1. Capital allowances Capital Allowances are a tax version of depreciation and replace the disallowed depreciation charge
in the adjustment of profits, giving tax relief in respect of expenditure incurred on the cost of
qualifying plant and machinery and (see later in this chapter) a newly introduced Structures and
Buildings Allowance (SBA) on the qualifying cost of a qualifying commercial building.
Plant is generally defined as assets that perform an active function in the business – something with
which the trade is carried on and will include o
ffi
ce furniture and equipment including moveable
o
ffi
ce partitioning. Machinery will include motor vehicles and computers, including building
alterations necessary for the installation of plant and machinery.
2. Capital Allowance Computations for Plant & Machinery Capital allowance computations will be prepared for the accounting period of the business not the
tax year and will be deducted from the adjusted trading profit of that accounting period.
2.1. There are 3 types of capital allowance available on the qualifying cost of qualifying plant and machinery. They will be given to you in the tax tables. (a) Annual Investment Allowance (AIA) The current annual investment allowance (AIA) limit of £1,000,000 has been extended until 31
March 2023.
The AIA provides an allowance of 100% for the first £1,000,000 of expenditure on plant and
machinery in a 12 month period.
Any expenditure in excess of the £1,000,000 limit qualifies for writing down allowances (WDA)
as normal. The AIA applies to all expenditure on plant and machinery
except cars. The
£1,000,000 limit is proportionally reduced or increased where a period of account is shorter or
longer than 12 months.
For example, for the three-month period ended 31 December 2022, the AIA limit would be
£250,000 (1,000,000 x 3/12).
