Plant and Machinery: What Qualifies for Capital Allowances

Most tangible assets a UK business uses in its trade qualify for plant and machinery capital allowances, letting you deduct some or all of the cost from taxable profits. The dividing line HMRC draws is between items that function as tools of the trade and items that form part of the premises where the trade happens. Which side an asset falls on decides whether you get 100% relief in year one through full expensing or the Annual Investment Allowance, or slower relief at 14% (main pool) or 6% (special rate pool) from April 2026.

How HMRC Decides What Counts as Plant

Neither the Capital Allowances Act 2001 nor HMRC gives a statutory definition of “plant” or “machinery.” The meaning comes from decades of case law, and HMRC applies that case law when assessing claims.¹ Two tests do the work.

The functional test asks whether the asset is part of the apparatus you use to carry on business. A lathe in a factory, a computer on an office desk, a refrigeration unit in a restaurant: all pass, because each actively does something in the trade. The setting test asks the opposite question. Walls, floors, and ceilings fail, because they provide the environment for business rather than participating in it.²

Borderline cases turn on how central the asset is to the actual work. The courts have said that where premises “in addition to their primary purpose perform the function of plant,” they can be treated as plant. A themed restaurant interior designed to create a specific dining experience can cross the line; a decorative shopfront on a standard retail unit generally will not.

Assets That Comfortably Qualify

A wide range of everyday business assets sit clearly inside the definition:

Computers, servers, printers, and other office equipment
Desks, chairs, and business furniture
Manufacturing machinery, production-line equipment, and hand tools
Vans, lorries, and other commercial vehicles (cars follow separate rules)
Security systems and fire alarms treated as functional equipment
Signage used in the trade
Kitchen equipment and similar fixtures in hospitality

The test is the same in every case: does the item do work in your business, or is it just part of the building?

Integral Features Inside the Building

Some assets are physically attached to a building yet still qualify because Parliament carved out a specific category for them. Section 33A of the Capital Allowances Act 2001 lists these “integral features,” which are treated as plant and machinery even though they form part of the building’s fabric.³ The full list:

Electrical systems, including lighting
Cold water systems
Space or water heating systems
Powered ventilation, air cooling, or air purification systems, and any floor or ceiling forming part of such a system
Lifts, escalators, and moving walkways
External solar shading

Integral features go into the special rate pool at 6% per year. Companies within corporation tax can alternatively claim a 50% first-year allowance on integral features under full expensing.⁴ One exclusion matters: anything whose main purpose is to insulate or enclose a building’s interior, or to provide a permanent wall, floor, or ceiling, does not count as an integral feature.³

What Is Treated as Building, Not Plant

Section 21 of the Act lists assets excluded from plant and machinery allowances no matter how useful they are to the business:⁵

Walls, floors, ceilings, doors, gates, shutters, windows, and stairs
Systems for water, electricity, and gas supply to the building
Waste disposal, sewerage, and drainage
The shaft or structure housing a lift, escalator, or moving walkway (the mechanism itself is an integral feature)
Fire safety systems

The overlap with integral features matters when buying commercial property. The wiring serving a building’s lighting qualifies as an integral feature; the walls it runs through do not. Separating the two on a property acquisition often needs a formal capital allowances survey, and the difference can be worth hundreds of thousands of pounds in relief.

Costs that fail the plant tests are not necessarily lost. The Structures and Buildings Allowance gives a straight-line 3% deduction per year on original construction or renovation costs of non-residential buildings, spread over 33⅓ years, with an enhanced 10% rate over 10 years in designated special tax sites.⁶ That is a separate regime from plant and machinery and is far slower.

Full Expensing: 100% for Companies on New Plant

Full expensing is the most generous route currently available. It was introduced on 1 April 2023 and made permanent at the Autumn Statement 2023. Companies within the charge to corporation tax can deduct 100% of qualifying expenditure on main rate plant and machinery in the year of purchase, with a 50% first-year allowance for special rate expenditure such as integral features and long-life assets.⁴

The restrictions are important. The asset must be new and unused; second-hand equipment does not qualify. Cars are excluded entirely, as is most plant acquired for leasing. Sole traders and partnerships cannot use full expensing, since it applies only to companies paying corporation tax. When a company later sells an asset on which it claimed full expensing, a balancing charge equal to 100% of the disposal value is added back to profits; for the 50% first-year allowance, the balancing charge is 50% of the disposal value.

Annual Investment Allowance: 100% for Everyone, Up to £1m

The Annual Investment Allowance lets any business, whether sole trader, partnership, or company, deduct the full cost of qualifying plant and machinery in the year of purchase, up to a permanent cap of £1,000,000 per year.⁷ The AIA covers most plant and machinery expenditure, including integral features and items that would otherwise sit in the special rate pool.⁸

Cars are excluded from the AIA, as they are from full expensing. For most small and medium businesses, the £1 million cap covers all capital spending in a normal year. Larger companies investing heavily in new equipment may prefer full expensing, which is uncapped but limited to companies buying new. The AIA has one advantage full expensing lacks: it applies to second-hand purchases, making it the right route for used equipment.

Writing Down Allowances When Neither Applies

Expenditure not covered by full expensing, the AIA, or a first-year allowance goes into one of two pools, each with an annual reducing-balance percentage:⁹

Main pool at 14%: most plant and machinery, including computers, furniture, vans, and tools. The rate dropped from 18% on 1 April 2026 for corporation tax and 6 April 2026 for income tax. Accounting periods straddling the change need a hybrid rate.
Special rate pool at 6%: integral features, long-life assets, thermal insulation added to a building, solar panels, and cars with CO2 emissions above 50g/km.

Because writing down allowances use a reducing balance, a pool never quite reaches zero, which is why the small pools allowance exists to clear the remaining balance once a pool falls below £1,000.

Business Cars: Their Own Rules

Cars sit outside the AIA and full expensing entirely. The allowance depends on CO2 emissions and whether the car is new:¹⁰

New, zero-emission (electric): 100% first-year allowance
Second-hand electric car: main rate writing down allowances (14% from April 2026)
50g/km CO2 or less, new or second-hand: main rate allowances
Over 50g/km CO2, new or second-hand: special rate allowances at 6%

The 100% first-year allowance for new zero-emission cars is the only route to immediate relief. A £40,000 electric car bought new gives £40,000 off profits in year one; the same money on a petrol car above 50g/km gives just £2,400 at the 6% special rate.

Practical Points That Change What You Can Claim

Hire Purchase Assets Count from Day One

You do not need to own an asset outright. Under Section 67 of the Act, a person making payments under a hire purchase or similar contract is treated as the owner from the moment they are entitled to the benefit of the contract.¹¹ You can claim allowances on the full cash price as soon as the asset is brought into use, not just on the instalments paid. A £50,000 machine on three-year hire purchase can attract full AIA or full expensing in year one. If you default and the asset is repossessed, you are treated as having disposed of it and must bring a disposal value into account.

Short-Life Asset Elections

If you expect to use an asset for only a few years, a short-life asset election accelerates the relief. It puts the item in its own pool, so when you sell or scrap it, any unrelieved expenditure generates a balancing allowance in that year instead of grinding down at 14% in the main pool forever.¹² The election is irrevocable and must be made in writing to HMRC within two years of the end of the accounting period (corporation tax) or by the first anniversary of 31 January following the tax year (income tax). If the asset is still in use eight years on, the balance moves back into the main pool.

Mixed Business and Personal Use

If you use an asset partly for business and partly personally, you claim only on the business proportion. A laptop used 70% for the trade means you claim against 70% of the cost. Keep records to support the split; HMRC can challenge an unrealistic percentage, and there is no fixed formula.

What Happens When You Sell

When you dispose of an asset, the proceeds come off the relevant pool. If the pool balance stays positive, you carry on claiming. If the proceeds exceed the balance, the excess is a balancing charge added back to profits.¹³ Giving an asset away or moving it to private use triggers a market-value disposal.

Filing the Claim and the Cost of Getting It Wrong

Capital allowances are claimed on the annual tax return, not by separate application. Sole traders and partners use the SA100; companies use the CT600.¹⁴ Keep purchase invoices showing the asset, date, and total cost including delivery and installation, and separate expenditure into main rate, special rate, and any short-life pools.

Classification is where enquiries usually start. HMRC penalties depend on the nature of any error: up to 30% of the understated tax for a careless mistake, 20% to 70% for a deliberate inaccuracy, and 30% to 100% where the error is deliberate and concealed.¹⁵ Misclassifying building costs as plant is one of the more common triggers, which is why the functional-versus-setting question is worth resolving before you file rather than after.

1
HM Revenue & Customs. Capital Allowances Manual – CA21010 – Plant and Machinery Allowances: Meaning of Plant and Machinery
2
HM Revenue & Customs. Capital Allowances Manual – CA21100 – Plant and Machinery Allowances: Meaning of Plant and Machinery: The Functional Test
3
Legislation.gov.uk. Capital Allowances Act 2001 Section 33A – Expenditure on Integral Features
4
GOV.UK. Capital Allowances: Full Expensing for Companies Investing in Plant and Machinery
5
Legislation.gov.uk. Capital Allowances Act 2001 Section 21 – Buildings
6
GOV.UK. Capital Allowances Manual – CA91300 – Structures and Buildings Allowance: Amount of Allowance
7
GOV.UK. Legislating the Annual Investment Allowance at £1m
8
GOV.UK. Annual Investment Allowance
9
GOV.UK. Work Out Your Writing Down Allowances: Rates and Pools
10
GOV.UK. Claim Capital Allowances: Business Cars
11
GOV.UK. Capital Allowances Manual – CA23310 – Hire Purchase
12
Legislation.gov.uk. Capital Allowances Act 2001 Chapter 9 – Short-Life Assets
13
GOV.UK. HS252 Capital Allowances and Balancing Charges 2026
14
GOV.UK. Self Assessment Tax Return Forms
15
GOV.UK. Penalties: An Overview for Agents and Advisers