Capital allowances for companies: equipment, cars and claim choices

Separate accounting depreciation from tax deductions

Accounts spread the cost of many assets over their useful lives through depreciation. That accounting charge does not usually become the Corporation Tax deduction itself. In the tax computation, relevant depreciation is added back and qualifying capital allowances are considered instead. A profitable company can therefore have a different taxable result from its accounting profit.

Start with what was actually purchased and how the company uses it. A supplier calling something a business investment does not prove it qualifies as plant and machinery. Repairs, consumables, software, equipment and property can belong in different categories. Preserve an itemised invoice and distinguish installation, financing and service charges; one total on a bank statement is rarely enough to support the correct claim.

Check Annual Investment Allowance eligibility and limits

Annual Investment Allowance can provide an immediate deduction for qualifying plant and machinery expenditure, subject to the current limit and conditions. It can cover eligible second-hand assets, but cars do not qualify. Do not describe it as a cash grant: it reduces the tax calculation and its value depends on the company’s taxable position.

An accounting period shorter or longer than a year, group relationships and shared allowances can affect the available amount. A company with several connected businesses should not assume each receives an independent full limit. Ask the accountant to allocate claims across the relevant companies and periods, and to consider whether using the allowance now is useful where the company already has losses.

• Check the live limit and any period adjustment.
• Exclude cars from AIA.
• Review group or related-business sharing conditions.
• Separate second-hand eligibility from full-expensing conditions.
• Model profit and loss effects before choosing the claim.

Understand full expensing rather than treating it as universal

Full expensing is a company tax relief for qualifying new and unused main-rate plant and machinery, subject to statutory conditions. Eligible special-rate expenditure can have a separate first-year allowance rather than the same immediate deduction. These descriptions are categories, not promises that every new office purchase qualifies.

Cars, assets acquired for some leasing purposes and expenditure outside the relevant rules need different analysis. Keep records establishing that equipment was new and unused and when expenditure was incurred. The later disposal consequences can differ from an asset on which AIA or writing-down allowances were claimed. A tax decision should therefore consider how long the company expects to keep the asset and whether it may be sold to a connected person.

Treat vehicles and property fixtures separately

A business car is not simply a machine with wheels for tax purposes. Emissions, purchase date, new or second-hand status and the relevant first-year or writing-down rules affect relief. A company car provided to a director can also create employment benefits, which are separate from the company’s capital allowance. Avoid claiming that an electric vehicle has no tax consequences for its user.

Property purchases require an equally careful breakdown. The land and building price, plant within the property and any Structures and Buildings Allowance can involve different rules and evidence. Fixtures may require agreement with the seller and statutory elections. Get specialist advice before signing a property acquisition, because missing a pre-completion decision can be harder to fix than a bookkeeping classification later.

1. 1

   Separate cars, vans and other equipment using the actual tax definitions.

2. 2

   Record emissions and new or used status for vehicles.

3. 3

   Review any employment-benefit position.

4. 4

   For property, ask for fixtures and allowance information before completion.

5. 5

   Retain elections and allowance statements with the asset records.

Check timing, ownership and finance arrangements

The date expenditure is incurred for capital-allowance purposes is not always the date an online order is placed. Unconditional obligations, payment timing and delivery terms can matter. Hire purchase and leasing also require specific treatment. A monthly finance payment may contain principal, interest and service elements that should not all be entered as a single revenue expense.

Identify who owns the asset and whether the company has the qualifying interest for a claim. Equipment acquired personally by a director and later sold to the company may have a different treatment from a direct company purchase, particularly where connected-party rules apply. Keep finance agreements, delivery records and the supplier invoice so the accountant can establish both the amount and the correct period.

Worked example: reconcile profit before choosing relief

Illustrative example: the company reports £80,000 profit after charging £8,000 depreciation. Assume that depreciation is added back for tax and qualifying equipment expenditure supports a £30,000 allowance claim. Before considering other adjustments, taxable profit becomes £58,000: £80,000 plus £8,000 minus £30,000.

This is a computation example, not a tax bill. The applicable Corporation Tax calculation may depend on associated companies, the accounting period and other income or reliefs. If only £10,000 of the purchased assets qualifies for the selected immediate allowance, the result changes. The accountant should explain the asset-by-asset eligibility instead of applying the invoice total indiscriminately.

Prepare an asset-by-asset claim review

A company planning equipment purchases should give the accountant an itemised acquisition list before the financial year closes. It includes specification, cost, supplier, new or used status, delivery and obligation dates, finance terms and expected use. This allows the adviser to distinguish a repair from an improvement, a car from other equipment and a property fixture from the building itself. A quotation labelled investment package is not an allowance category. The company also identifies related businesses that may affect available limits and any loss position that changes the value of an immediate claim.

The claim review compares the available routes rather than selecting full expensing because it sounds more generous. AIA can cover eligible expenditure that does not meet the new-and-unused conditions of full expensing, while cars have separate rules. Some assets belong in special-rate categories. The adviser checks period adjustments, statutory limits and disposal consequences. The directors consider commercial usefulness first: spending £1 on an unnecessary asset to obtain a deduction does not return that £1 as a tax saving. The forecast separates purchase cash, finance obligations and later tax-payment effects.

After acquisition, the company maintains an accounting asset record and the separate tax allowance history. A disposal, transfer to a director or change in use is reported to the accountant even if the asset is fully depreciated. The schedule identifies the original claim route so any balancing or disposal adjustment can be calculated. During an adviser or software change, both records are exported and reconciled. This discipline prevents duplicate claims on old costs and avoids losing the evidence needed to explain why one item received immediate relief while another entered a tax pool.

1. 1

   Gather the records described above before making the decision.

2. 2

   Review the case-specific assumptions with the appropriate adviser.

3. 3

   Record the agreed action, responsible person and relevant dates.

4. 4

   Reconcile the outcome to the company’s actual records.

Keep the allowance history when an asset leaves

When an asset is sold, scrapped, transferred or no longer used, the proceeds or disposal value can change the capital-allowance calculation. A claim that gave immediate relief on purchase may create a later balancing adjustment. Do not remove the asset from the accounts and assume there is no tax entry simply because its accounting book value is zero.

Maintain an asset schedule showing cost, acquisition date, claim route, tax pool, allowances and disposal evidence. Link it to the accounting asset register while retaining the distinction between book value and tax written-down value. When changing accountants, include that schedule in the handover; missing allowance history can lead to duplicate claims or overlooked disposal charges.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Capital allowances
• GOV.UK: Annual Investment Allowance
• HMRC: Full expensing
• GOV.UK: Business cars

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.