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What are capital allowances?

Capital allowances are the means by which tax relief is given for some (but not all) capital expenditure. They are effectively a standardised tax-deductible version of depreciation or amortisation broadly intended to give tax relief which reflects the economic lives of business assets. In an income or corporation tax return, capital allowances replace accounting depreciation, which is not an allowable deduction for tax purposes.

Not all assets qualify for allowances. For example, expenditure on land does not qualify. By far the most common capital allowances are those for plant and machinery. The meaning of plant and machinery for capital allowance purposes is explained in Practice Note: Plant and machinery allowances—definition of plant and machinery. Since October 2018, an allowance has been given in respect of certain expenditure on structures and buildings or parts of them where their construction is treated as beginning on or after 29 October 2018, see Practice Note: Structures and buildings allowances.

Capital allowances can give tax relief in full at the time the expenditure