Capital Allowances

As we have said on this blog many times, cash flow is king. The most successful businesses know exactly how to manage their cash flows. One way to do that is to ensure you are fully utilising your Capital Allowances when you submit your annual accounts.

What are Capital Allowances?

According to HMRC’s website:

You can claim capital allowances when you buy assets that you keep to use in your business, for example:

  • Equipment
  • Machinery
  • Business vehicles, for example cars, vans or lorries

These are known as plant and machinery.

You can deduct some or all of the value of the item from your profits before you pay tax.

Capital allowances are available to Sole Traders as well as businesses up to to larger Limited Companies. The classification of each item – as defined by HMRC – will determine whether you are able to claim the full value of an item or a percentage of it.

The key message is do not miss out.

The Annual Investment Amount has temporarily increased to £1 million between 1 January 2019 and 31 December 2020.

Annual investment allowance

You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.

It’s important to note that you cannot claim for items which you already owned and used for other reasons (i.e personal use). The item must have been purchased to be used for the business.

First-year allowances

If you buy an asset that qualifies for first-year allowances, you can deduct the full cost from your profits before tax. This first-year allowance is also known as an ‘enhanced capital allowance’ and is available over and above the standard AIA amount.

Eligible item categories for the first-year allowance are:

  • Energy
  • Water-efficient equipment
  • Certain types of new cars with low CO2 emissions
  • Energy and water-saving equipment
  • New zero-emissions goods vehicles


By using your allowances correctly, it will reduce your Net Profit and in turn reduce the amount you need to pay in tax to HMRC. Improving very much needed cash flow.

Making sure you take advantage of these situations is crucial to running a successful business and keeping your tax costs down.

CJM are experts in Capital Allowances and have helped clients maximise their use of them for many years. 

If you are managing a project with new assets being purchased, then we are very happy to have an initial discussion with you and see when the right time to buy, how best to utilise your Capital Allowances and how this can radically improve your cash flows.

Contact to see how we can support your business.