Capital allowances are available on certain categories of expenditure to replace commercial depreciation, for which a tax deduction is not available. Broadly, capital allowances are available on plant and machinery on a reducing balance basis, although special rules apply to some assets including motor vehicles (see capital allowances for motor vehicles and long life assets). Currently, allowances are broadly given as follows:
• Subject to a limited 100% allowance (see both the Annual Investment Allowance and Capital Allowances for Enterprise Zones) allowances on plant and machinery in the main pool are given at 18 per cent per annum on a reducing balance basis (that is, the taxpayer is entitled to an allowance of 18 per cent of the balance in the pool each year); and
• Plant and machinery, which is categorised as ‘integral features’ in a building or as a ‘long-life’ asset, is given a reduced allowance of 8 per cent (again on a reducing balance basis).
Other allowances are available for assets such as ships, mines and oil wells, certain energy-saving or environmentally friendly assets, costs relating to the conversion or refurbishment of some flats over shops and of certain business premises (see Business Premises Renovation Allowance), and certain biofuels plants (see also Enhanced Capital Allowances), and expenditure in some Enterprise Zones.