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.
Related terms
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.
A Research and Development Allowance (RDA) is a separate 100% first-year relief for capital expenditure on assets used directly for R&D, such as laboratory equipment or specialist machinery. It sits outside the standard capital allowances regime and outside the revenue R&D tax credit claim, which excludes capital costs entirely.
Capital allowances are covered by HMRC's own Capital Allowances Manual (gov.uk/hmrc-internal-manuals/capital-allowances-manual), a separate publication from the CIRD Manual that governs the R&D tax relief schemes. The two reliefs are administered under different guidance even where a company claims both in the same accounting period.
Usually not on the same cost. Capital expenditure on assets used for R&D, such as lab equipment or specialist machinery, is generally directed to the 100% first-year Research and Development Allowance rather than the standard capital allowances regime, to avoid claiming the same cost under two different reliefs.