View the related Tax Guidance about Annual investment allowance
Annual investment allowance (AIA)
Annual investment allowance (AIA)Amount of the allowanceAn AIA is available for expenditure incurred on plant or machinery on or after 1 April 2008. The maximum amount of AIA available has varied significantly over recent years and the latest amounts are as follows:Maximum annual allowancePeriod qualifying expenditure incurred£1,000,000From 1 January 2019 £200,0001 January 2016 until 31 December 2018£500,0006 April 2014 (1 April 2014 for companies) until 31 December 2015CAA 2001, ss 38A, 51A(5); F(No 2)A 2023, s 8The level of AIA from 1 January 2019 was initially a temporary maximum of £1,000,000 but this has now been made permanent. The transitional rules, which are to be applied when calculating the AIA for accounting periods which straddle the dates above, are discussed in further detail below. The AIA cannot be claimed on expenditure incurred, or deemed to be incurred, on:•cars•assets of a ring-fence trade (ie a trade relating to oil extraction activities etc) where a supplementary charge applies under CTA 2010, s 330•gifts•assets previously used by the owner for a non-qualifying activity•assets previously used for leasing•a sale and leaseback where the leaseback is a long funding lease (see the Capital allowances on cars guidance note)CAA 2001, s 38BThe Capital Allowances first year allowances and the AIA (A) video provides an illustration of the calculation of capital allowances where the AIA is available, as well as details of restrictions on the AIA. It also includes the calculation of the
Capital allowances ― overview
Capital allowances ― overviewDefinition of capital allowancesIn 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 chargeable profits of a trade 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. In addition to traders (self-employed individuals, partnerships or trading companies), capital allowances can also be claimed by for expenditure incurred by property businesses and certain other qualifying activities. See the Capital allowances ― general requirements guidance note.Summary of rates ― capital allowancesThe following table summarises the main capital allowances available, the rate of the allowance and if relevant any important dates or points to note, for further details including any relevant qualifying conditions or restrictions see the relevant guidance note as linked in the table.It was announced at the Autumn Statement 2023 that the initially temporary first-year allowances for expenditure on plant and machinery incurred by a company in the period from 1 April 2023 which was due to end on 31 March 2026 will be made permanent. For main rate expenditure (which would otherwise qualify for a writing-down allowance at the main rate) the FYA is 100%. For special rate expenditure, the FYA is 50%.
A–Z of capital allowances
A–Z of capital allowancesWhat capital allowances are available?When calculating taxable profits or allowable losses for a business, it may be possible to claim capital allowances on expenditure on items which are capital in nature. There are various types of capital allowances available with the most common type being plant and machinery. To be able to claim capital allowances, the expenditure must be qualifying expenditure for the type of allowance being claimed. For some allowances, qualifying expenditure is defined by the legislation, but for others there is case law which determines whether the item is qualifying.This schedule is an alphabetical list of items and their treatment for capital allowance purposes based on CAA 2001 and also on decided cases. The availability of any allowance will be subject to the qualifying conditions for that allowance being met and the relevant guidance note, legislation and HMRC guidance should be reviewed to confirm the position (although HMRC guidance does not have the force of law). Items in the list may also qualify for the annual investment allowance on plant and machinery or first year allowances. For more details, see the Annual investment allowance (AIA) and First year allowances guidance notes.The list is not exhaustive but a summary of the more common types of assets ― to search for an item on the page, use ‘Ctrl+F’. For a detailed discussion of the meaning of plant and machinery, see Simon’s Taxes B3.306.Item of expenditureCapital
Capital allowances for sole traders and partnerships
Capital allowances for sole traders and partnershipsSome aspects of capital allowances only apply to sole traders and partnerships, these are as follows:•private use of assets which qualify for capital allowances eg cars•capital allowances on know-how•capital allowances on patentsEach of these is detailed further below.Private use adjustmentsSole traders or partnerships may use assets for both business and private purposes. For example, it is common for a sole trader to have a car which is used mainly for business, but at the weekends or in the evenings, used for private purposes. If all the costs of running the car are paid for by the business, the tax computations must be adjusted to take account of the private use. Therefore, motor expenses in the profit and loss account are reduced for the private element of those costs.Likewise when considering the capital allowance computations, the capital allowance must be reduced by the private element. The private element is normally given as a percentage which is then applied to the computations. In practice, the private usage may need to be agreed with HMRC.This is only applicable where the car is owned by the sole trader or partnership. It is necessary to consider whether this is the case, or whether the car is in fact leased. See the Capital allowances on cars guidance note for further information.Private use adjustments never apply to companies. The director of the company might use a company car for their private purposes. However, this will not affect
Agricultural buildings
Agricultural buildingsThis guidance note summarises the treatment of agricultural buildings in farms including what capital allowances can be claimed, the assessment of farm buildings which are let out, repairs and renewals and the possible effect of having redundant farm buildings on tax reliefs.More details of the IHT position of specific buildings can be found in the following guidance notes:•Agricultural tenancies•APR and the farmhouse•APR and farmworkers' cottages•Agricultural value and development valueDefinition of plant not buildingA large amount of expenditure in relation to a modern building relates to items of plant and machinery. The farmer or landowner may identify such expenditure and claim the appropriate capital allowances and annual investment allowance (AIA) in accordance with the rates available. These are generous with the AIA limit at £1,000,000. All appropriate conditions must be met. See the Annual investment allowance (AIA) guidance note for more information.The ability to claim AIA on plant applies as much to a second-hand building as a new one. It can be quite normal practice for farmers to buy second-hand barns. The apportionment between the categories depends on the valuation techniques and requires knowledge of building construction.The ‘after-tax’ cost of funding a new diversified venture will be affected by whether expenditure is treated as buildings or plant. There may well be borderline cases where planned expenditure could be regarded as plant. However, there are certain items of expenditure where the legislation is clear as to what it deems to be plant alterations to buildings incidental
Corporation tax return ― compliance toolkit
Corporation tax return ― compliance toolkitApproach when preparing a corporation tax returnTax law has become increasingly complex in recent years and there is often a myriad of issues to keep in mind when preparing the corporation tax return. Coupled with this, the tax compliance process is typically highly pressured because of the somewhat competing priorities of having to finalise the tax return quickly but at the same time accurately and to a high standard. This toolkit is aimed at supporting tax advisers that prepare or review corporation tax returns in delivering high-quality and accurate returns by providing guidance on the most common areas in a set of financial statements that give rise to tax adjustments. The toolkit focuses on the issues typically encountered by a UK trading company, but many of the issues will also be relevant to non-trading companies such as property investment companies or holding companies. The accounting areas discussed below follow the typical order of a standard set of financial statements. The list is not exhaustive, but covers the more frequently encountered tax issues in reviewing a set of financial statements and preparing the tax return. An explanation of the relevant issue for each area is provided, together with practical points to be aware of and links to additional information so that more detailed research can be carried out. Initial considerations when starting the corporation tax compliance reviewThere are several sources of information which can prove extremely useful when starting the compliance review process. These can
Special rate pool and long life assets
Special rate pool and long life assetsSpecial rate poolExpenditure on some types of plant or machinery must, if neither annual investment allowance (AIA) nor first year allowances (FYAs) are available, be allocated to a ‘special rate pool’. Expenditure to be allocated to the special rate pool consists of expenditure incurred on:•integral features, see below•long life assets, see below•thermal insulation of buildings used in a business•new or second-hand cars with CO2 emissions of more than 50g/km (reduced from more than 110g/km in April 2021), and•solar panelsCAA 2001, s 104A(1)The annual writing down allowances available on the special rate pool is 6%.Expenditure that would otherwise fall into the special rate pool is eligible for the AIA, with the exception of cars and certain other exclusions, see the Annual investment allowance (AIA) guidance note. In some cases, expenditure may also be eligible for FYAs, including a 50% FYA for special rate expenditure incurred by companies on or after 1 April 2023 , if it meets the necessary conditions, see the First year allowances guidance note. There was also a temporary first year allowance of 50% for new special rate plant and machinery acquired from 1 April 2021 to 31 March 2023 but only for companies, see the Super-deduction and special rate first year allowance guidance note. The 6% WDAs for the special rate pool is significantly lower than the 18% rate for the general pool. The time taken to receive 80% of the tax relief available on
Introduction to year-end tax planning for companies
Introduction to year-end tax planning for companiesIntroductionThis guidance note considers various aspects of year-end tax planning for large companies or groups. It is recommended that it is read in conjunction with the Chargeable gains planning, Group companies and Year-end tax planning ― international issues guidance notes so that as many relevant factors as possible are considered. See also ‘Key issues for in-house tax teams: a checklist’, by Chris Holmes, Mark Ellis, and James Egert, in Tax Journal, Issue 1511, 14 (27 November 2020).Other matters which could be relevant, depending upon the tax profile of the company, are:•whether deductions for expenditure on intangible fixed assets (IFAs) are being maximised ― see the What is an intangible fixed asset? guidance note•whether deductions for loan relationships are being maximised ― refer to the What is a loan relationship? and Taxation of loan relationships guidance notes•real estate investment trusts (REITs) ― for the advantages and disadvantages of this regime to companies in the property sector, see the Real estate investment trusts (REITs) guidance note•review of time limits for claims and elections ― see Simon’s Taxes D1.1345When undertaking any planning exercise, companies and their advisers should consider whether any relevant anti-avoidance provisions, Disclosure of Tax Avoidance Schemes and the General anti-abuse rule are likely to apply. See the Disclosure of tax avoidance schemes (DOTAS) ― overview and General anti-abuse rule (UK GAAR) guidance notes respectively. Commercial considerationsAny tax planning exercise should include modelling all changes to income and expenditure to
First year allowances
First year allowancesFirst year allowances (FYAs) are available on the following items:•first-year relief on qualifying new main rate plant and machinery (at 100%, which is described by HMRC as ‘full expensing’) and special rate assets (at 50%) from 1 April 2023 (companies only). These FYAs were originally intended to end on 31 March 2026 but as announced at the Autumn Statement 2023 they will now be permanent •new and unused cars with low CO2 emissions, or car is electric•new and unused zero-emission goods vehicles•new electric vehicle charging points•gas refuelling stations•expenditure on new plant or machinery which qualifies as a special rate asset and is incurred on or after 1 April 2021 and before 1 April 2023 (companies only), see the Super-deduction and special rate first year allowance guidance note•plant and machinery for use primarily in an area which is a designated assisted area in an enterprise zone (companies only)•plant and machinery for use primarily in an area which is a designated tax site in a freeport (companies only)•plant and machinery for use primarily in an area which is a designated investment zone (companies only)These are detailed further below.It was announced in the Spring Budget 2024 that the sunset date for FYAs for plant and machinery for use primarily in tax sites in freeports in Scotland and Wales will be extended to 30 September 2034. For English freeports the sunset date is 30 September 2031. The Government also announced that it
Property partnerships
Property partnershipsProperty partnership or joint ownership?A fundamental point in the context of property partnerships is whether the business really is a partnership, or falls short as the joint letting of property.Joint ownership of property alone does not mean that the letting activity will constitute a partnership. Instead, this will depend more on whether the letting itself is carried on in partnership. In fact, general law partnerships are not partnerships if all they do is carry out investment activities, as one of the definitions of being in partnership is that the partners are in business together. Therefore, it will often automatically be the case that joint property ownership arrangements fall short of the degree of business involvement needed to be regarded as in partnership. Normally, simple joint ownership will not be treated as a partnership and the taxpayer’s share of the income and expenditure from the jointly owned property will simply be included as part of their personal rental business. Indeed, it can often be beneficial to treat the income as arising outside of a partnership arrangement. This is because if it arises as part of a letting partnership, then the partnership letting income and losses will be ring-fenced from personal rental income / losses. Whether or not a taxpayer is a member of a partnership depends on the facts. A partnership is unlikely to exist where the taxpayer is one of a group of joint owners who merely let a property that they jointly own. On the other hand,
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