Capital allowances ― general requirements

Produced by Tolley

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

  • Capital allowances ― general requirements
  • Types of capital allowances
  • Capital allowances ― chargeable periods
  • Capital allowances ― qualifying activities
  • Plant and machinery used for business entertainment

Capital allowances ― general requirements

In the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the profits of a trade chargeable to income tax or corporation tax because it is an item of a capital nature. See the Capital vs revenue expenditure guidance note.

Instead, relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits. Likewise, any charges are treated as taxable receipts.

The relevant legislation is set out in the Capital Allowances Act 2001.

Types of capital allowances

Capital allowances are only available for a limited range of assets, each with a separate set of rules, the main ones are:

  1. plant and machinery including cars, see the Definition of plant and machinery and Capital allowances on cars guidance notes

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

  3. research and development facilities, see the Research and development tax relief ― capital expenditure guidance note

  4. structures and buildings (from 29 October 2018), see the Structures and buildings allowance guidance note

  5. patents and know-how (non-corporate entities, as for companies intangibles are within the corporate intangible rules), see the Capital allowances for sole traders and partnerships

There are also enhanced allowances including the annual investment allowance and the super-deduction and special rate first year allowance, see the Annual investment all

Popular documents