Capital Allowances for Small Companies — AIA, Full Expensing & Cars

If your company bought equipment, vehicles, or machinery during the year, you can claim capital allowances to reduce your Corporation Tax bill. Here's how they work and how to claim them on your CT600.

What are capital allowances?

Capital allowances let your company deduct the cost of capital assets — things like computers, vehicles, furniture, and machinery — from its taxable profits.

Unlike everyday expenses (which you deduct directly), capital items are usually high-value purchases that the company will use for several years. Capital allowances spread the tax relief over time, or in many cases, let you claim the full amount in the year of purchase.

Annual Investment Allowance (AIA)

The Annual Investment Allowance is the most important capital allowance for small companies. It lets you deduct 100% of qualifying expenditure in the year you buy the asset, up to a limit of £1 million per year.

For most small companies, the AIA covers everything. If you spent £5,000 on a laptop, £15,000 on a van, and £3,000 on office furniture — that's £23,000 you can deduct in full from your taxable profits.

What qualifies for AIA?

Most tangible assets used in the business:

How AIA saves you tax

Example: Your company has £80,000 taxable profit and you bought £10,000 of equipment.

Without AIA:

• Tax: £80,000 × 19% = £15,200

With AIA:

• Taxable profit: £80,000 − £10,000 = £70,000
• Tax: £70,000 × 19% = £13,300
• Saving: £1,900

Full Expensing (from April 2023)

Since April 2023, companies can also claim full expensing on qualifying new plant and machinery. This gives 100% first-year relief with no annual limit (unlike AIA which caps at £1 million).

Full expensing applies to:

• Main rate assets (most plant and machinery): 100% first-year allowance
• Special rate assets (long-life assets, integral features): 50% first-year allowance

For small companies, the AIA usually covers everything, so full expensing is mainly relevant for larger companies that exceed the £1 million AIA limit.

Writing Down Allowances (WDA)

If you don't claim AIA or full expensing on an asset (or if you exceed the AIA limit), you can claim Writing Down Allowances instead. These spread the tax relief over multiple years:

• Main pool: 18% per year (reducing balance)
• Special rate pool: 6% per year (reducing balance)

Example: Writing Down Allowance

You buy a £10,000 asset and claim WDA at 18%:

• Year 1: £10,000 × 18% = £1,800 allowance (value remaining: £8,200)
• Year 2: £8,200 × 18% = £1,476 allowance (value remaining: £6,724)
• Year 3: £6,724 × 18% = £1,210 allowance (value remaining: £5,514)
• ...and so on

Most small companies should use AIA instead — it's simpler and gives you the full relief immediately.

Cars

Cars have their own capital allowance rules:

Important: Cars never qualify for AIA. They always use the rates above.

If your company buys a fully electric car, you can deduct the entire cost in year one. For a petrol or diesel car, you'll claim writing down allowances over several years.

Company car vs mileage

If you use your personal car for business, it's usually more tax-efficient to claim mileage (45p/mile for the first 10,000 miles) rather than having the company buy the car. A company car creates a Benefit in Kind (BIK) tax charge for the director.

How to claim on your CT600

Capital allowances are claimed in the capital allowances section of the CT600. The key boxes are:

• Box 685: Annual Investment Allowance claimed
• Box 690: Total capital allowances claimed
• Box 695: Balancing charges (if you sold an asset for more than its written-down value)

When you use Taxpipe, our wizard asks about capital purchases and calculates the allowances automatically — you don't need to know which box is which.

Small pools allowance

If the total value of your main pool or special rate pool drops below £1,000, you can claim the entire remaining balance as a small pools allowance instead of continuing with writing down allowances. This simplifies your records and gives you the final bit of relief in one go.

Balancing charges

If you sell an asset that you previously claimed capital allowances on, and the sale price exceeds the asset's written-down value, HMRC claws back the excess via a balancing charge. This increases your taxable profit for the year.

Example: You claimed AIA on a £10,000 machine. Two years later you sell it for £4,000. Since you already claimed the full £10,000, you need to add £4,000 back to your taxable profit as a balancing charge.

Common mistakes

1. Not claiming at all

Many small company directors don't realise they can claim capital allowances. If you bought any equipment, furniture, or vehicles for the business, you're likely entitled to a deduction.

2. Claiming the wrong pool

Cars go in specific pools based on CO2 emissions. Putting a car in the main pool when it should be in the special rate pool will overstate your allowances.

3. Forgetting about disposals

If you sold or scrapped an asset during the year, you need to account for it — either as a balancing charge or a balancing allowance.

4. Missing the AIA deadline

AIA must be claimed in the accounting period when the expenditure occurs. You can't go back and claim it for a previous year (though you can amend a return within 12 months of the filing deadline).

Summary

For most small companies: claim AIA on everything and deduct the full cost in year one.

File your CT600 with Taxpipe → — we calculate capital allowances automatically.

Related articles:

• Corporation Tax Allowable Expenses — The Complete List
• How to File a CT600 Online: Step-by-Step Guide
• 10 Common CT600 Mistakes and How to Avoid Them
• R&D Tax Relief for Small Companies: What to Claim
• Annual Investment Allowance (AIA): Claim Up to £1 Million
• Dividends vs Salary: Tax-Efficient Pay

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