First-year allowances: the basics

Plant and machinery ‘first-year allowances’ enable you to make a claim for up to 100 per cent of the cost of certain qualifying items against your business profits in the year of purchase.

First-year allowances of 100 per cent are currently available for expenditure on:

• certain energy-saving and water efficient equipment – but only if the item appears on a specific list of qualifying equipment (these are known as ‘enhanced capital allowances’)
• new cars with very low carbon dioxide emissions
• certain vehicle gas refuelling equipment

For capital expenditure incurred in the 12-month period starting on or after 1 April 2009 for Corporation Tax or 6 April 2009 for Income Tax, businesses can also claim a temporary first-year allowance of 40 per cent on any assets that would otherwise go into their main ‘writing-down allowance’ pool.

All of the above allowances are available if you pay Income Tax as self-employed, a partnership or sole trader, or if you pay Corporation Tax as a company or organisation.

Certain zero emission goods vehicles will qualify for first-year allowances from April 2010.

This guide provides a summary of the above qualifying first-year allowances with links to more detailed information on each.

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What you can claim first-year allowances for

This page provides an overview of the different types of first-year allowances that your business may be able to claim. However please note that first-year allowances are not generally available on the cost of plant and machinery that a business buys to lease out. There are also restrictions when buying plant and machinery for use within a property that you lease out. To find out more see the page in this guide on first-year allowances: non-qualifying items.

Water efficient equipment

First-year allowances are available for expenditure on plant and machinery that is designed to improve water quality and/or reduce water use – eg water-efficient showers and taps, and vehicle-wash water reclaim units – and is included as a qualifying technology or product specified in a Technology List or a Product List issued by the Secretary of State for the Department for Environment, Food and Rural Affairs.

As described above, you can’t usually claim this allowance for equipment that you buy for leasing out.

For more information about what equipment qualifies and how to claim, see our guide below.

First-year allowances for water efficient technologies

If your business or organisation is liable to Corporation Tax, there are also some special rules that may allow you to surrender losses you make that are attributable to investments in qualifying equipment in return for a cash payment called a first-year tax credit. It is the making of the claim that creates the loss and it is only the loss attributable to the capital allowance claim for these assets that is relevant for the first-year tax credits.

Read about first-year tax credits on the HM Revenue & Customs (HMRC) website- Opens in a new window 

Energy-saving equipment

First-year allowances are also available for expenditure on energy-saving equipment – such as high-efficiency lighting units and solar thermal systems- that is included as a qualifying technology or product specified in a Technology List or a Product List issued by the Secretary of State for the Department of Energy and Climate Change.

As described above, you can’t usually claim this allowance for equipment that you buy for leasing out.

For more information about what equipment qualifies and how to claim, see our guide below.

First-year allowances for energy saving products

If your business or organisation is liable to Corporation Tax, there are also some special rules that may allow you to surrender losses you make that are attributable to investments in qualifying equipment in return for a cash payment called a first-year tax credit. It is the making of the claim that creates the loss and it is only the loss attributable to the capital allowance claim for these assets that is relevant for the first-year tax credits.

Read about first-year tax credits on the HMRC website- Opens in a new window 

Low CO2 emission cars

First-year allowances are available (up to 31 March 2013) for expenditure on a new electric car, or a new, unused car with CO2 emissions of not more than 110gm per km driven.

See the page on capital allowances on cars in our guide on capital allowances on plant and machinery.

Find the CO2 emissions for a particular vehicle on the Vehicle Certification Authority (VCA) Car Fuel Data website- Opens in a new window

Zero emission goods vehicles

First-year allowances are available from 1 April 2010 (and up to 31 March 2015) for expenditure on a new and unused goods vehicle with zero emissions. However, there are certain restrictions. If you are intending to acquire a zero emission goods vehicle, please contact the HMRC Capital Allowances Helpline on Tel 020 7147 2610. This is an answerphone with a call-back service.

Vehicle gas refuelling equipment

Until 31 March 2013, 100 per cent first-year allowances are available for expenditure on new plant and machinery installed to refuel vehicles with:

• natural gas
• hydrogen
• biogas

Eligible equipment can include:

• storage tanks
• compressors
• controls and meters
• gas connections
• filling equipment

The refuelling station does not need to be open to the public or used for cars. For example, an operator of a fleet of commercial vehicles may install a gas refuelling station on its premises to refuel its vehicles.

Read about what natural gas and refuelling equipment is eligible for first-year allowances and how to claim on the HMRC website- Opens in a new window

As described above, you can’t usually claim this allowance for equipment that you buy for leasing out.

Temporary 40 per cent first-year allowance

For new plant and machinery expenditure incurred in the 12-month period starting on or after 1 April 2009 for Corporation Tax or 6 April 2009 for Income Tax, businesses can claim a temporary first-year allowance of 40 per cent on any assets that would otherwise go into their main ‘writing-down allowance’ pool. In practice this means you would normally claim it on the residual amount of any expenditure left after claiming the annual investment allowance.

You cannot claim the temporary first-year allowance on cars, assets that you are going to lease out or special rate expenditure, for example long-life assets or expenditure on integral features.

To read the full detail – and to understand more about the annual investment allowance and writing down allowances – see our guide on capital allowances on plant and machinery.

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First-year allowances: non-qualifying items

First-year allowances are not generally available on the cost of plant and machinery that a business buys to lease out, except in the following circumstances:

• where the leasing or hiring out is combined with the provision of a service that involves use of the asset – eg where you lease out a crane with a crane driver to complete a job, or where you provide building access services by erecting or installing scaffolding
• where your business hires or leases out new electric cars, or new, unused cars with CO2 emissions of not more than 110 grams (gm) per kilometre (km) driven
• where you lease out a non-dwelling business property together with plant and machinery that would reasonably be expected to be installed in the type of property in question – eg leasing out a furnished office space that includes a lift or air conditioning

Plant and machinery in leased out dwellings

Note that first-year allowances are not available on the cost of plant and machinery for use within a property used as a dwelling that you lease out in the UK or overseas. However, items bought for use within common parts may qualify.

Read about assets used for leasing and those used in the course of providing a service on the HM Revenue & Customs (HMRC) website- Opens in a new window

Find a list of expenditure that doesn’t qualify for first-year allowances on the HMRC website