claim.

How much you can claim

If you're buying equipment, 20 per cent is the standard annual allowance for businesses each year. There is a special rate pool containing expenditure on integral features, long life assets and thermal insulation. The annual rate of allowance for it is 10 per cent. In a few cases you can claim 100 per cent in the year you make the purchase. See what purchases qualify in our guide on first-year allowances. Note that 'a year' refers to a tax year, not a calendar year.

For the 2008/09 tax year, all businesses have an Annual Investment Allowance (AIA) on the first £50,000 of expenditure on plant and machinery. There is also a tax credit for losses incurred through capital expenditure on some types of environmentally-friendly technologies. In addition, small businesses may be able to claim a plant and machinery writing-down allowance of up to £1,000 where the balance of the pool is less than £1,000 in a 12 month accounting period.

The AIA replaces the previous system of first-year allowances on plant and machinery expenditure of 50 per cent for small businesses and 40 per cent for medium-sized businesses.

Subjects covered in this guide

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

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