HMRC Capital Allowances Update: What Businesses Need to Know
HMRC has recently clarified several points in its capital allowances guidance following consultations with professional bodies. These updates aim to reduce uncertainty and make claims easier for businesses to apply. While some ambiguity remains due to the principle-based legislation, the guidance provides useful improvements for companies planning capital investment.
For businesses in South Wales investing in machinery, property improvements, or technology, staying informed is essential to ensure claims are accurate, compliant, and tax-efficient.
What Are Capital Allowances?
Capital allowances let businesses deduct the cost of qualifying assets from taxable profits. This includes machinery, equipment, fixtures, vehicles, and certain software.
Recent changes include:
Full expensing (since April 2023): Companies can deduct 100% of the cost of qualifying new and unused plant and machinery in the year of purchase.
Special rate first-year allowance: 50% relief for certain assets.
Annual Investment Allowance (AIA): Sole traders and partnerships can still claim 100% relief on qualifying expenditure up to £1 million.
These reliefs help businesses reduce their tax bills while investing in growth.
Key HMRC Updates
Clarifying “Unused and Not Second-Hand”
HMRC’s guidance (CA23174AB) now provides clear examples of what qualifies:
New parts added to second-hand assets qualify only for the new parts.
Dismantled second-hand assets reused to create a new item may count as new and unused.
Expenditure on new software or improvements to existing software may also qualify.
Fixtures vs. Chattels
Understanding the distinction is vital, particularly in property transactions. HMRC now gives clearer examples:
A radiator is a chattel until installed, then becomes a fixture.
Guidance on section 198 elections helps allocate plant and machinery values between buyers and sellers.
Other Technical Updates
Expanded guidance on long-life assets (CA23700)
Clarification for REITs claiming first-year allowances
Removal of outdated references to older technologies
Refreshed case law examples, including SSE Generation (CA22005)
Improved explanation of how different plant and machinery allowances interact
Areas Still Under Review
Some areas remain under consultation, including:
Treatment of leasing arrangements
Entitlement of employees and office holders
Definition of plant in legislation
Treatment of contributions to expenditure
Further updates from HMRC are expected.
What This Means for Your Business
These changes affect any company planning capital investment in:
Machinery and equipment
Property fit-outs
IT infrastructure
Businesses should:
Confirm expenditure is genuinely new and unused
Review classification of fixtures and chattels
Ensure section 198 elections and supporting documentation are completed correctly
Proper planning now can maximise tax relief and avoid future compliance issues.
How We Can Help
At Alera Accounting & Advisory, our South Wales-based team helps businesses across industries claim capital allowances efficiently. We can:
Review your investment plans
Check past claims against the latest HMRC guidance
Ensure claims are tax-efficient and compliant
If your business is planning significant capital expenditure, now is the time to act. Contact our team today to make sure you’re getting the full benefit of available reliefs.