Capital Allowances

Three principles may be drawn from the classic legal definition of ‘plant’.

– Plant is the apparatus used in the business, as opposed to the setting in which the business is carried on;

– It includes all goods and chattels; and

– Is kept for permanent employment in the business.

The legislation provides that an asset cannot be P&M where it falls within either:

– List A: buildings (including walls, floors, ceilings, and windows); or

– List B: structures (including tunnels, bridges, canals, and reservoirs).

However, a number of exceptions are made, including for:

– integral features such as electrical and cold-water systems, ventilation, and

– assets that fall within List C. These include movable partition walls and decorative assets provided for the enjoyment of the public in a restaurant or similar setting.

Expenditure on P&M includes expenditure on alterations to a building made for the purposes of installing the P&M.

Not all P&M is treated equally for capital allowances purposes; the rate at which allowances are given is determined by the nature of the asset. For example, there are two rates of writing down allowance: 6% per annum for special rate expenditure, including integral features, and 18% per annum for main rate P&M.

Annual investment allowance offers 100% relief for plant and machinery. Following the Autumn Budget, it was announced that the AIA limit would be permanently fixed at £1 million per annum. AIA can only be claimed in the tax period in which the item was bought.

First year allowances can be claimed in addition to AIA and do not count towards the AIA limit, with the full cost of qualifying assets able to be deducted from profits before tax. Enhanced capital allowances, a type of first year allowances, can be claimed on certain energy and water-efficient equipment.

100% First Year Allowance

If you buy an asset that qualifies for 100% first-year allowances, you can deduct the full cost from your profits before tax.

Enhanced capital allowance is a type of 100% first-year allowance that can be claimed on a range of equipment such as electric cars, zero CO2 emission cars and goods vehicles, and equipment for electric vehicle charging points. To qualify the equipment must be new and unused.

The Annual Investment Allowance (AIA) provides 100% relief for qualifying plant and machinery up to the AIA limit of £1 million per annum.

To claim AIA you must be a qualifying person, such as an individual, a partnership consisting of only individuals and a company.

AIA is not given automatically and those who wish to take advantage of the relief must submit a claim. The claim must be for the period in which the expenditure was incurred.

Certain expenses are excluded including expenditure on cars, assets purchased from a connected person and spending incurred in the period of cessation.

Some restrictions apply to the Annual Investment Allowance, and our Capital Allowance experts can provide full details and guidance on whether you are eligible to claim the relief.

In the 2023 Spring Budget, the government announced a new relief, Full Expensing, to replace Super-Deduction. Full Expensing provides companies with 100% relief on qualifying expenditure in the accounting period in which it was incurred. This relief, which is unlimited, has been available since the 1^st of April 2023 and was made permanent in the 2023 Autumn Statement.

To claim Full Expensing, businesses must be incorporated, and only expenditure on new and unused assets can be claimed.

Where a company pays corporation tax at the main rate of 25%, for every £100 of eligible expenditure full expensing will reduce the net cost to £75.