Capital allowances in the UK are essentially a way for businesses to reduce their tax bill, meaning you pay tax on a smaller figure and retain more of your profits.
Companies are able to write off the costs of certain purchases or investments (like machinery, vehicles, or equipment for the business) against their taxable profits. The more you invest in these kinds of things, the less tax you have to pay. It is like a reward system for businesses making big investments.
Key Types of Capital Allowances
Annual Investment Allowance (AIA)
This allowance provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, ‘up to a current annual limit of £1 million. As of my knowledge cut-off in September 2021, the limit is £1 million.
First Year Allowances (FYA)
These are available for certain energy and water efficient equipment and electric vehicles. They allow businesses to deduct the full cost from profits before tax in the year of purchase.
Writing Down Allowances (WDA)
If you’ve spent more than the AIA or the purchase doesn’t qualify for AIA or FYA, the remaining value can be deducted over time using WDAs. The percentage used for the deduction depends on the type of asset.
Structures and Buildings Allowance (SBA)
This is for the construction and renovation of non- residential structures and buildings. The relief is given as a straight-line 3% over a 33
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