HMRC Capital Allowances Guide: What Capital Allowance Claims Can I Make For My Business?

Feeling confused about capital allowances? It is common practice for businesses to make capital allowances claims on assets and equipment used, however, most businesses underestimate what they can claim on - and may even be paying too much tax.

Find out more about HMRC capital allowances and how you can make a claim for your business below.

What are capital allowances?

HMRC capital allowances allow you to claim tax relief on any assets you buy to keep your business going. Your business expenses can either come from revenue expenses or capital expenses, however, you cannot make capital allowance claims on day-to-day expenses.

What can you claim capital allowances on?

You can make capital allowance claims on any items that you need to keep you in business, also known as ‘plant and machinery,’ such as:

• items that you buy to keep your business running, including cars
• demolition costs for your plant and machinery
• fitted kitchens and bathroom suites
• fire alarm and CCTV systems
• alterations to a building to install plant and machinery (but not repairs)
• ‘integral features’ of a building

What integral features can I make capital allowance claims on?

• lifts, escalators and moving walkways
• space and water heating systems
• air-conditioning systems
• hot and cold water systems (but not toilet and kitchen facilities)
• electrical systems
• lighting systems
• external solar shading

Other capital allowances you can make a claim on

• renovating business premises in disadvantaged areas of the UK
• extracting minerals
• research and development
• ‘know-how’ (intellectual property about industrial techniques)
• patents
• dredging

How are HMRC capital allowances calculated?

HMRC capital allowances are split into three types of pools. The 3 types of pool are below:

• main pool with a rate of 18%
• special rate pool with a rate of 6%
• single asset pools with a rate of 18% or 6% depending on the item

You can find out more about how these pools are calculated here.

When can I claim capital allowances?

You must make a claim within the same accounting period you bought the item if you want to claim for the full value of the item under an AIA or first year allowance. However, if you do not want to claim for the full value of the item you can claim for part of its value using writing down allowances at any time.

Do I need to own a property to make a claim?

It doesn’t matter whether you own or rent the building when making capital allowances claims, however, you can only make a claim on items you have bought - and if you buy your premises from a previous business owner, you can only claim for things they claimed for. Make sure you agree on the value of your fixtures and integral features early so that the seller can account for them correctly.

What is an AIA (Annual Investment Allowance)?

Annual Investment Allowance is a type of tax relief that gives business tax relief on purchases of business equipment. AIA is calculated by deducting the total amount of qualifying capital from its taxable profits from that tax year.

What is a First Year Allowance?

First year allowance allows businesses in the UK to deduct between 6% and 100% of the cost of qualifying capital expenditures made during the first year the equipment was purchased. You can make a first year allowance claim alongside AIA. This will not count towards your AIA limit.

What is a Writing Down Allowance?

Writing down allowances give businesses tax relief due to assets acquired in a year. Use writing down allowances if:

• you’ve already claimed AIA on items totalling more than your AIA limit
• your item doesn’t qualify for AIA (for example, gifts or things you owned before you used them in your business.)

What are Enhanced Capital Allowances?

Introduced in 2001, enhanced capital allowances encourage business owners to engage in more eco-friendly processes. You can claim enhanced capital allowances for a wide range of water and energy-efficient equipment, such as low emission cars, energy efficient showers and washing machines and high speed hand dryers.

Before you make any capital allowances claims..

• Write down your allowances.
• Work out the value of your item.
• Group your items into pools

Once you have grouped your capital into pools, you can make a claim for HMRC capital allowances by completing the below forms:

• Self Assessment tax return (for sole traders)
• Partnership tax return
• Company Tax Return (for limited companies). If you’re applying this way you’ll need to include a separate capital allowances calculation. The amount you can claim is then deducted from your profits.

How do I work out the value of the thing I want to claim for?

Capital allowances claims are decided by the value of the item(s) you wish to claim for. Your item’s value will be the amount you paid for it, or its relative value today. If the item was a gift, or you owned the item before you started using it for your business, you should value it at market value.

What can’t I claim capital allowances for?

You cannot make any capital allowances claims for buildings and land structures such as doors, gates, shutters, mains water and gas systems, bridges, roads, and docks. Other things you cannot claim on include day-to-day running costs, interest payments or financing costs and things you buy and sell as part of your business.

You are also not able to claim on properties you lease, or for anything related to business entertainment.