Quick answer: Capital allowances let UK businesses deduct qualifying capital expenditure, such as plant, machinery and integral features, from taxable profits. They sit alongside R&D tax relief without overlapping it, though the Research and Development Allowances regime gives a 100% first-year allowance for qualifying R&D capital spend.
What are capital allowances?
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 does the Capital Allowances Act framework apply?
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.
What do capital allowances look like in practice?
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.
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Frequently asked questions
Capital allowances are a statutory tax relief that lets UK businesses deduct the cost of qualifying capital expenditure, such as plant and machinery, integral features and structures and buildings, from their taxable profits.
No. Capital allowances sit alongside R&D tax relief and do not overlap with it, though the Research and Development Allowances regime provides a separate 100% first-year allowance for qualifying R&D capital spend.
The most relevant categories are plant and machinery allowances, integral features, structures and buildings allowances, and the full expensing regime for main rate plant introduced in 2023.