In the UK — and in several other tax systems with similar roots — accounting depreciation is not deductible for tax. Instead, businesses claim capital allowances on qualifying capital expenditure, such as plant and machinery. The allowances available depend on the type of asset, the type of business and the rules in force for the period.
Main UK allowances (plant and machinery)
- Annual Investment Allowance (AIA) — a 100% deduction on qualifying plant and machinery up to an annual limit (£1 million at the time of writing).
- Full expensing — for companies, a 100% first-year allowance on qualifying new main-rate plant and machinery (with a 50% first-year allowance for special-rate assets).
- Writing down allowances (WDA) — for spending not covered by other allowances, a reducing-balance deduction on a pool: 18% a year for the main pool and 6% for the special rate pool.
- Cars and some other assets have their own rules.
Worked example: writing down allowance
A business adds £40,000 of qualifying plant to its main pool and, for this example, claims no AIA or first-year allowance.
Year 1 WDA: 18% × £40,000 = £7,200 → pool carried forward £32,800
Year 2 WDA: 18% × £32,800 = £5,904 → pool carried forward £26,896
If the same spend were covered by the AIA, the full £40,000 could be deducted in year 1 instead.
Why it matters
Because allowances and book depreciation follow different rules, the tax written-down value and the book NBV of the same asset diverge — which is why asset registers need separate book and tax views.
In Asetavo
UK capital allowances are one of Asetavo's eight methods, typically used on the tax profile while book depreciation runs separately.