Capital allowances: what to enter, and the AIA question we ask

Short version. Put the total capital allowances you are claiming for the period into the Capital allowances field in Tax adjustments. That total is what reduces your Corporation Tax, so include everything you are claiming. We then ask one follow-up question: whether all of it is Annual Investment Allowance on equipment your company bought during this period. Your answer does not change your tax by a penny. It only tells us which capital allowances boxes we are allowed to complete on the CT600.

What capital allowances are

When your company buys something that lasts, such as a laptop, tools, office furniture or a van, you cannot simply deduct the cost as an expense. Instead HMRC gives you tax relief through capital allowances. They take the place of the depreciation in your accounts, which is why depreciation is added back for tax and entered in a separate field.

Capital allowances reduce your taxable profit. They are a tax adjustment rather than a profit and loss expense, which is why they sit in the Tax adjustments section rather than in your expenses.

Annual Investment Allowance

The Annual Investment Allowance, usually shortened to AIA, is the most common kind. It lets you deduct the whole cost of qualifying equipment in the year you buy it, up to a limit of £1,000,000 a year. For most small companies a single equipment purchase is fully covered, so the allowance you claim is simply what you paid.

Typical AIA purchases are computers and laptops, tools and machinery, office furniture, and commercial vehicles such as vans. If your accounting period is shorter than twelve months the £1,000,000 limit is reduced proportionately, and we handle that for you.

The question we ask you

Once you enter a figure above zero we ask: is all of this Annual Investment Allowance on equipment your company bought during this period?

Answer Yes if you bought equipment, tools, computers, furniture or a van during the period and you are claiming the full cost. This is the usual case, and it lets us complete the Annual Investment Allowance box and the qualifying expenditure box on your return as well as the main pool box.

Answer No, or not all of it if any part of the claim is something else. We then complete the main pool box only, and leave the other two blank. Your deduction and your tax bill are exactly the same either way.

Cars, fixtures and older assets

There are three common reasons the answer is no.

Cars. Company cars do not qualify for the Annual Investment Allowance at all, whatever they cost. They get a writing down allowance instead, at a rate that depends on the car's CO2 emissions. Vans and other commercial vehicles are treated as ordinary equipment and do qualify.

Fixtures in a building. Things like electrical wiring, heating, air conditioning, lifts and other integral features are treated differently from ordinary equipment. They belong in a separate pool with its own rate and its own CT600 boxes.

Assets from earlier years. If you are claiming a writing down allowance on something the company bought in an earlier period, there is no new spending in this period to report, so the qualifying expenditure box would be wrong.

In all three cases the relief itself is unaffected. Enter the full amount you are claiming in the Capital allowances field and answer no to the follow-up question.

Which CT600 boxes we complete

If you answer yes, we complete box 690 (Annual Investment Allowance), box 705 (machinery and plant, main pool) and box 775 (qualifying expenditure on other machinery and plant). HMRC's guidance is that box 705 carries the total allowances including any Annual Investment Allowance claimed, so the same figure appearing in both 690 and 705 is correct and is not a double deduction.

If you answer no, we complete box 705 only. That box is the total main pool allowance and is accurate whatever the claim is made up of. Leaving the other boxes blank costs you nothing. Your allowance is still deducted in full and still shown in the tax computation we attach to your return.

If you are not sure

If you do not know whether your claim qualifies, enter 0 for now. You can come back to it before you file, and a return can be amended for twelve months after the filing deadline. If your claim involves a car or fixtures in a building and you would like us to check the treatment with you before you file, please get in touch.

If you later sell an asset you claimed capital allowances on, see balancing charges, which explains how HMRC claws back part of the relief.