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Rates and Pools for Capital Allowances

Simply put, a 'pool' is where you keep the writing down allowances of grouped assets. Doing so avoids having to record each item or asset as a separate entity.

The information in this help guide explains how to group items into pools and which rates to use when claiming writing down allowances.

Writing Down Allowances: Rates and Pools

You work out each allowance based on the total amount in the pool (not single values) if you are claiming writing down allowances.

Group the items into one of these three pools (whichever applies):

  • Main Rate Pool: 18%.
  • Special Rate Pool: 6% (reduced from 8% in April 2019).
  • Single Asset Pools: 6% or 18% (determined by the item).

Capital Allowances Main Pool

It is not uncommon for businesses to buy some kind of plant or specialist machinery. In most cases, this type of business asset can be claimed as capital allowances.

Thus, you should group (or add together) most types of plant and machinery into the main rate pool. The exception would be if they are:

  • Already grouped in the special rate pool.
  • In a single asset pool (e.g. you treated them as ‘short life’ assets or used them outside of the normal business operations).
Special Rate Pool Rate Change

You can only claim the lower rate of 6% (changed since the 1st of April 2019) for certain items. So, the special rate pool is for things like:

  • Business cars with CO2 emissions above the current threshold.
  • Items considered to have a long life usage in the business.
  • Integral features (e.g. parts of a building considered as essential or intrinsic).
  • The thermal insulation inside, or part of, buildings.

Note: As a rule, you would be claiming annual investment allowances on these items (except cars). Thus, the reason for claiming writing down allowances at 6% would be if you already claimed AIA on items worth a total over the AIA amount.

Integral Features: Parts of a Building

Typical examples of integral features that create part of a building structure include:

  • Air-conditioning (as well as air cooling systems).
  • Electrical systems (includes lighting systems).
  • Escalators, lifts, and moving walkways.
  • External solar shading.
  • Hot and cold water systems (not kitchen or toilet facilities).
  • Space and water heating systems.

Note: The actual buildings or premises themselves do not qualify for business capital allowance reliefs. But, you may be able to claim an allowance of 3% on money spent buying, constructing, or renovating cartain types of non-residential buildings

Items with a Long Life

As a rule, long life items would include those considered to have a ‘useful life of at least twenty five (25) years’ from new.

Generally, you should group items with a long life in the special rate pool. But, only if the value of all long-life items bought in a single accounting period adds up to at least £100,000.

The accounting periods for Corporation Tax refer to the current fiscal tax year for sole traders and for business partnerships.

If the total value is less than £100,000, you should place them in the main rate pool. The £100,000 limit can be adjusted for those with an accounting period that is ‘more or less’ than twelve (12) months.

An Example:

Having an accounting period of nine (9) months would mean the limit is going to be 9/12 x £100,000 = £75,000.

Single Asset Pools

In some cases, you may need to create one or more separate pools for single assets. Typical examples include those which:

  • Get used outside the business (for sole traders or partnerships).
  • Have a short life (e.g. assets you do not plan on keeping for a long time).
Short Life Assets

In most cases, you get to determine whether you treat an item as a short life asset. But, you cannot include:

  • Company cars.
  • Items that you also use outside of the business.
  • Any of the special rate items.

You should pool together large numbers of very similar items (e.g. crockery items in a restaurant). But, there are special rules for the disposal of assets (e.g. the pool ends when you sell it). In this case, you would claim capital allowances over a shorter period.

Note: Move the balance into the main pool in the next accounting period or tax year if the item is still getting used after eight (8) years.

Informing HM Revenue and Customs

As a limited company, you must inform HMRC on the tax return if you create a short life asset pool. The time limit for doing this is within two (2) years of the end of the tax year after buying the item.

A sole trader or partner must inform HM Revenue and Customs in writing. Be sure to include how much the item cost and the date that you acquired it.

There is a deadline for this method too. It is the online filing deadline for the tax year following the one when you bought the item.

Things used Outside of the Business

Sole traders or partners should put any item used outside the business in a separate pool. You will need to work out capital allowances based on either the main rate at 18% or the special rate at 6%. It will depend on what the actual item is.

Of course you will need to reduce the amount of capital allowances you can claim. Use the same the amount that you use the asset for – outside the business.

An Example:

Your business needs a laptop and you buy one that costs £400. Let’s say you use the laptop outside of the business for half of the time. Thus, the capital allowances amount you can claim reduces by 50%.

Accounting Period ‘More or Less’ than 12 Months

In some cases, accounting periods will be more (or less) than a full twelve months. If so, you will need to adjust the amount of writing down allowances that you can claim.

Already Claimed AIA or First Year Allowances

You should record items that you already claimed annual investment allowance or first year allowances in the same pool they qualify for.

Write down the item value as zero if you claim the full cost of it. This helps to show whether it will be subject to tax if you sell an asset.

Items Not Claimed For

What if no first year allowances or annual investment allowance (AIA) got claimed? In this case, add them on to the relevant pool in the following year.

Related Help Guides

Note: Once you know the rate for your items, you can start working out how much you can claim in allowances.

Capital Allowances Rates and Pools Guide for the United Kingdom