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HMRC internal manual

Employment Income Manual

Deductions from earnings: capital allowances: calculating the allowances due: first year allowances: general

Section 52 CAA 2001

The 40% or 50% First Year Allowances were withdrawn in respect of expenditure incurred on or after 6 April 2008 for Income Tax purposes and were replaced by the Annual Investment Allowance (AIA) (see EIM36605). As a transitional provision for 2009/10, claimants can deduct an FYA of 40% or WDA of 20% from the balance after deducting AIA.

Expenditure on machinery and plant which was necessarily provided for use in the performance of the duties of an office or employment qualified for a first year allowance if:

  • the item was not included in the list of exceptions at EIM36620 (the main exception is motor cars) and
  • the item in question belonged to the employee or office holder at some time during the income tax year in which the expenditure was incurred and
  • the expenditure was incurred during one of the qualifying periods shown in the table at EIM36630.

Expenditure which did not qualify for a first year allowance may qualify for a writing down allowance instead, as described at EIM36650 onwards.

First year allowance and writing down allowance cannot be claimed on the same expenditure for the same year. Where first year allowance was claimed, any balance of expenditure left (the ‘residual value’) qualified for a writing down allowance in the following year (see example EIM36910). Of course, if a 100 per cent first year allowance was due (see EIM36630) the residual value will be nil.

An employee or office holder may decide not to claim a first year allowance, or to claim all or part of the allowance due.

The rates of first year allowance which may be claimed are listed at EIM36630.

Note that the full first year allowance was due even if the expenditure was incurred part way through the year, or if the employment began part way through the year. But the allowance must be apportioned if the machinery or plant is used partly for non-business purposes (see EIM36570).