Capital allowances: what UK companies can actually claim
Capital expenditure is not deductible in the profit and loss account for tax purposes. Instead, relief comes through capital allowances, and how an item is classified determines whether relief arrives immediately, over decades, or never.
The main pools
Qualifying plant and machinery usually falls into the main pool with writing down allowances, or into the special rate pool for integral features such as electrical systems, cold water systems, lifts and thermal insulation.
The annual investment allowance gives a full deduction for qualifying spend up to an annual limit and covers both pools. Full expensing provides immediate relief on qualifying new main-pool plant for companies subject to corporation tax.
- Main pool: general plant, machinery, equipment, commercial vehicles
- Special rate pool: integral features, long-life assets, thermal insulation
- Excluded: land, most buildings, and cars (which have their own rates by emissions)
Repairs versus capital improvement
A repair restores an asset to its previous condition and is deductible immediately. An improvement enhances the asset and is capital. Replacing part of a larger asset with a modern equivalent is generally still a repair.
The distinction is factual and evidence-based. Keep contractor scopes of work, not just invoices, because the description of the work is what supports the treatment.
Property acquisitions are frequently under-claimed
When buying a commercial property, a proportion of the price relates to fixtures that qualify for allowances. Without a fixtures election agreed with the seller, that value can be permanently lost.
Structures and buildings allowance may also be available on qualifying construction costs, at a lower annual rate over a long period.
Classify capital spend when it happens, keep the supporting scope of work, and take advice before completing a property purchase rather than after.
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