Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.
You can claim capital allowances on:
equipment
machinery
business vehicles, for example vans, lorries or business cars
These are known as ‘plant and machinery
If you’re a sole trader or partnership and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.
Types of capital allowances for plant and machinery
The capital allowances (also known as plant and machinery allowances) are:
Annual investment allowance (AIA) – you can claim up to £1 million on certain plant and machinery
100% first year allowances – you can claim the full amount for certain plant and machinery in the year that it was bought
The super-deduction or 50% special rate first year allowance – you can claim these for certain plant and machinery you buy from 1 April 2021 up to and including 31 March 2023
Writing down allowances – you can claim these if your plant and machinery does not qualify for AIA or you’ve already claimed the maximum amount
If an item qualifies for more than one capital allowance, you can choose which one to use.
Work out the value of your item
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 owned it before you started using it in your business
It was a gift
When to use writing down allowances
‘Writing down allowances’ are one type of capital allowance. They let you deduct a percentage of the value of certain items from your profits each year.
You might be able to claim more tax relief if you can use one of the other capital allowances, for example:
annual investment allowance (AIA)
100% first year allowances
Temporary first year allowances
The percentage you deduct depends on the item. For business cars the rate depends on their CO2 emissions.
KPM Accounting 