If your business buys equipment, vehicles, machinery, or other assets, you’re probably entitled to tax relief on that spending. But the rules around capital allowances aren’t always intuitive, and getting them wrong means you’re either paying more tax than you need to or claiming things you shouldn’t be.
This guide breaks down the main types of capital allowances available to NI businesses, explains what you can claim and when, and walks through a practical example so you can see how the numbers actually work.
What are capital allowances?
When your business buys something that it’ll use for several years (a van, a piece of machinery, office furniture, computer equipment), you can’t simply deduct the full cost from your profits in the year you buy it. That’s because it’s capital expenditure, not a day-to-day running cost.
Capital allowances are the mechanism HMRC uses to let you claim tax relief on these purchases. Instead of deducting the cost all at once (in most cases), you spread the deduction over time, or use specific reliefs that let you claim more upfront.
The key thing to understand: capital allowances reduce your taxable profits. If your company pays corporation tax at 25% and you claim £100,000 of capital allowances, that’s £25,000 off your tax bill. Real money.
Annual Investment Allowance (AIA)
The AIA is the most straightforward capital allowance and the one most NI businesses should think about first.
Current threshold: £1,000,000 per year.
That means your business can deduct up to £1 million of qualifying capital expenditure from its taxable profits in the year you spend it. For the vast majority of NI businesses, this covers everything you’ll buy in a year.
What qualifies for AIA:
- Plant and machinery
- Office equipment and furniture
- Computer hardware
- Commercial vehicles (vans, lorries, not cars)
- Tools and equipment
- Certain fixtures in commercial buildings (heating, lighting, electrical systems)
What doesn’t qualify:
- Cars (they have their own rules)
- Items bought to lease out
- Buildings themselves (there’s a separate allowance for that)
- Land
Important: The £1M AIA limit is shared across associated companies. If you run multiple companies under common control, the group shares one £1M allowance, not one per company. Get this wrong and HMRC will correct it, with interest.
Full expensing (companies only)
From April 2023, the government introduced full expensing for companies investing in plant and machinery. This was made permanent from April 2024.
Full expensing lets companies deduct 100% of the cost of qualifying plant and machinery from taxable profits in the year of purchase. For most companies, this overlaps with AIA, but full expensing has no annual cap, which makes it relevant for larger investments exceeding £1 million.
| Relief | Annual cap | Who can claim | Applies to |
|---|---|---|---|
| AIA | £1,000,000 | Companies and unincorporated businesses | Most plant and machinery |
| Full expensing (100%) | No cap | Companies only | Main pool plant and machinery |
| First year allowance (50%) | No cap | Companies only | Special rate pool assets |
Key distinction: Full expensing is only available to companies (limited companies, not sole traders or partnerships). If you’re unincorporated, you’re relying on AIA and writing down allowances.
Writing down allowances (WDA)
For spending that exceeds your AIA, or for assets that don’t qualify for full expensing, writing down allowances let you claim a percentage of the remaining value each year.
There are two pools:
| Pool | Rate | Common assets |
|---|---|---|
| Main pool | 18% per year (reducing balance) | Most plant and machinery, office equipment, commercial vehicles, computer hardware |
| Special rate pool | 6% per year (reducing balance) | Long-life assets (25+ year life), thermal insulation, integral features (lifts, heating, electrical, air conditioning), cars with CO2 emissions over 50g/km |
The reducing balance method means you claim the percentage on the remaining value, not the original cost. So a £10,000 asset in the main pool gives you £1,800 relief in year one, then 18% of £8,200 (= £1,476) in year two, and so on.
Common assets and which pool they fall into
| Asset | Pool | Rate |
|---|---|---|
| Desks, chairs, shelving | Main | 18% |
| Computers and laptops | Main | 18% |
| Vans and commercial vehicles | Main | 18% |
| Manufacturing machinery | Main | 18% |
| Air conditioning systems | Special rate | 6% |
| Electrical systems (integral) | Special rate | 6% |
| Lifts and escalators | Special rate | 6% |
| Solar panels | Special rate | 6% |
| Cars (0g/km CO2, i.e. electric) | 100% FYA | 100% in year 1 |
| Cars (1-50g/km CO2) | Main | 18% |
| Cars (51g/km+ CO2) | Special rate | 6% |
Structures and buildings allowance (SBA)
If your business constructs, renovates, or converts a commercial building, you can claim the structures and buildings allowance at 3% per year on a straight-line basis. That works out over 33.3 years.
SBA applies to the structural costs of the building itself (walls, floors, roof, foundations). It doesn’t cover the land, and it doesn’t cover fixtures that qualify as plant and machinery (which you’d claim separately under AIA or WDA).
This allowance is particularly relevant for NI businesses investing in new commercial premises, warehouses, or manufacturing facilities.
Worked example: NI manufacturing company
Let’s say Acme Manufacturing Ltd, based in Antrim, is investing in its operations. In the current financial year, the company spends:
| Item | Cost | Allowance type |
|---|---|---|
| New CNC machine | £350,000 | AIA (100%) |
| Warehouse fit-out (fixtures) | £120,000 | AIA (100%) |
| Office refurbishment (furniture, IT) | £45,000 | AIA (100%) |
| Electric delivery van | £38,000 | AIA (100%) |
| Air conditioning for new office | £25,000 | AIA (100%) |
| New warehouse building (structure) | £400,000 | SBA (3%) |
| Diesel company car | £30,000 | Special rate pool (6%) |
Total capital expenditure: £1,008,000
AIA claim: The first five items total £578,000, well within the £1M AIA limit. That’s £578,000 deducted from taxable profits this year.
SBA claim: The warehouse structure qualifies for 3% SBA, giving £12,000 per year for 33.3 years.
Special rate pool: The diesel car (over 50g/km CO2) goes into the special rate pool at 6%. That’s £1,800 in year one.
Total tax relief in year one: £578,000 (AIA) + £12,000 (SBA) + £1,800 (WDA on car) = £591,800
At a 25% corporation tax rate, that’s £147,950 off the company’s tax bill. Not trivial.
The NI angle
Enterprise Zones
Northern Ireland has had various enterprise zone and investment incentive schemes over the years. While the original NI Enterprise Zones (such as those around Belfast and Derry/Londonderry) offered enhanced capital allowances of 100% for qualifying commercial buildings, it’s essential to check whether your specific location and investment still qualifies under current legislation.
NI-specific note: Enhanced capital allowances in designated assisted areas may apply to your investment. These reliefs change periodically, so always check the current position before committing to a major purchase based on assumed tax relief.
Invest NI capital grants
Many NI businesses receive capital grants from Invest NI towards the purchase of plant, machinery, or building projects. This creates an important interaction with capital allowances.
The rule: You can only claim capital allowances on the net cost of an asset after deducting any grant received. If you buy a machine for £200,000 and receive a £50,000 Invest NI grant, your capital allowance claim is based on £150,000, not £200,000.
This is straightforward in principle, but timing can cause complications. If the grant is confirmed after you’ve already filed your tax return claiming the full amount, you’ll need to adjust. It’s much cleaner to get the grant position confirmed before finalising your tax computations.
Cross-border considerations
If your NI business operates assets on both sides of the border (perhaps vehicles that regularly travel to the Republic, or equipment used at sites in both jurisdictions), the capital allowances position follows the tax jurisdiction. Assets used in your UK trade are claimed on your UK tax return. Assets used in an ROI trade are subject to Irish capital allowances rules, which are different (12.5% straight-line being the standard for plant and machinery in Ireland).
Timing strategies: when to buy assets
The timing of your asset purchases can make a significant difference to your cash flow:
Buy before your year end. Capital allowances are claimed for the accounting period in which the expenditure is incurred. If your year end is 31 March and you buy equipment on 28 March, you get the full AIA relief in that year. Wait until 2 April and you’re waiting another 12 months.
Watch out for short accounting periods. If your company has an accounting period shorter than 12 months (common in a first year of trading), the AIA is proportionally reduced. A six-month period gives you a £500,000 AIA, not £1 million.
Don’t buy just for the tax relief. This sounds obvious, but it happens. A £100,000 purchase saves you £25,000 in tax. You’re still £75,000 out of pocket. Only buy assets your business genuinely needs.
Consider hire purchase. Capital allowances on hire purchase assets are available from the date the asset is brought into use, not when you finish paying for it. This means you can claim the full relief upfront while spreading the cost over several years.
Cars: a special case
Cars have their own rules, and they’re worth understanding because the difference between an electric car and a petrol car is stark:
| Car type | CO2 emissions | Capital allowance |
|---|---|---|
| Electric (pure) | 0g/km | 100% first-year allowance |
| Hybrid (low emissions) | 1-50g/km | 18% main pool |
| Petrol/diesel | 51g/km+ | 6% special rate pool |
An electric car costing £45,000 gives you a £45,000 deduction in year one (saving £11,250 in corporation tax). A diesel car costing the same gives you just £2,700 in year one, and it takes decades to claim the full amount.
There’s also a benefit-in-kind angle. Electric company cars currently attract a 2% BIK rate (for 2025/26), compared to 20-37% for most petrol and diesel vehicles. The combination of 100% capital allowances and low BIK makes electric vehicles very tax-efficient for NI businesses.
Planning point: If you’re considering a company car, the tax case for going electric is overwhelming. Even if the purchase price is higher, the combined tax savings (capital allowances plus reduced BIK) often make electric the cheaper option over a typical three-to-four year ownership cycle.
Common mistakes to avoid
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Claiming on land or buildings when you mean fixtures. The building itself gets SBA at 3%. The fixtures inside (heating, electrics, lifts) can qualify for AIA or WDA at much higher rates. A proper capital allowances review on a building purchase can unlock tens of thousands in additional relief.
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Forgetting the grant adjustment. If you received an Invest NI or other government grant, your claim must be based on net cost.
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Missing short-life asset elections. If you know an asset will be scrapped or sold within eight years, you can elect to put it in its own pool. When you dispose of it, you claim the remaining balance immediately rather than it sitting in the general pool indefinitely.
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Not claiming on second-hand assets. Capital allowances apply to second-hand assets just as they do to new ones. The AIA and WDA are based on what you paid, regardless of whether the asset is new.
How Arro can help
Capital allowances are one of the most valuable tax reliefs available, but they require careful planning to maximise. We review every client’s capital expenditure as part of our year-end tax planning process, ensuring you’re claiming everything you’re entitled to and timing major purchases for maximum relief. If you’re planning a significant investment, talk to us before you commit.