Capital allowances computations

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Capital allowances computations
  • Plant and machinery allowances
  • Calculating writing down allowances ― the ‘general pool’
  • Additions to a capital allowance pool
  • Disposals and the capital allowance pool
  • Balancing adjustments ― general pool
  • Balancing adjustments ― single asset pools
  • Cessation of a business
  • Writing down allowances ― short and long accounting periods
  • Claiming capital allowances
  • More...

Capital allowances computations

Plant and machinery allowances

Three types of allowance are available for expenditure on plant and machinery:

  1. the annual investment allowance (AIA), which currently provides a 100% allowance for the first £1,000,000 of expenditure per year, see the Annual investment allowance (AIA) guidance note

  2. first year allowances (FYAs), which also provide a 100% allowance for expenditure, but restricted to particular types of plant and machinery, see the First year allowances guidance note, and

  3. writing down allowances, which provide a percentage allowance of 18% or 6% per year (18% or 8% prior to April 2019)

There is also a temporary super-deduction of 130% and FYA of 50% on qualifying new plant and machinery acquired between 1 April 2021 and 31 March 2023. For more details, see the Super-deduction and special rate first year allowance guidance note.

In addition, balancing allowances and balancing charges may arise in some circumstances where assets are disposed of or the business ceases.

To compute writing down allowances, balancing allowances and balancing charges, expenditure is ‘pooled’. The different types of pools are:

  1. the general or main pool ― includes most types of plant and machinery where not included in other pools

  2. special rate pool ― mainly integral features, see the Special rate pool and long life assets guidance note

  3. single asset pools when there has been a short-life asset election, see the Short-life assets guidance note

  4. single asset pools when assets are used by unincorporated businesses both for business and privately, see the Capital allowances for sole traders and partnerships guidance note

CAA 2001, ss 53, 54

Writing down allowances are available for historic expenditure which has not been fully relieved and for new expenditure which is not eligible for AIA or FYA. This may be the case where, for example, the annual limit for the AIA has been exceeded or the asset is not one of the types eligible for FYAs.

The Capital allowances ― basic computations (A) video provides illustrations of the calcu

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