Summary of Capital Allowances available from 1st January 2016

The following capital expenditure may be deducted from income in calculating taxable profits:

• ANNUAL INVESTMENT ALLOWANCE: The full amount of any capital expenditure up to maximum £200,000 per year on most new plant and machinery except for cars. (This figure must be reduced proportionately for shorter accounting periods)
• FIRST YEAR ALLOWANCE: The full amount of capital expenditure on certain specified environmentally friendly assets. Designated assets include cars with CO₂ emissions not more than 75 g/km and new zero emission electric vehicles.
• "MAIN POOL": 18% of the cost of second hand capital assets purchased and new assets not qualifying for a First Year Allowance unless they fall into a special category (see below). New cars with CO₂ emissions between 75 g/km and 130 g/km and second hand cars with CO₂ emissions below 130 g/km qualify for Main Rate. Where only part of the purchase cost of an asset is deductible against tax, the remainder of the purchase cost or 'written down value' is carried forward to the next tax year.
• 18% of the residual "written down value" of assets falling into the above category and purchased in a previous tax year.
• "SPECIAL RATE POOL": 8% of the purchase cost of certain designated assets including cars with CO₂ emissions over 130g/km.
• 8% of the residual "written down value" of assets falling into the above category which were purchased in a previous tax year.

The maximum Annual Investment Allowance has changed since the last calendar year. A hybrid maximum allowance will apply for accounting years which span the two calendar years (which includes accounting year corresponding to the 2015/16 tax year). 

The above Annual Investment Allowance (AIA) applies to companies and sole traders whose accounting year chargeable to tax ends on or after 1 January 2016 . In 2015 the AIA was higher at £500,000. Where accounting years span the calendar years 2015 and 2016 a hybrid AIA will apply. The hybrid maximum allowance is calculated by working out the proportion of the accounting year falling within the earlier calendar year, and the remaining proportion falling in the later calendar year, then working out the weighted average of the two maximum annual investment allowances: £500,000 for 2015 and £200,000 for 2016. This means that during the 2015/16 tax year two allowances apply: from 6^th April to 31^st December 2015 the AIA was £500,000, while from 1st January to 5th April 2016 the AIA is £200,000.

Rates for Previous Years