Advanced Taxation (UK) · Income tax: income from self-employment

Capital Allowances and Structures and Buildings Allowance in ATX-UK

Updated 11 October 2026 · Fact-checked

Capital allowances give tax relief for spending on plant and machinery. Put assets into the main pool (18%) or special rate pool (6%). Claim the annual investment allowance (100% up to £1,000,000) or, for companies, first year allowances. Take writing down allowances on what is left. On cessation, balancing adjustments apply. Structures and buildings earn 3% straight line.

Understand Capital Allowances and Structures and Buildings Allowance

Accounting depreciation is not deductible when you compute taxable trading profit. Instead, the tax system gives its own relief for capital spending on plant and machinery. These are capital allowances. You add back depreciation in the adjustment of profits, then deduct capital allowances.

Most plant and machinery goes into a main pool, which gets a writing down allowance (WDA) of 18% on the reducing balance. Integral features and cars with CO2 emissions over 50 grams per kilometre go into the special rate pool, which gets 6%. Cars with CO2 emissions between 1 and 50 g/km get 18%, so they go into the main pool. New cars with zero emissions get 100%.

To speed up relief, you can claim the annual investment allowance (AIA). It gives 100% relief on qualifying spending up to £1,000,000 a year. Cars do not qualify. Companies can also claim first year allowances: 100% on main pool additions (often called full expensing) and 50% on special rate pool additions. Sole traders and partnerships do not get these enhanced allowances. They rely on the AIA and then WDAs.

When you sell an asset, you deduct the proceeds, limited to original cost, from the pool. If you stop trading, there is no WDA and no AIA in the final period. Whatever is left in each pool after deducting proceeds is a balancing allowance (if positive) or a balancing charge (if negative).

The structures and buildings allowance (SBA) is separate. It gives 3% straight line relief on the construction cost of qualifying non-residential structures and buildings. It does not cover land cost. You must be able to explain what qualifies, so read the scenario carefully.

Key rules to remember

Main pool WDA: WDA = 18% × (b/f balance + additions not covered by AIA or FYA − disposal proceeds); Reducing balance. Pro-rate for a period that is not 12 months.
Special rate pool WDA: WDA = 6% × (b/f balance + additions not covered by AIA or FYA − disposal proceeds); Integral features and cars with CO2 emissions over 50 g/km. Use a separate pool.
Annual investment allowance: AIA = 100% × qualifying expenditure, up to £1,000,000 per year; Not available on cars. Time-apportion the limit for a period that is not 12 months. Allocate it first to special rate additions.
Company first year allowances: Main pool additions: 100%. Special rate pool additions: 50%; Companies only. Sole traders and partnerships cannot claim these.
Car rates: New zero-emission 100%; second-hand zero-emission 18%; CO2 1-50 g/km 18%; CO2 over 50 g/km 6%; The 18% rate applies in the main pool and the 6% rate in the special rate pool. Private use by a sole trader needs a separate asset column.
Balancing adjustment on cessation: Pool balance − proceeds (each limited to cost) → positive = balancing allowance; negative = balancing charge; Do this pool by pool. No WDA or AIA in the final period.
Structures and buildings allowance: SBA = 3% × qualifying construction cost per year, straight line; Land is excluded. Cost is spread over time rather than reduced on a reducing balance.

How to solve Capital Allowances and Structures and Buildings Allowance questions

Use the same layout every time. It keeps your workings tidy and earns the marks for method.

1Note the accounting period and its length. Pro-rate the WDA and the AIA limit if it is not 12 months.
2Set up columns for the main pool, the special rate pool and any single-asset items such as cars with private use.
3Enter the b/f tax written down value, then additions, then disposal proceeds (limited to cost).
4Decide which additions qualify for the AIA. Cars do not. Allocate the AIA first to special rate pool additions, because those would otherwise only earn 6%. For companies, apply first year allowances to the rest.
5Calculate the WDA on the pool balance after additions and disposals. Use 18% for the main pool and 6% for the special rate pool.
6If the business ceases, give no WDA or AIA in the final period. Compute the balancing allowance or charge for each pool.
7Add up the AIA, the first year allowances, the WDAs and any balancing allowances, and deduct any balancing charges. Carry the figure to the adjustment of profits. Add the SBA separately if there is qualifying construction cost.
8Write down the c/f balance and give a brief comment if the question asks for advice.

Quickest way: Pool grid with AIA first

When to use it: Use it when a question lists several additions and disposals in one period and you have little time.

Draw three columns: AIA, main pool, special rate pool.
Put each addition in its column. Cars with CO2 over 50 g/km go in the special rate pool but get no AIA.
Allocate the AIA to special rate additions first, then to main pool additions, until you reach the limit.
Move the unrelieved balance into the pool, deduct disposals, then multiply by 18% or 6%.
Total the three columns once, and write the c/f figure underneath.

Common mistakes in Capital Allowances and Structures and Buildings Allowance

Giving WDA or AIA in the final period of trade.
Students apply the normal pool routine automatically.
Fix: On cessation, skip the WDA and AIA. Deduct proceeds and clear the pool with a balancing adjustment.
Claiming the AIA on a car.
The car looks like an ordinary addition to the pool.
Fix: Cars do not qualify for the AIA. Check the CO2 emissions and use the car rates instead.
Giving a sole trader the 100% first year allowance for main pool additions.
Students mix up the company rules with the unincorporated rules.
Fix: Full expensing and the 50% special rate first year allowance are for companies only. A sole trader uses the AIA and then WDAs.
Putting the AIA against main pool additions and leaving special rate additions to earn 6%.
Students fill the AIA in the order the additions are listed.
Fix: Use the AIA on special rate additions first when it does not cover everything. This maximises the relief.
Using full sale proceeds when they exceed original cost.
Students forget the cap on disposal value.
Fix: Deduct the lower of proceeds and original cost. Any excess is a chargeable gain, not a capital allowances item.
Including the land cost in the structures and buildings allowance.
Students take the whole property price as the base.
Fix: Use the qualifying construction cost only and exclude the land. Apply 3% straight line.

Worked examples

Example 1

Amir is a sole trader with a 12-month period ended 31 March 2026. The main pool b/f is £40,000. He bought machinery for £900,000, integral features for £250,000 and a car with CO2 emissions of 120 g/km for £20,000. He sold plant from the main pool for £10,000 (less than its cost). Compute the capital allowances.

Show the solution

The annual investment allowance limit is £1,000,000. Cars do not qualify, so the car gets no AIA.
Allocate the AIA first to the integral features: £250,000. The remaining AIA is £750,000, which goes against the machinery.
The machinery not covered by the AIA is £900,000 − £750,000 = £150,000, and this goes into the main pool.
Main pool: £40,000 + £150,000 − £10,000 = £180,000. WDA at 18% = £32,400. The c/f is £147,600.
Special rate pool: the integral features were fully covered by the AIA. The car at £20,000 goes in the pool and the WDA at 6% = £1,200. The c/f is £18,800.
Total allowances: £1,000,000 + £32,400 + £1,200 = £1,033,600.

Answer: Total capital allowances are £1,033,600. The c/f balances are £147,600 in the main pool and £18,800 in the special rate pool.

Example 2

Brenda ceased trading on 31 December 2025. The main pool tax written down value was £30,000 and the special rate pool was £12,000. She sold the main pool plant for £22,000 (below cost). She sold the special rate plant for £15,000, and its original cost was £13,000. Compute the balancing adjustments.

Show the solution

In the final period there is no WDA and no AIA.
Main pool: £30,000 − £22,000 = £8,000 balancing allowance.
Special rate pool: proceeds are limited to cost, so use £13,000. £12,000 − £13,000 = −£1,000, a balancing charge of £1,000.
Net effect: £8,000 allowance − £1,000 charge = £7,000 net deduction from the final period's profits.

Answer: A balancing allowance of £8,000 arises in the main pool and a balancing charge of £1,000 in the special rate pool. The net deduction is £7,000.

Exam tips

Show every pool column and every number. Marks are given for method, even if one figure is wrong.
Read the entity type first. Full expensing only applies to companies. For a sole trader, quote the AIA and WDA.
Look at each car's CO2 emissions. They decide the rate, the pool and whether any first year allowance applies.
On a cessation question, state clearly that there is no WDA or AIA in the final period, and cap proceeds at cost.
For the SBA, say what qualifies, exclude land, and apply 3% straight line to the construction cost.

Practice questions from Income tax: income from self-employment

Capital Allowances and Structures and Buildings Allowance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsCapital Allowances Interaction with Company Disposals

Capital Allowances and Structures and Buildings Allowance: frequently asked questions

What is the difference between the annual investment allowance and full expensing?

The AIA gives 100% relief up to £1,000,000 a year to most businesses, but not on cars. Full expensing is the 100% first year allowance on main pool additions for companies, and it has no £1,000,000 cap in the tables. Sole traders and partnerships cannot claim it.

How do I decide between the main pool and the special rate pool?

Most plant and machinery goes in the main pool at 18%. Integral features and cars with CO2 emissions over 50 g/km go in the special rate pool at 6%. Cars with emissions between 1 and 50 g/km earn 18%.

When do balancing allowances and charges arise?

They arise on cessation. You deduct the disposal proceeds (limited to cost) from each pool. A positive balance is a balancing allowance and a negative balance is a balancing charge.

How does the structures and buildings allowance work?

It gives 3% a year, straight line, on the construction cost of qualifying structures and buildings. It excludes land. It runs alongside plant and machinery allowances, but you calculate it separately.

Do I need to memorise the allowance rates for the exam?

The rates are in the tax tables provided in the exam, but you should know where they are and how to apply them. Practising with the tables helps you work quickly.