Capital allowances: deducting assets from taxable profit
The Annual Investment Allowance and electric vehicles - explained
You cannot deduct the cost of capital assets (equipment, computers, furniture) as a direct expense. Instead, you claim capital allowances, which spread the deduction over time or, in some cases, allow an immediate 100% write-off.
The Annual Investment Allowance (AIA)
The AIA allows a 100% deduction in the year of purchase for most plant and machinery up to £1 million. Buying qualifying equipment before your year-end claims the full deduction in the current year; buying one day after the year-end defers it by a full year. Note that cars do not qualify for the AIA, they have their own rules below.
Electric vehicles
New electric company cars qualify for a 100% first year allowance, so the full cost is deductible in the year of purchase. This relief is currently available until 31 March 2027. Petrol and diesel cars instead receive much smaller annual deductions on a reducing-balance basis: 14% a year for cars up to 50g/km CO2, or 6% a year for higher-emission cars. An electric car is therefore significantly more tax-efficient as a company vehicle.
💡 Good to know: Tell us before purchasing any significant asset so we can confirm the correct allowance treatment. Some assets (short lease equipment, cars) have different rules from standard plant and machinery.
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