Overview
Capital allowances can be claimed on bought assets that are in business use, for example:
- equipment
- machinery
- business vehicles, for example cars, vans or lorries
These are known as plant and machinery.
You can deduct some or all of the value of the item from your profits before you pay tax.
If you’re a sole trader or partner and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.
Value of your item
In most cases, the value is what you paid for the item. Use the market value (the amount you’d expect to sell it for) instead if:
- you owned it before you started using it in your business
- it was a gift
Other business costs
You claim for the cost of things that are not business assets in a different way. This includes:
- your business’s day-to-day running costs
- items that it’s your trade to buy and sell
- interest payments or finance costs for buying assets
Claim these costs as business expenses if you’re a sole trader or partner, or deduct from your profits as a business cost if you’re a limited company.
Other capital allowances
- As well as plant and machinery, you can also claim capital allowances for:
- renovating business premisesin disadvantaged areas of the UK
- extracting minerals
- research and development
- ‘know-how’(intellectual property about industrial techniques)
- patents
- dredging
- structure and buildings
Note: Day to day business expenses such as day to day running costs items of trade do not fall in capital allowance. They fall in category of Business expenses.
Let out residential property
You can only claim for items in residential property if your business qualifies as a furnished holiday lettings business. In each year the property must be:
- available for holiday letting for 210 days
- let for 105 days or more
What you can claim on
You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.
In most cases you can deduct the full cost of these items from your profits before tax using annual investment allowance (AIA).
If you’re a sole trader or partner and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.
What does not count as plant and machinery
You cannot claim capital allowances on:
- things you lease – you must own them
- buildings, including doors, gates, shutters, mains water and gas systems
- land and structures, for example bridges, roads, docks
- items used only for business entertainment, for example a yacht or karaoke machine
What counts as plant and machinery
Plant and machinery includes:
- items that you keep to use in your business, including cars
- costs of demolishing plant and machinery
- parts of a building considered integral, known as ‘integral features’
- some fixtures, for example fitted kitchens or bathroom suites
- alterations to a building to install other plant and machinery – this does not include repairs
- Claim repairs as business expenses if you’re a sole trader or partner – deduct from your profits as a business cost if you’re a limited company.
Integral features
Integral features are:
- lifts, escalators and moving walkways
- space and water heating systems
- air-conditioning and air cooling systems
- hot and cold water systems (but not toilet and kitchen facilities)
- electrical systems, including lighting systems
- external solar shading
Fixtures
You can claim for fixtures, for example:
- fitted kitchens
- bathroom suites
- fire alarm and CCTV systems
You can claim if you rent or own the building, but only the person who bought the item can claim.
When you buy a building from a previous business owner you can only claim for integral features and fixtures that they claimed for.
You must agree the value of the fixtures with the seller. If you do not you cannot claim for them. Agreeing the value also means the person selling the assets can account correctly for them.
Care workers
There are special rules if you run a care business.
Annual Investment Allowance (AIA)
You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.
If you sell the item after claiming AIA you may need to pay tax.
What you can claim on
You can claim AIA on most plant and machinery up to the AIA amount.
What you cannot claim on
You cannot claim AIA on:
- cars
- items you owned for another reason before you started using them in your business
- items given to you or your business
Claim writing down allowances instead.
The AIA amount
The AIA amount has temporarily increased to £1 million between 1 January 2019 and 31 December 2020.
You get a new allowance for each accounting period.
If your accounting period is more or less than 12 months Adjust your AIA if your accounting period is more or less than 12 months.
You may also need to take into account changes to the AIA in that time.
The rules are different if your accounting period is longer than 18 months or you have a gap or overlap between accounting periods.
When you can claim
You can only claim AIA in the period you bought the item.
The date you bought it is:
- when you signed the contract, if payment is due within less than 4 months
- when payment’s due, if it’s due more than 4 months later
If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.
If your business closes, you cannot claim AIA for items bought in the final accounting period.
If you do not want to claim the full cost, for example you have low profits, you can claim:
- writing down allowances instead
- part of the cost as AIA and part as writing down allowances
Items you also use outside your business
You cannot claim the full value of items you also use outside your business if you’re a sole trader or partner. Reduce the capital allowances you claim by the amount you use the asset outside your business.
If you spend more than the AIA amount
Claim writing down allowances on any amount above the AIA. If a single item takes you above the AIA amount you can split the value between the types of allowance.
Mixed partnerships
AIA is not available for partnerships where one of the partners is a company or another partnership.
More than one business or trade
If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA.
You only get one AIA if the businesses are both:
- controlled by the same person
- in the same premises or have similar activities
If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA
First year allowances
If you buy an asset that qualifies for first year allowances you can deduct the full cost from your profits before tax.
You can claim first year allowances in addition to annual investment allowance – they do not count towards your AIA limit.
What qualifies
You can claim ‘enhanced capital allowances’ (a type of first year allowances) for the following energy and water efficient equipment:
- some cars with low CO2 emissions
- energy saving equipment that’s on the energy technology product list, for example certain motors
- water saving equipment that’s on the water efficient technologies product list, for example meters, efficient toilets and taps
- plant and machinery for gas refuelling stations, for example storage tanks, pumps
- gas, biogas and hydrogen refuelling equipment
- new zero-emission goods vehicles
You cannot normally claim on items your business buys to lease to other people or for use within a home you let out.
How to claim
Claim on your tax return.
If you do not claim all the first year allowances you’re entitled to, you can claim part of the cost in the next accounting period using writing down allowances.
Business cars
You can claim capital allowances on cars you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.
Use writing down allowances to work out what you can claim – cars do not qualify for annual investment allowance (AIA).
Sole traders and partners
If you’re a sole trader or a partner you can claim simplified mileage expenses on business vehicles instead – as long as you have not already claimed for them in another way.
Employees
If you’re an employee you cannot claim capital allowances for cars, motorbikes and bicycles you use for work, but you may be able to claim for business mileage and fuel costs.
What counts as a car
For capital allowances a car is a type of vehicle that:
- is suitable for private use – this includes motorhomes
- most people use privately
- was not built for transporting goods
What does not count
Because they do not count as cars you can claim AIA on:
- motorcycles – apart from those bought before 6 April 2009
- lorries, vans and trucks
Rates for cars
The rate you can claim depends on the CO2 emissions of your car and the date you bought it.
The main and special rates apply from 1 April for limited companies, and 6 April for sole traders and partners. The first year allowances rate applies from 1 April for all businesses.
Cars bought from April 2021
|
Description of car |
What you can claim |
|
New and unused, CO2 emissions are 0g/km (or car is electric) |
|
|
New and unused, CO2 emissions are between 1g/km and 50g/km |
|
|
Second hand, CO2 emissions are between 1g/km and 50g/km (or car is electric) |
|
|
New or second hand, CO2 emissions are above 50g/km |
|
|
Description of car |
What you can claim |
|
New and unused, CO2 emissions are 50g/km or less (or car is electric) |
|
|
New and unused, CO2 emissions are between 50g/km and 110g/km |
|
|
Second hand, CO2 emissions are 110g/km or less (or car is electric) |
|
|
New or second hand, CO2 emissions are above 110g/km |
Cars bought between April 2015 and April 2018
|
Description of car |
What you can claim |
|
New and unused, CO2 emissions are 75g/km or less (or car is electric) |
|
|
New and unused, CO2 emissions are between 75g/km and 130g/km |
|
|
Second hand, CO2 emissions are 130g/km or less (or car is electric) |
|
|
New or second hand, CO2 emissions are above 130g/km |
Cars bought between April 2013 and April 2015
|
Description of car |
What you can claim |
|
New and unused, CO2 emissions are 95g/km or less (or car is electric) |
|
|
New and unused, CO2 emissions are between 95g/km and 130g/km |
|
|
Second hand, CO2 emissions are 130g/km or less (or car is electric) |
|
|
New or second hand, CO2 emissions are above 130g/km |
Cars bought between April 2009 and April 2013
|
Description of car |
What you can claim |
|
New and unused, CO2 emissions are 110g/km or less (or car is electric) |
|
|
New and unused, CO2 emissions are between 110g/km and 160g/km |
|
|
Second hand, CO2 emissions are 160g/km or less (or car is electric) |
|
|
New or second hand, CO2 emissions above 160g/km |
Rates and pools
If you’re claiming writing down allowances, group items into pools depending on which rate they qualify for.
The 3 types of pool are the:
- main pool with a rate of 18%
- special rate pool with a rate of 6%
- single asset pools with a rate of 18% or 6% depending on the item
Move the balance of any cars bought before April 2009 to your main rate allowances pool.
If your car does not have an emissions figure use the special rate – use the main rate if it was registered before 1 March 2001.
Using cars outside your business
If you’re a sole trader or partner and you also use your car outside your business, calculate how much you can claim based on the amount of business use.
If your business provides a car for an employee or director you can claim capital allowances on the full cost. You may need to report it as a benefit if they use it personally.
How to claim
When you’ve worked out your capital allowances, claim on your:
- Self Assessmenttax return if you’re a sole trader
- partnership tax return if you’re a partner
- Company Tax Return if you’re a limited company – you must include a separate capital allowances calculation
Employees must claim in a different way.
The amount you can claim is deducted from your profits.
When you can claim
You must claim in the accounting period you bought the item if you want to claim the full value under:
- annual investment allowance
- first year allowances
If you do not want to claim the full value you can claim part of it using writing down allowances. You can do this at any time as long as you still own the item.
When you bought it
The date you bought it is:
- when you signed the contract, if payment is due within less than 4 months
- when payment’s due, if it’s due more than 4 months later
If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments
- Should you wish to speak with Us in relation to above feel free to Contact Us.