Work out your capital allowances

2. Rates and pools

If you’re claiming writing down allowances, group items into pools depending on which rate they qualify for.

The 3 types of pool are the:

  • main pool with a rate of 18%
  • special rate pool with a rate of 8%
  • single asset pools with a rate of 18% or 8% depending on the item

Main rate pool

Add the value of all ‘plant and machinery’ you’ve bought to the main rate pool, unless they’re in:

  • the special rate pool
  • a single asset pool (for example, because you have chosen to treat them as ‘short life’ assets or you’ve used them outside your business)

Special rate pool

You have to claim a lower rate of 8% on:

  • parts of a building considered integral - known as ‘integral features’
  • items with a long life
  • thermal insulation of buildings
  • cars with CO2 emissions of more than 130g/km

You can claim AIA on these items apart from cars. Only claim writing down allowances at 8% if you’ve already claimed AIA on items worth a total of more than the AIA amount.

Integral features

Integral features are:

  • lifts, escalators and moving walkways
  • space and water heating systems
  • air-conditioning and air cooling systems
  • hot and cold water systems (but not toilet and kitchen facilities)
  • electrical systems, including lighting systems
  • external solar shading

Buildings themselves don’t qualify for capital allowances.

Items with a long life

These are items with a useful life of at least 25 years from when they were new.

Put them in the special rate pool if the value of all the long-life items you buy in a single accounting period (the tax year if you’re a sole trader or partner) adds up to £100,000. Put them in the main rate pool if their total value is less than £100,000.

This £100,000 limit is adjusted if your accounting period is more or less than 12 months.

Example If your accounting period is 9 months the limit will be 9/12 x £100,000 = £75,000.

Single asset pools

You might need to create one or more separate pools for single assets that:

  • have a short life (for assets you aren’t going to keep for a long time)
  • you use outside your business if you’re a sole trader or a partner

Short life assets

It’s up to you to decide whether you want to treat something as a short life asset. You can’t include:

  • cars
  • items you also use outside your business
  • special rate items

Large numbers of very similar items can be pooled together (for example, crockery in a restaurant).

The pool ends when you sell the asset. This means you can claim the capital allowances over a shorter period.

Move the balance into your main pool in your next accounting period or tax year if you’re still using the item after 8 years.

Let HMRC know

Let HM Revenue and Customs (HMRC) know on your tax return if you’re a limited company and you decide to create a short life asset pool. You must do this within 2 years of the end of the tax year when you bought the item.

Let HMRC know in writing if you’re a sole trader or partner - include how much the item cost and when you acquired it. The deadline is the online filing deadline (31 January) for the tax year after the one you bought the item in.

Things you also use outside your business

If you use an item outside your business and you’re a sole trader or partner, put it in a separate pool.

Work out your capital allowances at the main rate (18%) or the special rate (8%) depending on what the item is.

Reduce the amount of capital allowances you can claim by the amount you use the asset outside your business.

Example You buy a laptop and use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.

If your accounting period is more or less than 12 months

You need to adjust the amount of writing down allowances you can claim if your accounting period is more or less than 12 months.

Items you’ve claimed AIA or first year allowances on

Record any items you’ve claimed annual investment allowance (AIA) or first year allowances on in the pool they qualify for. If you claim the full cost of an item you’ll need to write down their value as zero. This will help you to work out whether you owe tax if you sell them.

Items not claimed

Add costs you haven’t claimed first year allowances or annual investment allowance (AIA) on to the pool in the following year.

What to do next

When you know the rate for your items, work out how much you can claim.