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Capital Allowances are a tax relief intended to allow the cost of some of your company, organisation or individual assets to be written off against its taxable profits.  They take the place of depreciation shown in financial accounts, which isn’t allowable for tax purposes.

There are different types of capital allowances.  For each allowance, there are special rules to calculate how much, if any, relief can be claimed.  These rules must be followed, rather than following the method used in your accounts for calculating depreciation.

A significant percentage of the purchase cost of a building can relate to fixtures, with the owner of the property being fully entitled to submit a claim for capital allowances on these fixtures, even if the property was acquired years ago.  This can result in a positive effect on tax liabilities.

  • Most companies, partnerships or individuals are able to claim an Annual Investment Allowance (AIA) on most plant and machinery.  This provides an immediate 100% tax relief on qualifying annual expenditure of up to £250,000.    It is important to note that AIA’s can only be claimed in the year in which the expenditure is incurred (a claim for AIA’s may therefore not be legitimate in relation to historic purchases).

  • Expenditure on all items of plant and machinery are pooled together rather than dealing with individual items separately with most items allocated to a general pool.  A ‘Writing Down Allowance' (WDA) on the general pool of 18% is available on any expenditure incurred in the current period not covered by the AIA or not eligible for AIA, in addition to on any balance of expenditure remaining from earlier periods. 

  • Certain expenditure on some fixtures, known as ‘Integral Features’ (e.g. lighting, air conditioning, heating etc.), is only eligible for an 8% WDA.  This expenditure is allocated to a separate ‘special rate pool’.

  • Expenditure on Enhanced Capital Allowances is eligible for a 100% WDA and relates to energy saving plant and machinery included on the Energy Technology List).