Advanced Taxation (UK) · Investment and other expenditure that reduces tax liabilities

Capital Allowances for Plant and Machinery in ATX-UK

Updated 11 October 2026 · Fact-checked

Capital allowances give tax relief for spending on plant and machinery, because accounting depreciation is not deductible. You work through the main pool (18%) and special rate pool (6%), claim the annual investment allowance or a first-year allowance where available, and deduct disposal proceeds. The structures and buildings allowance gives 3% a year on qualifying buildings.

Understand Capital Allowances for Plant and Machinery

Accounting depreciation is added back when you adjust profits. The tax system replaces it with capital allowances. These are a fixed, statutory deduction from trading profit for qualifying capital spending.

Most plant and machinery goes into a pool. Each pool has a tax written down value (TWDV). You add new spending, deduct disposal proceeds, and then claim a writing down allowance (WDA) on the balance. The main pool gets 18% a year. The special rate pool gets 6% a year. Cars with CO2 emissions over 50 grams per kilometre go in the special rate pool. Cars with emissions of 1 to 50 grams per kilometre go in the main pool.

WDAs are slow, so the law gives faster relief. The annual investment allowance (AIA) gives 100% relief on up to £1,000,000 of qualifying spending a year. It is available to companies and unincorporated businesses, but not for cars. For companies only, a first-year allowance (FYA) of 100% applies to main pool spending. The tax tables list this as the main pool first year allowance of 100%. It is commonly called full expensing, but the tables do not use that term. A 50% FYA applies to special rate pool spending. A new car with zero CO2 emissions gets a 100% FYA. Expenditure not covered by AIA or an FYA goes into the pool and earns WDA.

The structures and buildings allowance (SBA) is separate from the pools. It gives a straight line 3% a year on qualifying construction or renovation cost. Land cost does not qualify. Because the rate is fixed, there is no pool and no balancing adjustment on sale.

Planning is mostly about which relief to use on which spending, and when the spending is incurred. Spending inside the accounting period gets relief for that period. Spending just after the year end loses a year of relief.

Key rules to remember

Main pool WDA: WDA = 18% × (TWDV b/f + additions not relieved by AIA or FYA − disposal proceeds); Given in the ACCA tax tables. Reduce or increase for a short or long period (months ÷ 12).
Special rate pool WDA: WDA = 6% × (TWDV b/f + additions not relieved by AIA or FYA − disposal proceeds); Covers long-life assets, integral features and cars with CO2 emissions over 50 g/km.
Annual investment allowance: AIA = 100% × qualifying spending, up to £1,000,000 per year; Limit is reduced or increased for a short or long period. Not available on cars. Shared between connected businesses or groups.
First-year allowances (companies): Main pool: 100% (commonly called full expensing). Special rate pool: 50%; Companies only. The tax tables give these as the main pool and special rate pool first year allowances. Not available for cars (apart from the zero-emission car FYA). Use AIA on special rate spending first, because it earns the higher 100% relief there.
Zero-emission and car rules: New zero-emission car: 100% FYA. Second-hand zero-emission car: 18%. CO2 1–50 g/km: 18%. CO2 over 50 g/km: 6%; Cars never qualify for AIA.
Disposals: Deduct the lower of sale proceeds and original cost from the pool; A balancing charge arises when disposal proceeds exceed the pool balance (TWDV b/f plus additions not relieved by AIA or FYA). No WDA is given in that period. If the business ceases, a balancing allowance or charge arises and no WDA or AIA is given in that final period.
Structures and buildings allowance: SBA = 3% × qualifying cost per year (straight line); Excludes land. Starts when the structure is first brought into use. A buyer continues with the remaining allowances.

How to solve Capital Allowances for Plant and Machinery questions

Use the same layout for every question. Set out the pools first, then decide the relief. Show every working because marks are given for method.

1Identify the taxpayer (company or unincorporated business), the length of the accounting period, and whether any cars or private use assets are involved.
2Split each addition into main pool, special rate pool, a zero-emission car, or non-qualifying (such as land or a building that falls under the SBA).
3Set up each pool with the TWDV brought forward. Deduct disposal proceeds, limited to the original cost.
4Allocate the AIA first to special rate pool additions, then to main pool additions. Adjust the AIA limit if the period is not 12 months.
5For a company, claim full expensing (100%) on remaining main pool additions and a 50% FYA on remaining special rate additions. For an unincorporated business, put the balance into the pools.
6Compute the WDA at 18% and 6% on the pool balances after the AIA and FYAs. Deal with any balancing allowance or charge. Check whether a pool of £1,000 or less can be written off in full.
7Calculate the SBA separately at 3% of qualifying cost for the period in use. Total all allowances and deduct them from trading profit.
8If the question asks for planning, compare alternatives numerically and state any assumption, such as moving the purchase date or choosing how much to claim.

Quickest way: AIA-first allocation grid

When to use it: Use this when a question gives several additions and asks you to compute or maximise allowances in limited time.

Draw two columns, main pool and special rate pool, with rows for TWDV b/f, additions, AIA, FYA, disposals and WDA.
Put AIA on special rate additions first, then main pool additions, until the £1,000,000 limit is used.
For a company, apply the 100% and 50% FYAs to anything left. Skip the FYA for an unincorporated business.
Take the WDA only on what remains in each pool, at 18% and 6%.
Add the totals across the grid, then add the SBA. Check that the total does not exceed spending plus brought forward balances.

Common mistakes in Capital Allowances for Plant and Machinery

Claiming AIA or full expensing on cars.
Students treat a car as ordinary plant.
Fix: Cars never get AIA. Only a new zero-emission car gets a 100% FYA. Other cars go into a pool by CO2 emissions.
Giving full expensing to a sole trader or partnership.
Students confuse the company FYAs with the AIA.
Fix: State the taxpayer first. Full expensing and the 50% FYA are for companies only. Unincorporated businesses use the AIA, with the balance in the pools.
Using the AIA on the main pool before the special rate pool.
The main pool is listed first, so it is dealt with first.
Fix: AIA first on special rate spending, because that spending otherwise only earns 6% a year. For a company, full expensing already covers the main pool.
Forgetting to adjust the AIA limit or WDA for a short or long period.
The tax table shows annual amounts and students apply them unchanged.
Fix: Time apportion the £1,000,000 limit and the WDA by months ÷ 12, as the supplementary instructions require apportionments to the nearest month.
Deducting full sale proceeds when they exceed original cost.
The disposal is treated like a capital gain.
Fix: The deduction is the lower of proceeds and cost. Any gain over cost is a chargeable gain, not a pool adjustment. If the deduction then exceeds the pool balance after additions, a balancing charge arises and no WDA is given in that period.
Including land in the SBA, or treating the SBA as a pool.
Students blend the SBA with the plant and machinery rules.
Fix: SBA is 3% of qualifying construction cost only, with no land and no pool. It starts when the structure is brought into use.

Worked examples

Example 1

Bravo Ltd, a trading company, prepares accounts for the year ended 31 March 2026. The main pool TWDV brought forward is £40,000. During the year it buys machinery for £300,000 (main pool) and integral features for £120,000 (special rate pool). It sells a machine for £10,000 (original cost £25,000) from the main pool. Compute the capital allowances, choosing the best relief for each type of spending.

Show the solution

Period is 12 months, so the AIA limit is £1,000,000 and no apportionment is needed.
Special rate additions of £120,000: compare the reliefs. The AIA gives £120,000. The 50% FYA gives £60,000, and WDA at 6% on the other £60,000 adds £3,600, so £63,600 in total. The AIA is better, so claim AIA of £120,000. The special rate pool then has no balance and no WDA.
Main pool additions of £300,000: claim full expensing, a 100% FYA, of £300,000. Using the AIA here as well would give no extra relief, because the FYA already gives 100%. £880,000 of the AIA limit is unused.
Main pool: the disposal proceeds of £10,000 are deducted from the pool after the FYA has taken the additions out. £40,000 b/f + £300,000 additions − £300,000 FYA − £10,000 disposal = £30,000.
WDA at 18% on £30,000 = £5,400.
Total allowances = £120,000 (AIA) + £300,000 (FYA) + £5,400 (WDA) = £425,400.

Answer: Total capital allowances for the year ended 31 March 2026 are £425,400. The closing main pool TWDV is £30,000 − £5,400 = £24,600.

Example 2

Chen, a sole trader, prepares accounts for the year ended 31 March 2026. The main pool TWDV brought forward is £20,000 and the special rate pool TWDV brought forward is £8,000. He buys machinery of £700,000 (main pool) and integral features of £500,000 (special rate pool). Compute the allowances and show why the order in which the AIA is allocated matters.

Show the solution

Chen is unincorporated, so there is no full expensing and no 50% FYA. The AIA limit is £1,000,000 for a 12-month period.
Best allocation: AIA of £500,000 on special rate additions first, then £500,000 on main pool additions. Total AIA = £1,000,000.
Main pool: £20,000 b/f + (£700,000 − £500,000) = £220,000. WDA at 18% = £39,600.
Special rate pool: £8,000 b/f + nil additions after AIA = £8,000. WDA at 6% = £480.
Total allowances = £1,000,000 + £39,600 + £480 = £1,040,080.
Alternative allocation: AIA of £700,000 on the main pool and £300,000 on the special rate pool. Main pool = £20,000, WDA = £3,600. Special rate pool = £8,000 + £200,000 = £208,000, WDA at 6% = £12,480.
Total under the alternative = £1,000,000 + £3,600 + £12,480 = £1,016,080. This is £24,000 lower.

Answer: Allocating the AIA to the special rate pool first gives total allowances of £1,040,080. That is £24,000 more than the alternative of £1,016,080, because unrelieved special rate spending only earns 6%.

Exam tips

State the taxpayer type and the period length in the first line. Many marks depend on whether full expensing applies and on whether the AIA needs apportioning.
Show the pool layout in full, even for simple pools. The examining team awards marks for each correct figure and for the method.
In planning questions, give a number, such as the tax saved by buying before the year end, and then state the advice in a sentence. Mention cash flow and the effect on a group or connected business that shares the AIA.
The tax tables supplied in the exam give the WDA rates, the AIA limit, the FYA percentages (100% main pool, 50% special rate pool) and the SBA rate. Know where to find them and take the figures from the tables.
For the SBA, give only qualifying construction cost, exclude land, and apportion the 3% for the months in use in the period.

Practice questions from Investment and other expenditure that reduces tax liabilities

Capital Allowances for Plant and Machinery 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 on Let Property and Structures

Capital Allowances for Plant and Machinery: frequently asked questions

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

The AIA is available to companies and unincorporated businesses. It gives 100% relief on up to £1,000,000 of qualifying spending a year. Full expensing is the common name for the 100% main pool first-year allowance, which is for companies only and has no upper limit. The tax tables list it as the main pool first year allowance of 100%. It is not available for cars.

How do I calculate the writing down allowance on the main pool and special rate pool?

Take the TWDV brought forward, add additions not relieved by AIA or an FYA, and deduct disposal proceeds (up to cost). Then multiply by 18% for the main pool or 6% for the special rate pool. Adjust for periods that are not 12 months.

How does the structures and buildings allowance work?

It gives a straight line 3% a year on qualifying construction or renovation cost, not including land. It starts when the structure is first brought into use. There are no pools and no balancing adjustments on sale. A buyer takes over the remaining allowance.

How is this topic tested in the ATX-UK exam?

It usually appears inside a longer scenario, such as a company expanding or a business choosing when to buy assets. You compute allowances, recommend which reliefs to use and compare dates or entity types. Use the supplied tax tables for rates and show every working.