Definition
Capital allowances are a statutory tax relief that allows UK businesses to deduct the cost of qualifying capital expenditure from their taxable profits. The most relevant categories for commercial property are plant and machinery allowances, integral features, structures and buildings allowances, and the full expensing regime for main rate plant introduced in 2023. Capital allowances sit alongside, and do not overlap with, R&D tax relief, though the Research and Development Allowances regime provides a 100% first-year allowance for qualifying R&D capital spend.
How HMRC defines it
The framework is set out in the Capital Allowances Act 2001 and detailed in HMRC's Capital Allowances manual from CA11000 onwards. HMRC guidance on Research and Development Allowances specifically is at CA60000. Eligible capital expenditure for R&D purposes is addressed at CIRD81810.
Practical example
A manufacturing SME acquires a freehold factory for £2,500,000. A capital allowances survey identifies £400,000 of plant, machinery and integral features embedded in the building. This amount attracts writing down allowances or the Annual Investment Allowance, reducing the company's taxable profit in the relevant period. The identification is independent of any R&D claim the company may also make.