Capital Allowances
Glossary
Capital Allowances
Capital allowances are the UK tax mechanism that lets businesses deduct the cost of qualifying capital assets — plant, machinery, equipment, integral features — from taxable profits, in place of accounting depreciation.
The main allowances are: the Annual Investment Allowance (AIA — 100% deduction on the first £1 million per year), Full Expensing (100% deduction on most new plant and machinery, companies only), the Special Rate Pool (6% reducing balance on integral features and long-life assets), Structures and Buildings Allowance (3% per year on construction costs), and First-Year Allowances on specific environmentally-beneficial items. Choosing which allowance to apply to which asset, and when, can move the tax bill materially — a year-end capital allowances review is one of the highest-leverage Corporation Tax planning steps for SMEs that invest in equipment.
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