Research and analysis

Executive Summary: Research on Capital Allowances

Published 27 May 2025

Prepared by Ipsos for HM Revenue and Customs

Research report number: 782

June 2023

The views in this report are the authors’ own and do not necessarily reflect those of HM Revenue and Customs

Executive summary 

Introduction 

HMRC Commissioned Ipsos to undertake research on Capital Allowances. Capital allowances provide tax relief for qualifying capital expenditure by reducing taxable profits. Businesses can generally claim capital allowances on assets that are kept for use in the business. Examples include, but are not limited to, IT equipment, machinery, buildings and structures, business vehicles and construction plant. 

This research was undertaken as part of HMRC’s wider tax relief evaluation programme. The overarching aim of the research was to improve HMRC’s understanding of how businesses use capital allowances. The specific objectives of the evaluation were to: 

• explore and quantify expenditure on different types of assets and disposal of assets 

• explore the process of claiming capital allowances 

• understand how the Super-Deduction capital allowance is impacting investment decisions 

• explore decisions for not claiming capital allowances 

Methodology 

To meet the objectives outlined above, a mixed-method research approach was adopted. This consisted of: 

• a quantitative telephone survey of 940 businesses that claimed capital allowances in the 2019 to 2020 tax year 

• qualitative depth interviews with 29 claimant businesses that participated in the quantitative survey 

• qualitative depth interviews with 11 businesses that did not claim capital allowances in the 2019 to 2020 tax year, but made investments in eligible assets 

Summary of findings 

Expenditure on different types of assets and disposal of assets 

The top 3 most common types of assets eligible for capital allowances that claimant businesses invested in were IT equipment (63%), office equipment (46%) and machinery and tools (39%). Claimants had often invested in multiple qualifying assets for capital allowances, with 71% of businesses having invested in at least two. 

The mean overall investment in assets eligible for capital allowances was £278,580 and the median spend was £10,000. The highest value investments were made in construction plant (mean value of £785,280 and median value of £15,000) and buildings and structures (mean value of £627,300 and median value of £20,000). The lowest value investments were made in IT equipment (mean value of £9,610 and median value of £2,000) and office equipment (mean value of £3,750 and median value of £1,000).  

Three quarters (74%) of claimant businesses used only internal funds for investments, while a fifth (20%) utilised a combination of business funds and borrowing. One in twenty (5%) borrowed the full amount invested. 

A fifth (20%) of claimants disposed of assets in 2019 to 2020. The mean value of assets disposed of in 2019 to 2020 was £104,340 and the median value was £5,000. Two-thirds (66%) of claimants had sold the assets they had disposed of and almost half (47%) had scrapped or destroyed assets. Around a fifth (18%) used a combination of selling and scrappage. 

The process of claiming capital allowances 

Despite being aware that a capital allowance was claimed in 2019 to 2020, close to half (48%) of claimants were unable to recall the name of the capital allowance they claimed. Where businesses were able to recall which capital allowance they claimed, the most common was the Annual Investment Allowance (29%), followed by the main rate of Writing Down Allowances (19%) and Research and Development Allowances (12%). 

Qualitative interviews uncovered that most claimant businesses were not directly involved in the decision to claim capital allowances in 2019 to 2020. They knew that capital allowances were available and wanted to claim them to reduce their tax bill and maintain cash flow, but they tended to outsource the identification of relevant capital allowances and the associated administrative work to third parties due to a lack of time or expertise, or a mixture of both. 

How the Super-Deduction capital allowance is impacting investment decisions 

Around a quarter (24%) of businesses were aware of the Super-Deduction. Amongst incorporated businesses there was considerable difference in awareness depending on business size; only 22% of micro businesses were aware of the Super deduction compared to 67% of large businesses. 

Of all business that were aware of the Super-Deduction, close to half (46%) had claimed it or planned to claim it on investments made in 2021 to 2022 and two-fifths (42%) intended to claim it on investments planned for 2022 to 2023. This means that 11% of all businesses had claimed or planned to claim the Super-Deduction in 2021 to 2022 and 10% of all businesses planned to claim the Super-Deduction in 2022 to 2023. Amongst incorporated businesses, large businesses were more likely than micro businesses to intend to claim the Super-Deduction in 2022 to 2023. There was no difference by size in terms of claiming the capital allowance in 2021 to 2022. 

The introduction of Super-Deduction had an influence on the investment behaviour of around a fifth (19%) of businesses that had claimed or planned to claim it in 2021 to 2022. Specifically, 12% of those that had claimed or planned to claim the Super-Deduction had brought investments forward, 9% had made investments that were previously unplanned and 6% had invested a higher amount than planned. 

The introduction of Super-Deduction had an influence on the investment behaviour of around a third (29%) of businesses that planned to claim it in 2022 to 2023. Specifically, 26% of those that planned to claim the Super-Deduction had brought investments forward, 11% had invested a higher amount than planned and 5% had made previously unplanned investments. 

When presented with hypothetical scenarios about other capital allowances and asked to what extent they would have an influence on investment spend, only a minority of claimant businesses said they would cause them to spend more on investments. The 2 most impactful scenarios were full expensing being introduced to allow businesses to write off the costs of qualifying investment in one go (36%) and an additional FYA being introduced to bring the overall amount that can be claimed to greater than 100% of the initial cost (35%). 

Decisions for not claiming capital allowances 

Non-claimant businesses did not claim capital allowances in 2019 to 2020 despite making investments in qualifying assets due to 3 main reasons: small scale investments, limited awareness or understanding of capital allowances and loss-making. 

Claimant businesses that were aware of the Super-Deduction but did not claim or plan to claim it typically attributed this to no investments being planned in the timeframe the capital is available (before March 2023). Others did make investments in 2021 to 2022 or intended to in 2022 to 2023, but these investments were in asset types that did not qualify for the Super-Deduction. For example, second-hand equipment and buildings and structures. 

Amongst claimant businesses that invested in buildings and structures but did not claim the Structures and Building Allowance (SBA) in 2019 to 2020, many were unaware that this capital allowance existed. Amongst those aware of the SBA, some had not claimed it because the nature of their investment did not meet the eligibility criteria. Others said they had claimed alternative capital allowances because they had identified them as more appropriate or because their tax agent or accountant had advised them to.