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Capital Allowances

You can claim capital allowances when you buy assets that you keep to use in your business, e.g.

  • Equipment
  • Machinery
  • Business vehicles, e.g. 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.

Working out item value

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 received it as a gift
  • You owned it before you started using it in your business

Additional business costs

You can claim for the cost of things that aren’t classed as business assets in a different way. These 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 premises in disadvantaged areas of the UK
  • Extracting minerals
  • Research and development
  • ‘Know How’ (intellectual property about industrial techniques)
  • Patents
  • Dredging

Residential property letting

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

Claiming on plant and machinery

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 items used and kept in your business. This is claimed from your profits before tax using AIA (annual investment allowance).

Things that don’t count as plant and machinery

You can’t claim capital allowances on:

  • Things you lease - you must own them.
  • Buildings, including doors, gates, shutters, mains water and gas systems
  • Land and structures, e.g. bridges, roads, docks
  • Items used only for business entertainment, eg. a yacht or cinema projector

What does count 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, egg fitted kitchens or bathroom suites
  • Alterations to a building to install other plant and machinery - this doesn’t 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 rolling 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, e.g.:

  • Fitted kitchens
  • Bathroom suites
  • Fire alarm and cctv systems

You can claim if you rent or own the building, but be aware that 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 first agree the value of the fixtures with the seller. If this is not first agreed you couldn’t claim for them.

Annual investment allowance

You can deduct the full value of an item that qualifies for AIA from your profits before tax.

If you sell the item after claiming AIA you may need to pay tax.

The AIA amount is £200,000. This is for 12-month periods from 1 January 2016.

Changes to the AIA

Between April 2008 and January 2016 the AIA amount changed several times.

If the AIA changed in the period you’re claiming for, you need to adjust the claimable amount accordingly.

Changes to the AIA

Sole traders/partners

Limited companies

AIA

From 1 January 2016

From 1 January 2016

£200,000

6 April 2014 - 31 December 2015

1 April 2014 - 31 December 2015

£500,000

1 January 2013 - 5 April 2014

1 January 2013 - 31 March 2014

£250,000

6 April 2012 - 31 December 2012

1 April 2012 - 31 December 2012

£25,000

6 April 2010 - 5 April 2012

1 April 2010 - 31 March 2012

£100,000

6 April 2008 - 5 April 2010

1 April 2008 - 31 March 2010

£50,000

Note: A new allowance is allocated for each accounting period and you will need to adjust your AIA if your accounting period is more or less than 12 months.

Claiming

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 HP (hire purchase) contract you can claim for the payments you haven’t made yet when you start using the item. You can’t claim on the interest payments.

Note: If your business closes you can’t claim AIA for items bought in the final accounting period.

You don’t have to claim the full cost if you have low profits you can write down the allowance or claim part of the cost as AIA.

Items that are used outside your business can only be claimed for the time they are used I your business. For example, if you buy a laptop for £800. You use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.

If you have 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 will usually receive 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 the same person controls 2 or more limited companies they only get one AIA between them. They can choose how to share the AIA.