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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): introduction: outline

Depreciation of fixed assets charged in the accounts is not allowed as a deduction in computing taxable profits. Capital allowances may be given instead. Plant and machinery allowances give relief at prescribed rates for the depreciation of fixed assets that are plant or machinery.

In order to qualify for PMAs, a person must:

  • be carrying on a qualifying activity CA20010, and
  • incur qualifying expenditure. Qualifying expenditure is capital expenditure on the provision of plant or machinery CA21000 wholly or partly for the purposes of the qualifying activity. Normally the person must own the asset as a result of incurring the expenditure.

The range of qualifying activities for PMA is very wide. It broadly covers all taxable activities other than passive investment, including a trade, profession, vocation, office, employment or an ordinary property business.

The range of assets that qualify as plant and machinery is also very wide. Broadly it covers all fixed assets used in the business other than intangible assets apart from computer software, land and buildings. The main difficulty in determining whether an asset qualifies as plant or machinery comes with assets incorporated into buildings.

Normally, the taxpayer must also own the plant or machinery as a result of incurring the expenditure. There are exceptions to this condition, however, in particular for fixtures CA26000.

There are three main types of PMA, annual investment allowance (AIA), first year allowance (FYA) and writing down allowance (WDA).

AIA is effectively a 100% allowance for business expenditure on plant and machinery (apart from cars). The AIA applies to businesses regardless of size, and replaced the previous 40% or 50% FYAS for small and medium-sized businesses only. (The AIA threshold was £50,000 when it was introduced, for expenditure incurred on or after 1/6 April 2008. It was increased to £100,000 for expenditure incurred on or after 1/6 April 2010 and will be reduced to £25,000 for expenditure incurred on or after 1/6 April 2012.) See CA23081+.

FYA is only due in certain circumstances. It is a special allowance given at a higher rate than the normal WDA for the chargeable period in which the expenditure is incurred. Any expenditure left unrelieved qualifies for WDAs for subsequent periods.

WDAs are calculated using the pool basis. A pool may cover a single asset or a class of assets. Pooling works by keeping a running total of the unrelieved expenditure on the assets in the pool. WDA is given on the current total. This is known as the reducing balance basis.


Bennett & Darcy Ltd runs a transport business. It draws up accounts to 31 December each year. Its pool of expenditure at 31 December 2008 is £32,000. In the year ended 31 December 2009 it buys a lorry for £58,000 at a time when FYA is available at the 40% rate. The AIA threshold for the period is £50,000. It also sells a lorry for £4,000 in that year. This is an example of a possible CA computation for the year ended 31 December 2009. It is important to note that it is not necessary to claim AIA before FYA but in this case doing so maximises the allowances that can be claimed in this period.

Pool brought forward £32,000.

Cost of Lorry (£58,000) - AIA (£50,000) = Balance before FYA (£8,000)

FYA at 40% = £3,200

Balance to pool in next period = £8,000 - £3,200 = £4,800

Pool brought forward (£32,000) - disposal (£4,000) = £28,000 available for WDA

WDA at 25% = £5,600

Pool carried forward = £28,000 - £5,600 + £4,800 = £27,200 

The pool brought forward at 1 January 2010 is £ 27,200

(The rate of WDAs for the main pool is reduced to 18% for chargeable periods ending on or after 1/6 April 2012.)

There are single asset pools, class pools and the main pool, which contains all expenditure that does not go into a single asset or class pool. Expenditure on some assets is kept separate from expenditure on all other assets and does not go into the main pool. It is dealt with in single asset pools. These include assets used partly for purposes other than the qualifying activity, short life assets and cars costing more than £12,000 (but only where the expenditure was incurred before 1/6 April 2009). There are two class pools; one for special rate expenditure and one for expenditure on plant & machinery for overseas leasing. Certain expenditure must be allocated to the special rate pool and will attract WDA at 10% rather than 20%. Special rate expenditure includes expenditure on thermal insulation, integral features, long life assets and cars with CO2 emissions exceeding 160g/km driven, bought on or after 1/6 April 2009. (The rate of WDAs for the special rate pool is reduced to 8% for chargeable periods ending on or after 1/6 April 2012.) Where a person carries on more than one qualifying activity, PMAs are calculated separately for each activity with a separate pool or pools for each of them.