Important Note:
Here we look to help; however it’s important to stress that plant & machinery is not defined in law, and therefore a number of considerations need to be applied when assessing if & when business spend qualifies for capital allowances (e.g. trade, function, item, year of spend, legislation, etc).
What is an example of plant machinery?
There are generally two types of assets that are classified as ‘plant and machinery’ to consider for the purposes of claiming capital allowances:
(1) “Movable” items (often referred to as Chattels), such as:
- Computers and IT equipment
- Office furniture
- Tools and machinery
- Carpets
(Other qualifying items may include:
(2) Embedded items of plant and machinery, which include:
- Fixed items of fixtures and fittings (e.g., fitted kitchens, washroom facilities, sanitaryware)
- Fire alarms
- Alterations to a building (and sometimes including alterations to land) that are necessary to install items of plant & machinery
- Integral features such as lifts, air conditioning, water heating systems, and lighting systems
- Often overlooked items, such as ironmongery on doors and stair nosings
These examples of plant and machinery illustrate the wide scope of what can be included, depending on the asset’s use and business context.
The list of qualifying assets continues to evolve, sometimes due to case law, and particularly as sustainability becomes more important. For example, items such as solar panels, rainwater harvesting equipment, and energy-efficient heating systems are increasingly being included as plant and machinery in capital allowance claims.
Items that do not typically qualify as ‘plant & machinery’ are:
Certain assets are generally not considered ‘plant & machinery’, including:
- Rented or leased items
- Land
- Structural elements like bridges and roads
- Walls and ceilings
- Mains connection charges
- Building components such as doors, gates, and fences
The Importance of Context: The Bathtub Example
Consider a bathtub. If installed in a boardroom, it wouldn’t qualify as plant and machinery unless it served a functional business purpose in that setting. For example, in a hotel bathroom, it would qualify as it directly supports the hotel’s operations and enhances the guest experience.
This demonstrates why context matters. An asset’s eligibility is not just based on what it is but also on how and where it is used within the business. This is a key consideration in understanding the definition of plant and machinery.
Types of Plant & Machinery Allowances
The 3 types of plant and machinery allowance that are most often used, are first-year allowances, annual investment allowance, writing-down allowances. Let’s take a look at these in more detail…
First-Year Allowances (FYA)
First-year allowances allow businesses to claim 100% tax relief on qualifying assets in the year of purchase. This accelerates tax savings and improves cash flow.
Qualifying assets for FYA may include:
- Electric vehicle charging points
- Plant & machinery for gas refuelling stations
- Certain energy-saving technologies
Annual Investment Allowance (AIA)
AIA allows businesses to claim 100% tax relief on eligible plant and machinery expenditure, up to a £1 million annual limit. This means the full cost can be deducted from profits before tax. If AIA is used, the cost is added to the relevant asset pool, and the claimed amount is deducted from that pool.
Writing-Down Allowances (WDA)
Writing-down allowances apply when:
- First-year allowances and AIA are not available
- The annual threshold for first-year allowances or AIA has been exceeded
- First-year allowances or AIA were not claimed in time
With WDA, businesses spread tax savings over several years, rather than claiming the full relief in one go. A percentage of the asset’s value is deducted each year until the cost is fully written down.
Asset pools for plant and machinery
Typically, plant and machinery assets are classified into two main pools:
- Main Pool – Covers most plant and machinery items.
- Special Rate Pool – Includes embedded fixtures like heating systems, air conditioning, and lighting.
The correct classification depends on the nature of the asset, its expected lifespan, and relevant legislation. Understanding these pools helps businesses plan their spending and optimise tax relief.
Special Rate Pool assets typically qualify for only 6% WDA per year (compared to 18% for Main Pool assets), making early identification even more important to maximise relief.
Who can claim for plant and machinery?
Capital allowances can be claimed by:
- Sole traders
- Partnerships
- LLPs
- Companies
To qualify, the business must own the asset, and it must be used for business purposes at the end of the relevant accounting period.
Common Misconceptions About Plant and Machinery
Despite its importance, confusion around the term ‘plant and machinery’ is widespread. Some common misconceptions include:
- Believing that only movable equipment qualifies – many embedded systems, like lighting or ventilation, often qualify
- Small businesses can’t benefit – even sole traders can make claims on eligible assets
- Thinking that once missed, relief is lost – in many cases, retrospective claims can be made, regardless of the year of expenditure
Working with a specialist can clarify eligibility and ensure no tax-saving opportunities are overlooked.
Retrospective Claims and Missed Opportunities
Businesses are often unaware that they can claim capital allowances, which means they may be missing out on valuable tax relief. In many cases, if plant and machinery assets were purchased in previous years and used for business purposes, allowances can still be claimed, provided the expenditure falls within the legislation.
For example, businesses typically have up to two years from the end of the accounting period in which the expenditure occurred to amend tax returns and include missed claims. This can result in significant tax savings being recovered, even if the original purchase was made many years ago.
In commercial property transactions since 2014, this is particularly relevant as a Section 198 Election (a joint agreement between buyer and seller specifying how capital allowances are treated) needed to be prepared in most cases when the ownership of a property changed hands. However, even if no Section 198 Election was made at the time of sale, the buyer may still be able to claim allowances on qualifying embedded fixtures, sometimes dating back several years.
Missing these opportunities can result in permanent loss of tax relief, so it’s important for businesses to review past purchases, especially when acquiring commercial property. A specialist review can help uncover unclaimed allowances and ensure all available relief is utilised.
Case Study: Wood Green Healthcare Ltd
To illustrate how plant and machinery allowances work in practice, let’s look at a case study involving Wood Green Healthcare Ltd, a care provider specialising in support for elderly individuals with dementia and acquired brain injuries.
Between 2021 and 2023, Wood Green Healthcare Ltd undertook significant build and fit-out works to one of their commercial care home properties. The total cost of the works was £1,825,086. After a thorough review and site survey conducted by our team, we identified £1,036,313 in qualifying capital allowances. This resulted in £365,956 in tax savings being secured.
The claim was extensive, involving a combination of general pool items, special rate pool assets, eligibility for the super-deduction, and Structures and Buildings Allowance (SBA). Some of the qualifying embedded items identified included:
- Nurse-call systems
- Underfloor heating
- Paxton access control systems
- Passenger lift
Our process began with liaising with the client’s accountant to ensure all technical details and timelines were aligned. A detailed physical survey of the property was then conducted, and a valuation was prepared to determine which items could be claimed under which allowance type. We analysed costs at a granular level, cross-referencing invoices and expenditure reports against physical findings to ensure accuracy.
Once the analysis was complete, we prepared a clear Claim Summary and passed this to the client’s accountant, outlining the necessary tax return entries. According to Donna Donnelly, the Development Director, “The whole process was smooth, and their communication was clear and helpful. We highly recommend their services.”
This case highlights just how much tax relief can be unlocked when all qualifying plant and machinery items, including often-overlooked embedded assets, are properly assessed and claimed.
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- £1,825,086
- £1,036,313
Specialist advice for plant and machinery allowances
Plant & machinery is not a subject which is defined by law. This makes obtaining final and specific answers, when it comes to the topic, difficult. However, at CARS, our team has years of experience, knowledge, and skills that they use daily to support businesses in getting the tax relief they are eligible for.
Call, or email us today to find out how our team can help your business.
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