What are capital allowances?
Capital allowances let a business deduct the cost of certain capital assets, such as equipment, machinery, and some fixtures, from its taxable profit. Because capital expenditure is not normally an allowable expense in the ordinary sense, capital allowances are the mechanism HMRC provides instead for getting tax relief on qualifying purchases.
The Annual Investment Allowance
Most businesses use the Annual Investment Allowance, which allows the full cost of qualifying plant and machinery to be deducted from profits in the year of purchase, up to an annual limit. This gives immediate tax relief rather than spreading it over several years, and covers the vast majority of typical business equipment purchases.
What qualifies for capital allowances
Qualifying items typically include machinery, tools, computers and office equipment, vans and certain commercial vehicles, and some fixtures within a building. Cars are treated differently, with the allowance available depending on the vehicle's emissions. Land, buildings themselves, and most items used for entertaining generally do not qualify.
Related terms: Corporation Tax, Allowable Expenses, CT600.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.