Company equipment: expense or capital allowance?

In short: Equipment the company buys to keep and use is usually a capital asset, not an ordinary expense. The accounts spread its cost as depreciation, the tax computation adds that depreciation back, and tax relief comes from capital allowances instead. For most plant and machinery, that means the Annual Investment Allowance, which covers up to £1 million of qualifying spending in a 12-month period but not cars (GOV.UK: Claim capital allowances: Annual investment allowance; Capital Allowances Act 2001, section 51A).

Buying equipment does not automatically make the entire payment an ordinary expense in your company's Corporation Tax calculation. The purchase, its treatment in the accounts and any tax allowance are separate decisions. HMRC distinguishes long-term assets from day-to-day revenue expenditure in its company-expenses guidance.

Getting those decisions into the right order helps you avoid claiming the same cost twice or overlooking the information needed for a valid claim.

What should you record when the company buys equipment?

Before posting the purchase, record what the item is, why the company bought it and how it was acquired: the invoice description is only part of the story. An item bought to use in the business can have a different treatment from an identical item bought as stock for resale.

In detail, record:

• What the item is and what it will be used for.
• The purchase date, supplier and invoice reference.
• Whether it was bought outright, financed, leased or acquired another way.
• Whether the company owns it and when it became available for use.
• Any private use, connected-party element or unusual contract term.
• Whether VAT is recoverable, so the same VAT is not treated inconsistently.

These questions identify facts for review. They do not by themselves establish tax eligibility.

Is depreciation the same as capital allowances?

No: for ordinary tangible assets, depreciation allocates the depreciable amount over the asset's useful life in the accounts, while capital allowances are a separate tax relief. Depreciation is generally not the tax deduction: the tax computation normally adds it back and considers capital allowances separately (HMRC's toolkit explains the add-back).

ACCA's accounting explanation distinguishes the annual charge from accumulated depreciation. Special regimes, including corporate intangible assets, require their own treatment.

Capital allowances can provide relief for qualifying equipment, machinery and vehicles, but the available allowance depends on the facts. There is more than one allowance regime, and not every asset qualifies in the same way. Check GOV.UK: Claim capital allowances instead of relying on a remembered percentage from an earlier year.

How does a single equipment purchase appear in the records?

In the illustration below, a £2,400 purchase produces three records: the invoice, £600 of accounts depreciation, and a tax computation that adds back the £600 and applies any confirmed allowance. The asset's closing carrying amount is £1,800, and the example makes no claim about which allowance is available or how much.

Illustration: a company buys a piece of equipment for £2,400. Assume that this is the correctly established capitalised cost, the item is treated as a fixed asset and the accounting policy produces £600 depreciation for the period.

The carrying amount is 2,400 - 600 = 1,800.

That separation is the point. Paying £2,400 does not justify putting £2,400 into ordinary expenses, leaving £600 depreciation in the tax calculation and claiming another allowance on top.

What should a fixed asset schedule include?

Use one line per asset or clearly supported grouping, and keep the tax-allowance information alongside it, with a clear distinction between accounting value and tax value. When an asset is sold, replaced or scrapped, tell whoever prepares the tax computation. Each line should show:

• The asset's opening cost at the start of the period.
• Additions bought during the period.
• Disposals of assets sold, replaced or scrapped.
• Depreciation charged for the period.
• The closing carrying value at the period end.

A schedule that records purchases but never disposals will become less reliable each year.

For cars, property expenditure, mixed-use assets and complicated financing, seek advice before selecting a tax treatment. The amount involved is not the only measure of complexity. Once the asset treatment is settled, take the 30-second check to see whether Taxley fits your company.

Next step: resolve the asset schedule fully, then work through our CT600 filing-package checklist. Bring confirmed figures to filing software rather than using the submission process to settle an uncertain claim.

Frequently asked questions

Is every item below a certain price automatically an expense?

No. Do not use an invented universal threshold: the accounting policy and the tax treatment need to be appropriate to the circumstances. HMRC distinguishes long-term assets from day-to-day revenue expenditure, and an item bought for use can be treated differently from identical stock bought for resale (GOV.UK: Corporation Tax rates, expenses and reliefs: Expenses).

Can a tax-software field decide the allowance for me?

No. A field can collect a number or apply supported rules, but it cannot replace missing facts about ownership, use, eligibility and previous claims. Resolve those facts first, then enter the confirmed figures.

Can I deduct depreciation and claim capital allowances for the same asset?

Not both for the same cost. For ordinary tangible capital assets, the tax computation normally adds depreciation back and considers capital allowances separately. Putting the full cost into expenses, leaving depreciation in the tax calculation and claiming an allowance on top would count the same cost more than once.

Which equipment qualifies for capital allowances?

Capital allowances can provide relief for qualifying equipment, machinery and vehicles, but the available allowance depends on the facts. There is more than one allowance regime and not every asset qualifies in the same way, so check the current guidance rather than a remembered percentage (GOV.UK: Claim capital allowances).

General information, not personalised tax or accounting advice.