capital allowances claims for UK businesses

Capital allowances turn capital expenditure into tax relief - but only the expenditure you actually identify

Most businesses claim something. Very few claim everything they are entitled to.

The obvious items get picked up by the accountant from the fixed asset register - machinery, vehicles, IT equipment. The value that gets missed sits inside property i.e. the electrical distribution, the heating and ventilation, the sanitaryware, the data cabling, the lifts, the specialist process installations. These are embedded within a building purchase price or a construction final account, and they are invisible unless somebody goes looking for them.

On a commercial property acquisition, qualifying fixtures commonly represent 15% to 40% of the purchase price. On a fit-out or new build, the qualifying proportion is often higher.

Unlike R&D tax relief, capital allowances are not a time-limited claim in the usual sense. Unclaimed allowances on assets you still own can generally still be brought into charge. But there is a significant exception - on second-hand property, the right to claim can be lost permanently at the point of sale if the correct elections are not made. That door closes and does not reopen.

Depreciation in your accounts is not deductible for tax. Capital allowances are the statutory mechanism that replaces it, giving relief against taxable profit for capital expenditure on qualifying assets.

They are available to companies, partnerships and individuals whose trading profits are chargeable to UK Corporation Tax or Income Tax. They are not given automatically - they must be identified, quantified and claimed on a tax return, and the burden of evidencing the claim sits with the taxpayer.

The regime is a collection of separate allowances with different rates, different qualifying conditions and different consequences on disposal. Getting the best outcome is a matter of allocating expenditure to the right allowance in the right order, in the right period.

Annual Investment Allowance (AIA) - 100% 

100% relief on the first £1 million of qualifying expenditure on plant and machinery, integral features and long-life assets each year. Cars are excluded. A single AIA is shared across companies in a group or under common control, and can be allocated between them in whatever way produces the best overall result. The £1 million limit is committed for this Parliament.

Full expensing - 100% 

100% first-year relief for companies on new and unused main pool plant and machinery, with no upper limit. Cars are excluded. It replaced the temporary super-deduction in April 2023 and is now permanent.

Special rate first-year allowance - 50% 

50% first-year relief for companies on new and unused special rate expenditure - integral features such as electrical systems, cold water systems, heating and air conditioning, lifts and long-life assets. The remaining 50% is written down at 6% a year on a reducing balance basis.

New 40% first-year allowance 

Introduced from 1 January 2026 for main rate plant and machinery. Its significance is that it reaches expenditure full expensing does not - assets acquired for leasing or hire within the UK, and expenditure by unincorporated businesses. Cars and second-hand assets are excluded.

Writing down allowances 

Expenditure not relieved by AIA or a first-year allowance enters a pool and is written down on a reducing balance basis. The main pool rate reduces from 18% to 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax, with a hybrid rate for accounting periods straddling the change. The special rate pool remains at 6%.

Structures and Buildings Allowance (SBA) - 3% 

3% a year on a straight-line basis over 33⅓ years, on qualifying construction, conversion and renovation expenditure on non-residential structures, where all construction contracts were signed on or after 29 October 2018. Land, planning costs, financing, legal fees, landscaping and anything covered by a grant are excluded, as is anything qualifying for plant and machinery allowances. A written Allowance Statement is a precondition of claiming - without one, there is no claim.

Research and Development Allowances (RDA) - 100% 

100% first-year relief on capital expenditure on facilities and equipment used for qualifying R&D. This includes buildings, which is unusual - RDA is the only route to immediate 100% relief on a structure. Widely overlooked, and directly relevant to any business already claiming R&D tax relief.

Land Remediation Relief - 150% 

150% relief on qualifying expenditure remediating contaminated or derelict land - contaminated soil and water, asbestos removal, radon, arsenic, invasive species such as Japanese knotweed. Loss-making companies can surrender losses for a 16% tax credit.

Freeports and Investment Zones - 100% 

100% first-year allowance on qualifying plant and machinery within a designated special tax site, plus an enhanced 10% SBA rate on qualifying structures.

Vehicles 

100% first-year allowances remain available on zero-emission cars and electric vehicle charge points until 31 March 2027 for companies and 5 April 2027 for unincorporated businesses.

Three situations account for most of the unclaimed value we encounter.

Commercial property acquisitions. The purchase price is a single figure. Within it sits qualifying plant and machinery that has never been separately identified, because no one apportioned the consideration. Extracting it requires a just and reasonable apportionment supported by survey and valuation evidence - not an estimate applied to the headline price.

Construction, fit-out and refurbishment. A final account or contract sum analysis is organised for commercial purposes, not tax ones. Splitting it correctly between full expensing, the 50% special rate allowance, SBA and non-qualifying expenditure requires the underlying cost detail to be interrogated line by line. Done properly, the difference between a good analysis and a superficial one is often material.

Historic expenditure never claimed. Where assets are still owned and allowances were never claimed, the position can generally still be corrected. Businesses that have moved accountant, grown quickly, or bought property without capital allowances advice frequently have years of unclaimed pool value available to them.

R&D tax relief covers revenue expenditure. Capital expenditure on R&D facilities, plant and equipment falls outside it entirely - and that is exactly what Research and Development Allowances exist for.

This is one of the more common gaps we see. A business claims R&D tax relief every year, has built or fitted out a laboratory, test facility, prototyping workshop or pilot line, and has never claimed RDA on any of it. The capital expenditure has been sitting in a pool attracting 18% (soon 14%) when 100% relief was available in the year it was incurred.

The interaction runs the other way too. Where grant funding has contributed to a building or facility, the grant-funded element is stripped out of the SBA claim, and the treatment needs to be consistent with how the grant has been handled in the R&D claim. Where an R&D facility is later repurposed, the RDA position changes. These are not edge cases, they are ordinary features of any business that both innovates and invests in premises.

Redline advises on capital allowances alongside R&D tax relief for the same reason we advise on Patent Box alongside it - the reliefs share a fact pattern. An adviser who already understands your projects, your facilities and your grant position is starting from a materially better place than one being briefed from scratch.

No section 198 election on a second-hand property purchase. 

This is the one that causes permanent loss. Where a commercial building is bought and the seller has, or could have, claimed allowances on the fixtures, the buyer can only claim if the seller has pooled the expenditure and the value has been fixed - normally by a joint section 198 election made within two years of the purchase. Miss it, and the fixtures allowances are gone for the buyer and every subsequent owner. The point to address it is during the transaction, in the CPSE responses and the sale documentation, not two years afterwards.

No SBA Allowance Statement. 

SBA cannot be claimed without a written Allowance Statement identifying the structure, the date of the earliest construction contract, the total qualifying costs and the date the building came into non-residential use. Buyers of used structures need a copy from the previous owner. It is a procedural requirement that is repeatedly overlooked, and without it the claim simply does not exist.

Superficial apportionment. 

Applying a percentage to a purchase price, or lifting figures from a valuation, is not an apportionment. HMRC is entitled to see the basis of the analysis. A claim that cannot be reconciled to survey evidence, cost data and the statutory categories is a weak claim regardless of how reasonable the headline number looks.

Costs claimed twice, or under the wrong allowance. 

SBA is expressly unavailable on anything qualifying for plant and machinery allowances, on land, and on grant-funded expenditure. Claims that double-count integral features across both regimes are a straightforward compliance failure.

Allowances allocated inefficiently. 

With a £1 million AIA, unlimited full expensing, a 50% special rate FYA and the new 40% FYA all in play, the order in which expenditure is allocated changes the outcome. AIA is generally best directed at special rate expenditure, since main pool expenditure often has full expensing available to it. Getting this wrong does not usually lose the relief - it delays it, sometimes by many years.

Disposal consequences ignored. 

Full expensing and the 50% FYA carry immediate balancing charges on disposal. SBA claimed is added to disposal proceeds for capital gains purposes. Neither is a reason not to claim, but both need to be understood before the claim is made rather than discovered afterwards.

We treat capital allowances the way we treat every other relief we advise on - as a technical exercise grounded in evidence, not a percentage applied to a spreadsheet.

That means establishing entitlement before anything else: reviewing the land agreements, purchase contracts, CPSEs and construction documentation to confirm who incurred the expenditure and who is entitled to claim on it.

It means interrogating the cost information properly. Where a claim involves property (an acquisition, a construction final account, a fit-out or a refurbishment) the apportionment is carried out by a chartered quantity surveyor working alongside our tax specialists, with a physical site survey and a written and photographic record of the assets identified. Cost analysis and tax analysis are different disciplines, and a defendable property claim needs both. An apportionment produced without survey evidence is an estimate, and it will be treated as one if HMRC looks at it.

And it means documenting the basis of the analysis to a standard that holds up if you are asked how the figures were arrived at - the same standard we apply to every R&D claim we prepare, for the same reason. Where a property transaction is in progress, the most valuable point to involve us is before completion, while the section 198 position can still be negotiated. Once contracts are exchanged without the allowances addressed, the options narrow considerably.

Where historic expenditure has never been reviewed, we will tell you honestly whether the exercise is worth undertaking before you commit to it. Not every fixed asset register conceals a claim. We work alongside your accountant, not in place of them. We prepare the analysis, the allowance statements, the elections and the supporting report. Your accountant reflects the figures in the CT600 or self-assessment return and retains control of your overall tax position.

We bought our premises years ago and never claimed anything. Is it too late?

Usually not, if you still own the property. There is no general time limit on bringing unclaimed plant and machinery expenditure into a pool, provided the entitlement conditions are met and the expenditure has not been claimed by anyone else. The critical exception is fixtures in a second-hand building bought after April 2014, where the seller's pooling obligation and a fixed value election were required at the time. We can establish which position applies from the purchase documentation.

Our accountant already claims capital allowances. What would you add?

Your accountant claims what appears on the fixed asset register, and does so correctly. What sits outside the fixed asset register - fixtures embedded within a property purchase price, or costs buried in a construction final account under headings like "M&E" or "builder's work" - requires a different exercise entirely, involving cost analysis and survey rather than bookkeeping. The two are complementary. We do not replace your accountant, and we do not review their work looking for fault.

Who actually carries out the survey and apportionment?

Property claims are prepared jointly. The entitlement review, the statutory analysis, the elections and the allowance statements are our work. The cost apportionment and site survey are carried out by a chartered quantity surveyor engaged by us on each project, whose survey record and valuation evidence sit behind the figures. You deal with Redline throughout, and the surveyor's work forms part of the claim file we hand over - so if the claim is ever questioned, the evidence supporting the apportionment is already documented rather than reconstructed after the fact.

We're buying a commercial building. When should we talk to you?

Before exchange. The section 198 election and the seller's pooling obligation are negotiated as part of the transaction, and the CPSE replies are where the information needed to assess the position comes from. Involving a capital allowances adviser after completion means working with whatever position the contract left you in, which is sometimes no position at all.

Does claiming capital allowances increase our risk of an HMRC enquiry?

A properly evidenced claim does not. A claim based on an unsupported apportionment, or one that double-counts expenditure across SBA and plant and machinery allowances, might. The distinction is whether the analysis can be explained and substantiated when asked. That is the standard we build to, and if a claim we have prepared is enquired into, we handle it.

We received a grant towards our new facility. Does that block a claim?

No, but it changes it. Expenditure met by a grant or contribution is excluded from SBA, and grant-funded expenditure needs careful treatment across the plant and machinery allowances too. It also needs to be consistent with how the grant has been treated in any R&D tax relief claim covering the same project. This is precisely the kind of interaction we deal with routinely.

Can we claim capital allowances and R&D tax relief on the same project?

Yes - they cover different expenditure. R&D tax relief covers revenue costs; Research and Development Allowances give 100% relief on the capital cost of R&D facilities and equipment, including buildings. What you cannot do is claim the same expenditure under both. Where a business is claiming R&D tax relief and has invested capital in R&D premises or plant, RDA is usually worth assessing.

If you own commercial property, have built or refurbished premises, or are in the middle of a property transaction, a short conversation will establish whether there is a claim worth pursuing.

No obligation. A straightforward assessment of entitlement and likely value, and an honest answer if the exercise isn't worth your time.

Contact us today to book a no-obligation conversation with one of our experts.

We'll help you understand your options and develop a plan that works for you.