What Are Capital Allowances?
When your company buys equipment, vehicles, or other assets for business use, you can't deduct the full cost as an expense in your profit and loss account for tax purposes. Instead, you claim capital allowances — a system that lets you deduct the cost over time (or sometimes immediately).
Capital allowances directly reduce your taxable profit, which reduces your corporation tax bill.
Types of Capital Allowance
Annual Investment Allowance (AIA)
The AIA gives 100% first-year relief on qualifying purchases up to £1,000,000 per year.
What qualifies:
- Plant and machinery (computers, servers, tools)
- Office furniture (desks, chairs, shelving)
- Vans and commercial vehicles
- Fixtures in business premises
What doesn't qualify:
- Cars (separate rules apply)
- Buildings (except integral features)
- Land
For most small companies, the AIA covers everything. If you spent £15,000 on computers and office equipment, you deduct the full £15,000 from your taxable profit in the year of purchase.
CT600 box:
| Box | Description |
|---|---|
| 690 | AIA — allowances claimed |
Full Expensing (from April 2023)
For companies investing in new (not second-hand) plant and machinery:
- Main rate assets: 100% first-year deduction (box 688)
- Special rate assets: 50% first-year deduction (box 693)
Full expensing is permanent with no annual cap (unlike AIA's £1M limit). For most small companies, AIA is sufficient, but full expensing matters for larger investments where total spend exceeds the £1M AIA cap — and note that new special rate assets such as integral features qualify only for the 50% special rate first-year allowance (box 693), not 100% full expensing.
Writing Down Allowance (WDA)
For assets not fully relieved by AIA or full expensing, you claim WDA each year:
| Pool | Rate | Examples |
|---|---|---|
| Main pool | 18% per year | Most equipment, vehicles, fixtures |
| Special rate pool | 6% per year | Integral features, long-life assets, thermal insulation |
WDA is calculated on the reducing balance — 18% of whatever's left in the pool each year.
Example — Main pool WDA:
| Year | Pool Value | WDA (18%) | Remaining |
|---|---|---|---|
| 1 | £10,000 | £1,800 | £8,200 |
| 2 | £8,200 | £1,476 | £6,724 |
| 3 | £6,724 | £1,210 | £5,514 |
First Year Allowance (FYA)
Special 100% relief for specific environmentally-friendly assets:
- Zero-emission cars: 100% FYA (box 726)
- Zero-emission goods vehicles: 100% FYA (box 723)
- Electric vehicle charging points: 100% FYA, available until 31 March 2026, extended to 31 March 2027 (box 713)
Structures and Buildings Allowance (SBA)
3% per year (straight line) for the cost of constructing or renovating commercial buildings. This is relatively new (from 2018) and applies over 33⅓ years.
Cars — Special Rules
Cars have their own capital allowance rules:
| CO2 Emissions | Allowance |
|---|---|
| 0 g/km (electric) | 100% FYA |
| 1-50 g/km | Main pool (18% WDA) |
| Over 50 g/km | Special rate pool (6% WDA) |
Important: Cars never qualify for AIA or full expensing. A £30,000 petrol car goes into the special rate pool and you only get £1,800 relief in year one (6% of £30,000).
An electric car? Full £30,000 deducted immediately.
How to Claim on Your CT600
Capital allowances appear in several CT600 boxes. The most common for small companies:
Allowances (reducing your taxable profit):
| Box | Description |
|---|---|
| 688 | Full expensing — 100% FYA on new main rate assets |
| 690 | AIA — allowances claimed |
| 693 | 50% first-year allowance — new special rate assets |
| 695 | Special rate pool — WDA (6%) |
| 705 | Main pool — WDA (18%) |
| 713 | EV charging points — 100% FYA |
| 723 | Zero-emission goods vehicles — 100% FYA |
| 726 | Zero-emission cars — 100% FYA |
Charges (adding back to taxable profit when you sell assets above pool value):
| Box | Description |
|---|---|
| 700 | Special rate pool — balancing charges |
| 710 | Main pool — balancing charges |
The total capital allowances figure feeds into your tax computation, reducing your trading profit before it reaches Box 155 (trading profits).
A balancing charge arises when you sell an asset for more than its tax written-down value — it gets added back to your taxable profits because you effectively over-claimed allowances in earlier years. A balancing allowance works the opposite way: if you permanently close a pool (e.g. you sell the last item in it for less than the pool value), you can deduct the shortfall in full.
Practical Examples
Example 1: Contractor Buys a Laptop
Cost: £1,500 MacBook Pro Claim: AIA — full £1,500 deducted in year of purchase Tax saving: £1,500 × 19% = £285
Example 2: Small Business Fits Out an Office
Cost: £25,000 (desks £5,000, chairs £3,000, computers £10,000, fixtures £7,000) Claim: AIA — full £25,000 deducted Tax saving: £25,000 × 19% = £4,750
Example 3: Company Buys a Van
Cost: £28,000 Ford Transit Claim: AIA — full £28,000 deducted (vans qualify for AIA, unlike cars) Tax saving: £28,000 × 25% = £7,000 (at main rate)
Example 4: Director Buys a Tesla
Cost: £45,000 Tesla Model 3 (0 g/km) Claim: 100% FYA — full £45,000 deducted in year one Tax saving: £45,000 × 19% = £8,550
Common Mistakes
1. Claiming AIA on Cars
Cars NEVER qualify for AIA. This is the most common capital allowance error.
2. Missing the Claim Entirely
If you don't claim capital allowances, you don't get them. They don't appear automatically — you must include them in your CT600.
3. Claiming Personal Assets
An asset must be used for business purposes. A laptop used 50% for business and 50% personal? Only 50% of the cost qualifies.
4. Forgetting Disposals
When you sell or dispose of an asset that's in a capital allowance pool, you need to account for the proceeds. If you sell for more than the pool value, you have a balancing charge (taxable). If less, a balancing allowance (deductible).
Let Software Handle It
Capital allowance calculations — especially with multiple pools, disposals, and rate changes — are complex. Taxpipe calculates your capital allowances and fills in the correct CT600 boxes automatically.
Calculate your corporation tax including capital allowances →