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HMRC internal manual

Capital Allowances Manual

PMA: Assets used partly for qualifying activity: Partial depreciation subsidies

CAA01/S209 - S212

A person who has a qualifying activity may receive a payment to cover the depreciation of an asset used in that qualifying activity. For example, an employee who uses an asset that he or she owns in his or her work may receive a payment from his or her employer to cover all or part of the depreciation of that asset.

A payment is a partial depreciation subsidy if:

  • it is payable directly or indirectly to a person who has incurred qualifying expenditure for a qualifying activity,
  • it is in respect of, or takes account of, part of the depreciation of the asset resulting from its use for the qualifying activity, and
  • it is not taken into account as the person’s income or in computing profits.


The payments were known as wear and tear allowances until the 2001 rewrite.

If you have case where a person receives a partial depreciation subsidy restrict allowances and charges on a just and reasonable basis. For example, if the subsidy is meant to cover half the depreciation you should calculate the allowance in the normal way and then give half of it. The expenditure is put into a single asset pool so that the restriction can be made. You should deduct the full amount of the allowance before the restriction in calculating the unrelieved qualifying expenditure.