Question 1

What are UK Capital Allowances?

Accepted Answer

Capital Allowances are the UK tax system's equivalent of depreciation. They allow businesses to deduct the cost of qualifying capital assets from taxable profits. Unlike accounting depreciation, capital allowances follow specific HMRC rules and rates. The main types are the Annual Investment Allowance (AIA), Writing Down Allowance (WDA), and Full Expensing.

Question 2

What is the Annual Investment Allowance (AIA)?

Accepted Answer

The AIA allows businesses to deduct 100% of qualifying plant and machinery costs in the year of purchase, up to a permanent annual limit of £1,000,000. This applies to most tangible assets used in business but excludes cars. AIA is available to sole traders, partnerships, and companies, making it one of the most generous first-year tax reliefs in the UK.

Question 3

How does Writing Down Allowance (WDA) work?

Accepted Answer

WDA applies to assets that exceed the AIA limit or are not eligible for it. Assets are grouped into pools: the Main Pool at 14% per year (reduced from 18% effective April 2026) covers most plant and machinery, while the Special Rate Pool (6% per year) covers long-life assets, integral building features, and high-emission cars. For accounting periods straddling the April 2026 changeover, a hybrid rate applies proportionally. WDA uses the reducing-balance method, so the allowance decreases each year.

Question 4

What is Full Expensing for UK businesses?

Accepted Answer

Full Expensing, made permanent from April 2023, allows companies (not sole traders) to deduct 100% of qualifying main-rate plant and machinery in the year of purchase with no annual cap. Special-rate assets qualify for a 50% first-year allowance. This applies only to new (not second-hand) assets and is one of the most competitive capital investment incentives in the developed world.

Question 5

How are cars treated for UK capital allowances?

Accepted Answer

Cars follow special rules. New zero-emission cars qualify for 100% First Year Allowance. Cars with CO2 emissions of 50 g/km or less go into the Main Pool (14% WDA from April 2026, previously 18%). Cars with emissions above 50 g/km go into the Special Rate Pool (6% WDA). Second-hand cars never qualify for AIA or Full Expensing. Electric vehicle charge points qualify for 100% first-year allowance, extended through March 2027. The new 40% First Year Allowance, effective since January 2026, is now available for qualifying main-rate expenditure including by sole traders, partnerships, and for leasing assets.

UK Depreciation

Frequently Asked Questions

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UK Depreciation

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UK Depreciation

Frequently Asked Questions

1What are UK Capital Allowances?

2What is the Annual Investment Allowance (AIA)?

3How does Writing Down Allowance (WDA) work?

4What is Full Expensing for UK businesses?

5How are cars treated for UK capital allowances?

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UK Depreciation

Frequently Asked Questions

1What are UK Capital Allowances?

2What is the Annual Investment Allowance (AIA)?

3How does Writing Down Allowance (WDA) work?

4What is Full Expensing for UK businesses?

5How are cars treated for UK capital allowances?

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