Capital Allowances Explained

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. This claim does not count towards your AIA limit.

Qualifying capital allowances

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. This list can be found on the HMRC website
  • Water saving equipment that’s on the water efficient technologies list. This list can be found on the HMRC website
  • Plant and machinery for gas refuelling stations like storage tanks and pumps
  • Gas, biogas and hydrogen refuelling equipment
  • New zero-emission goods vehicles

Items your business buys to lease to other people or for use within a home you let out are generally not claimable.

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.

You can use writing down allowances to work out what you can claim. Cars don’t qualify for annual investment allowance (AIA).

Employees

If you’re an employee you can’t 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. This doesn’t include travelling to and from your work, unless it’s a temporary place of work.

How much you can claim depends on whether you’re using:

  • A vehicle that you’ve bought or leased with your own money
  • A vehicle owned or leased by your employer (a company vehicle)

See the simplified expenses article for more details.

What is classed 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
  • Wasn’t built for transporting goods

Not classed as a car

Because they don’t 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 on your car 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 2015

Description of car

What you can claim

New and unused, CO2 emissions are 75g/km or less (or car is electric)

First year allowance

New and unused, CO2 emissions are between 75g/km and 130g/km

Main rate allowances

Second hand, CO2 emissions are 130g/km or less (or car is electric)

Main rate allowances

New or second hand, CO2 emissions are above 130g/km

Special rate allowances

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)

First year allowance

New and unused, CO2 emissions are between 95g/km and 130g/km

Main rate allowances

Second hand, CO2 emissions are 130g/km or less (or car is electric)

Main rate allowances

New or second hand, CO2 emissions are above 130g/km

Special rate allowances

Move the balance of any cars bought before April 2009 to your main rate allowances pool. Cars with CO2 emissions of more than 130g/km you have to claim a lower rate of 8%.

Using cars outside your business

If you’re a sole trader or partner and you also use your car outside your business you can calculate how much you are eligible to 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.

Claiming

When you’ve calculated your capital allowances claim on your:

  • SATStax return if you’re a sole trader
  • Partnership tax return formif you’re a partner
  • Company tax returnif you’re a limited company - you must include a separate capital allowances calculation

Employees cannot claim this way and must claim separately themselves.

The amounts claimed are deducted from your profits.

You must claim in the accounting period you bought the item if you want to claim the full value under:

  • Annual investment allowances
  • First year allowances

If you don’t want to claim the full value you can claim part of it using writing down allowances. This can be claimed at any time but you must still own the item.