Capital Allowances & Annual Investment Allowance

Claim tax relief on business equipment with Annual Investment Allowance (AIA). Learn what qualifies, limits, and how to enter capital allowances in TinyTax.

Capital allowances let you claim tax relief on business equipment and assets. This guide explains how to claim them in TinyTax.

Select your company type to customise this guide:

Trading Company

Property Company

What Are Capital Allowances?

When your company buys equipment, vehicles, or machinery, you can't deduct the full cost as a business expense. Instead, you claim capital allowances - tax relief spread over time.

The main allowance is the Annual Investment Allowance (AIA), which lets you claim up to £1,000,000 per year.

What Qualifies for AIA?

You can claim AIA on:

Plant and machinery - equipment used in your business
Computers and IT equipment - laptops, servers, software
Office furniture - desks, chairs, storage
Vehicles - vans, lorries (cars have different rules)
Tools and equipment - anything used for your trade

Property companies can claim AIA on:

Furniture and white goods - in furnished lettings (sofas, beds, washing machines)
Tools and equipment - for property maintenance (ladders, power tools)
Office equipment - if you manage properties from an office
Vehicles - vans used for property management (cars have different rules)

Note: You cannot claim capital allowances on the property itself or on structural improvements - only on qualifying fixtures and equipment.

ℹ Cars have separate rules and don't qualify for the full AIA. They get Writing Down Allowance instead (typically 18% per year).

How to Enter Capital Allowances in TinyTax

Step 1: Enter Your Depreciation

In the Profit & Loss section, enter your depreciation figure:

Depreciation

This is automatically added back in the tax computation (because depreciation isn't tax-deductible - capital allowances replace it).

Step 2: Enter Your AIA Claim

In the Tax Computation section, you'll see:

Less

Enter the amount you're claiming for capital allowances this year.

✓ Tip

The Tax Computation Flow

Here's how capital allowances affect your taxable profit:

``` Trading profit before tax £50,000 Add back: Depreciation + £5,000 (not tax-deductible) Add back: Disallowable expenses + £1,000 (e.g., entertaining) Less: Annual Investment Allowance - £5,000 (tax relief on assets) ───────────────────────────────────────── Net trading profit (Box 165) £51,000 ```

The AIA reduces your taxable profit, which reduces your corporation tax bill.

Here's how capital allowances affect your taxable profit:

``` Property income (Box 170) £50,000 Add back: Depreciation + £5,000 (not tax-deductible) Less: Annual Investment Allowance - £5,000 (tax relief on assets) ───────────────────────────────────────── Adjusted property income £50,000 ```

The AIA reduces your taxable property income, which reduces your corporation tax bill.

AIA Limits and Pro-Rating

Standard Limit

The AIA limit is £1,000,000 per year for most companies.

Short Accounting Periods

If your accounting period is less than 12 months, the limit is pro-rated:

Period Length	AIA Limit
12 months	£1,000,000
9 months	£750,000
6 months	£500,000
3 months	£250,000

TinyTax calculates this automatically based on your period dates.

Extended Periods (>12 months)

For periods longer than 12 months, TinyTax splits your filing into two CT600s and pro-rates your AIA across both periods.

What If I Spent More Than the AIA Limit?

If your capital purchases exceed £1,000,000:

Claim the full AIA (£1,000,000) first
The excess qualifies for Writing Down Allowance (WDA)
WDA is typically 18% per year on the remaining balance

ℹ Most small companies never hit the AIA limit. If you do, consider speaking to an accountant about optimising your claims.

Depreciation vs Capital Allowances

These are often confused:

Depreciation	Capital Allowances
Accounting treatment	Tax treatment
You choose the rate	HMRC sets the rules
Reduces accounting profit	Reduces taxable profit
Not tax-deductible	Tax-deductible

In TinyTax:

Enter depreciation in P&L (your accounting figure)
It's automatically added back (not tax-deductible)
Enter AIA (your tax relief claim)
AIA is deducted from taxable profit

Common Scenarios

"I bought a laptop for £1,000"

In your P&L, you've probably depreciated it (e.g., £333/year for 3 years)
Enter that depreciation in the P&L section
Claim the full £1,000 as AIA this year
Your taxable profit reduces by £667 more than accounting profit

"I haven't bought anything this year"

Enter £0 for AIA
Your depreciation still gets added back
This increases your taxable profit above accounting profit

"I claimed AIA last year but the asset is still in use"

AIA is claimed once when you buy the asset. In subsequent years:

Continue depreciating in your accounts
Don't claim AIA again on the same asset
The depreciation add-back happens each year

"I bought furniture for a rental property"

If you depreciated the furniture in your accounts (e.g., £500)
Enter that depreciation in the P&L section
Claim the full cost as AIA this year
Your taxable income reduces by the net difference

"I replaced a boiler in a rental property"

Repairs vs Improvements:

Repairs (like-for-like replacement) - Deduct as an expense in P&L, not as AIA
Improvements (upgrading to better) - The improvement element may qualify for AIA

⚠ Boiler replacements are usually repairs (deductible expenses) not capital items. Only claim AIA on genuine improvements or new installations where none existed before.

"I bought white goods for a furnished let"

Washing machines, fridges, and similar items qualify for AIA. Claim the full cost in the year of purchase.

What About Cars?

Cars have special rules:

CO2 Emissions	Allowance
0g/km (electric)	100% First Year Allowance
1-50g/km	18% Writing Down Allowance
51g/km+	6% Writing Down Allowance

Enter car allowances in the Other adjustments field with a negative value (to deduct):

Other adjustments

In the Tax Computation section, you'll also see:

Add back: Disallowable expenses

Disallowable expenses

Enter expenses that aren't tax-deductible:

Client entertaining (meals, drinks with clients)
Fines and penalties
Personal expenses put through the business

Enter expenses that aren't tax-deductible:

Fines and penalties
Personal use portion of expenses
Improvements incorrectly claimed as repairs

Other adjustments

Other adjustments

For anything else that needs adjusting - enter positive numbers to add back, negative to deduct.

Verification

After entering your figures, the Tax Computation shows:

Line	Amount
Trading profit before tax	£50,000
Add back: Depreciation	£5,000
Add back: Disallowable expenses	£500
Less: Annual Investment Allowance	(£5,000)
Net trading profit (Box 165)	£50,500

Check that your Net Trading Profit looks correct before submitting.