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:
- business vehicles, for example vans, lorries or business cars
These are known as ‘plant and machinery’.
This guide is also available in Welsh (Cymraeg).
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
You can claim different amounts, depending on which capital allowance you use.
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
Other business costs
You claim for the cost of things that are not business assets in a different way. This includes:
- your business’s day-to-day running costs
- items that it’s your trade to buy and sell
- interest payments or finance costs for buying assets
Claim these costs as business expenses if you’re a sole trader or partnership, or deduct from your profits as a business cost if you’re a limited company.
Other capital allowances
As well as plant and machinery, you can also claim capital allowances for:
- renovating business premises in disadvantaged areas of the UK
- extracting minerals
- research and development
- ‘know-how’ (intellectual property about industrial techniques)
- patent rights
- dredging allowances
- structures and buildings
If you let out residential property
You can only claim for items to be used in residential property if your business qualifies as a furnished holiday lettings business. In each year the property must be:
- available for holiday letting for 210 days
- let for 105 days or more