What are capital allowances for business?
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In short: Tax relief on qualifying plant, machinery, vehicles and some building fixtures bought for business use. The main rate for most companies is the Annual Investment Allowance — £1 million per year — giving 100% upfront deduction on eligible spending.
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Reviewed by Kaiser Khan
When a business buys equipment, vehicles or certain fixtures, it cannot usually deduct the full cost as a day-to-day expense. Instead, capital allowances spread or accelerate tax relief. The Annual Investment Allowance (AIA) lets companies deduct 100% of qualifying plant and machinery up to £1 million in the year of purchase.
Spending above the AIA or on assets excluded from AIA — such as cars with high CO₂ emissions — falls into the main pool at 18% writing-down allowance per year, or the special rate pool at 6% for integral features like electrical systems. From April 2023, a 100% first-year allowance applies to qualifying new and unused main-rate plant and machinery.
Sole traders and partnerships claim through Self Assessment; companies through Corporation Tax returns. Cars are treated separately: electric vehicles often qualify for 100% first-year allowance, while high-emission cars get only 6% per year. Keep invoices and a fixed-asset register to support claims if HMRC enquires.
Primary source: gov.uk/capital-allowances
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