If you buy an asset – eg a car, tools, machinery or other equipment – for use in your business, you cannot deduct your expenditure on that asset from your trading profits. Instead, you may be able to claim a capital allowance for that expenditure.
Capital allowances are also available for certain building-related capital expenditure, for qualifying capital expenditure on qualifying research and development, for donations of used business assets to charity, and certain other capital expenditure.
The aim is to give tax relief for the reduction in value of qualifying assets that you buy and own for business use by letting you write off their cost against the taxable income of your business.
Capital Allowances are available to sole traders, self-employed persons or partnerships, as well as companies and organisations liable for Corporation Tax.
This guide provides an overview of the types of purchases or investments that may qualify for a capital allowance and provides links to more detailed information. It also explains how and when to make a claim.
Table of Contents
What you can claim capital allowances for
You can claim capital allowances for what your business spends on certain assets that it owns and uses in the business, provided certain conditions are met. You cannot claim capital allowances for the cost of things that your business buys and sells as part of its trade. Instead, you will need to include these items in business expenses when you work out your trading profits.
Below you’ll find a summary of the types of expenditure that your business may be able to claim capital allowances for, with links to related guidance.
Equipment that you own and use in your business – tools, machinery, office equipment, computers, vehicles, pieces of plant and factory equipment may qualify for plant and machinery allowances. For more information, see our guide below.
Capital allowances on plant and machinery
Capital expenditure on research and development (including equipment used for research and development) – if you are a trader and your research and development (R&D) relates to the trade that your business carries on, and meets other conditions, it may qualify for research and development allowances. See the page in this guide on research and development allowances.
Gifts of equipment to charity – if you donate used assets that have qualified for plant or machinery allowances to a qualifying charity or community amateur sports club, you may be able to claim plant and machinery allowances on any left over written down value. For more information, see our guide below.
Gifts to charity of company equipment, trading stock or staff help
Certain fixtures and integral features in buildings – expenditure on sanitary ware, fitted kitchens and certain other fixtures in a building may qualify for plant and machinery allowances. Expenditure on certain integral features of a building – eg electrical wiring, cold water systems, heating and air conditioning systems, and lifts might also qualify. However, in most cases, you cannot claim capital allowances against the purchase price of or other investment in land, buildings or property. For more information, see our guide below.
Capital allowances relating to buildings and renovation
Flat conversions – capital costs of conversion or renovation of empty flats above commercial premises might qualify for the flat conversion allowance. However, in most cases, you cannot claim capital allowances against the purchase price of or other investment in land, buildings or property. For more information, see our guide below.
Capital allowances relating to buildings and renovation
Renovating business premises – capital expenditure on the renovation of business premises in designated ‘disadvantaged areas’ (designated ‘Assisted Areas’ in Northern Ireland) may qualify for the Business Premises Renovation Allowance. However, in most cases, you cannot claim capital allowances against the purchase price of or other investment in land, buildings or property. For more information, see our guide below.
Capital allowances relating to buildings and renovation
Other expenditure – the following allowances are also available:
- mineral extraction allowance
- know how allowance
- patent allowance
- dredging allowance
- assured tenancy allowance
- contributions allowances
Industrial and agricultural buildings allowances are being phased out and you will not be able to claim them after 31 March/5 April 2011. For more information, see our guide below.
Capital allowances relating to buildings and renovation
Research and development allowances
The Research & Development (R&D) allowance gives relief for capital expenditure on research and development that is incurred by a business that is classed as a trader, and is related to the trade that the business carries on. You can claim a capital allowance of 100 per cent on expenditure that meets the necessary conditions. This allowance should not be confused with the R&D Corporation Tax relief available for revenue expenditure.
Generally, activities are treated as R&D for capital allowances purposes if normal accounting practice treats them as research and development, and they satisfy the conditions set out in the guidelines produced by the Secretary of State for the Department of Business, Innovation & Skills. In particular, they must seek to achieve an advance in science or technology.
Eligible R&D expenditure includes capital expenditure you incur for:
- carrying out the R&D
- providing facilities or assets used by your employees for carrying out R&D
However, it does not include expenditure you incur to acquire rights in R&D or rights arising out of R&D, or any revenue expenditure on the R&D.
There is often an amount of overlap between R&D capital expenditure and plant and machinery costs. Where the expenditure is on plant and machinery used for research and development you can choose which, if any, allowance you prefer to claim.
Corporation Tax relief on general R&D costs
General R&D costs that aren’t capital expenditure may qualify for specific R&D reliefs, but only if you pay Corporation Tax. For more information, see our guide below.
Research & Development (R&D) Relief for Corporation Tax
Claiming capital allowances
The aim of capital allowances is to give tax relief for the reduction in value of certain capital assets that you buy and own for business use, by letting you write off their cost against the taxable income of your business.
You won’t necessarily be able to claim all the expenditure on an asset in the accounting period when you bought it. The amount you can claim also won’t usually be the same as the ‘depreciation’ in your commercial accounts, which is calculated differently and is not allowable for tax.
How much you can claim will depend on which allowance you are claiming. You can choose not to claim an allowance, or not to claim the full amount. If you claim only part of what you’re entitled to you can in most cases carry the balance of unrelieved expenditure forward, and you may be able to claim an allowance on it in a future accounting period. However, in the case of capital expenditure on research and development you must claim the allowance in the accounting period in which you incur the costs.
Sometimes, expenditure on one asset may qualify for more than one allowance. It’s up to you to choose which one you wish to claim. Even if expenditure on a particular asset meets the conditions for more than one allowance, you can only claim for it once.
How you claim capital allowances and the time limits for doing so depends on whether you’re self-employed or a partner and pay Income Tax, or a company or organisation that pays Corporation Tax.
Self-employed
If you are self-employed, you must claim any capital allowances you are entitled to and wish to claim in your self-assessment Income Tax return. The claim must normally be made within 12 months after the 31 January filing deadline for the return.
The most commonly claimed allowances are for plant and machinery. For more information, see our guide below.
Capital allowances on plant and machinery
For information on completing your tax return, see our guide below.
Completing your tax return (self-employed)
Partnerships
If your business is a partnership, you need to claim your capital allowances on assets owned by the partnership collectively in the partnership return, not in the returns for individual partners. The most commonly claimed allowances are for plant and machinery. Note that special rules apply on plant and machinery that is owned by one of the partners but used in the partnership’s business. For more information, see our guide below.
Capital allowances on plant and machinery
You should make claims on the Partnership Tax return. These should be made within 12 months after the 31 January filing deadline for the return.
For more information, see our guide below.
Completing your tax return (partners and partnerships)
Companies or organisations liable to Corporation Tax
If your company or organisation is liable to Corporation Tax you must make any claims for capital allowances in your Company Tax Return. When doing so, you must include a separate capital allowances calculation with your return to show how you arrived at the figures you entered.
Your calculation will need to show:
- which allowance you’re claiming
- how you calculated your claim
- how much you’re claiming
Normally, you deduct the capital allowances you are claiming when you calculate the trading profit figure for Box 3 of your return – or Box 122 if there is a loss rather than a profit.
You must claim capital allowances within 12 months of the filing date for the Company Tax Return for the accounting period you want to make the claim for.
For more information, see our section below.
Completing and filing your Company Tax Return
First-year tax credits
There are also some special rules that allow companies to surrender losses attributable to allowances claimed on expenditure on certain, specific energy-saving or environmentally beneficial plant or machinery in return for a cash payment.
Time limits if you omit to make a claim
If after you have sent in your Company Tax, Income Tax or Partnership Return you discover that you have missed a claim, you can request an amendment. However, there are certain time limits on this.
You can find out how to make amendments to your tax returns in our sections below.
If you need help in making your capital allowances claim, you should contact your tax adviser, or call the HMRC Self Assessment Helpline on Tel 0845 900 0444.
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Every effort has been made by the author(s) to ensure this article’s accuracy but it does not constitute legal advice tailored to your circumstances. If you act on it, you acknowledge that you do so at your own risk. We cannot assume responsibility and do not accept liability for any damage or loss which may arise as a result of your reliance upon it.
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