Capital allowances: a practical guide for UK businesses

Capital allowances are a form of tax relief available for expenditure incurred on capital assets bought for use in a business.

Why are capital allowances important?
In general, the depreciation of assets included as an expense in a business’s accounts cannot be used to reduce the business’s profits for tax purposes. This is because it’s a capital rather than revenue expense. Instead, tax relief is given through capital allowances as a deduction against taxable profits.

Who can claim capital allowances?
Capital allowances are available to companies, partnerships and individuals if their trading profits are chargeable to UK corporation or income tax.

For partnerships and individuals using the cash basis to prepare their accounts (instead of the traditional accruals basis), they usually only need to claim capital allowances on cars as the cost of most capital equipment can be treated as an expense for tax purposes.