Capital Allowances for Manufacturing

Capital allowances for manufacturers — full expensing, the annual investment allowance, structures and buildings allowance and the fixtures in your factory. Manufacturing is capital hungry. The tax treatment of that capital is worth more than most owners realise, and it is decided by how the invoice is described and when the expenditure is incurred.

The reliefs available on plant and machinery

Full expensing is permanent — it no longer has an end date to plan around — and the £1,000,000 annual investment allowance is a permanent limit. That means investment decisions can be made on commercial timing rather than on a relief that is about to expire, which is a genuine change from the last decade.

Where manufacturers lose money

• Leased assets — plant bought for leasing out is generally excluded from full expensing. How you finance a machine therefore changes its tax treatment: hire purchase and outright purchase behave differently from an operating lease, and the decision is often made by the finance department without the tax point being raised.
• Buildings treated as a single number — a new factory invoice is not one asset. Within it sit electrical and cold water systems, heating and ventilation, lifts, and process-specific installations, which are plant rather than structure and attract far faster relief. Without a capital allowances analysis at the time, that split is usually lost.
• Second-hand buildings — allowances on fixtures in a purchased property depend on the fixtures election and the seller's pooling position, agreed at the point of sale. After completion, it is often too late.
• Timing of "incurred" — expenditure is generally incurred when the obligation to pay becomes unconditional, not when it is paid. On a large machine ordered near a year end, that date can move the relief a whole year.
• Disposals and balancing charges — selling or scrapping an asset that attracted a first-year allowance can trigger a balancing charge that nobody budgeted for.
• Grants — a grant towards an asset can reduce qualifying expenditure. It is better to know that before signing.

What we do

• Review capital expenditure before commitment, so the relief is designed in rather than found afterwards
• Analyse construction and fit-out costs into plant, integral features and structure, with the evidence to support it
• Model full expensing against AIA and writing down allowances across the group, including the effect on the corporation tax marginal rate between £50,000 and £250,000
• Handle fixtures elections on property acquisitions and disposals
• Review prior years — unclaimed allowances on assets you still own can often be brought into the pool now
• Coordinate with R&D claims, so the same project produces both reliefs without double counting

Financing the investment

We work alongside asset finance and invoice finance providers, and model the cash effect of each route: the deposit, the timing of relief, the covenant impact and the effect on profit. The cheapest headline rate is not always the cheapest deal once tax is in the model. See our automation investment page for the wider business case.

Part of our manufacturing accountants service.

Frequently asked questions

Is full expensing still available?

Yes, and it is permanent. Companies can claim a 100% first-year allowance on qualifying main-rate plant and machinery, and a 50% first-year allowance on special-rate expenditure such as integral features and long-life assets, with no scheduled end date.

What is the Annual Investment Allowance limit?

£1,000,000 a year, on a permanent basis. Unlike full expensing it is available to unincorporated businesses as well as companies, and it can cover special-rate expenditure in full, which sometimes makes it the better claim even for a company.

Can we claim full expensing on machines we lease to customers?

Generally no. Plant acquired for leasing out is excluded from full expensing, with limited exceptions. If leasing is part of your model, the structure of each contract needs reviewing, because how the arrangement is characterised changes who gets the allowances.

What allowances are available on a new factory?

The structure itself attracts the Structures and Buildings Allowance at 3% a year on a straight-line basis. But a significant proportion of a typical build is plant and integral features — power, heating and ventilation, process installations, lifts — which qualify for much faster relief. Splitting the cost properly at the time is where the value is.

We bought a factory second-hand. Can we claim on the fixtures?

Possibly, but it depends on the fixtures election and the seller’s pooling history, which have to be dealt with around the transaction. If it was not addressed at the time, the position needs reviewing quickly — the rules are unforgiving once the sale has completed.

Can we go back and claim allowances we missed?

Often yes. Capital allowances on assets you still own can usually be brought into the pool in a later period, even if they were never claimed when the expenditure was incurred. We review historic capital expenditure as a matter of course when we take on a manufacturing client.