HMRC capital allowances guidance: how the latest updates affect your claims

In September 2024, several professional bodies met with HMRC to review how existing capital allowances guidance could be improved. Following the discussions, HMRC has released a series of updates designed to clarify key areas of the legislation and provide businesses and advisers with greater certainty when applying capital allowance claims.

The general consensus during the consultation was that the principle-based nature of the legislation, not the guidance itself, is the main cause of uncertainty. However, HMRC has now implemented changes across several important areas, with more updates expected in the months ahead. As capital allowances remain one of the most valuable forms of tax relief for businesses investing in assets, it’s essential to stay informed on how these revisions might affect future claims.

Key changes to HMRC capital allowances guidance

Unused and not second-hand: Clarifying asset eligibility for full expensing

Guidance at CA23174AB has been updated to provide further clarity on HMRC’s view of how the second-hand asset exclusion applies in certain circumstances. These circumstances include:

• The use of new parts on second-hand assets or
• Breaking down a second-hand asset into its component parts (recycled), and using some or all of those parts in the creation of a new asset.

In the first scenario, full expensing would only apply to the new parts added to the second-hand asset. However, in the second scenario, where a second-hand asset is dismantled and its parts are used to construct a new item, the final asset would be regarded as new and unused, and not as a second-hand asset. As such, it would be eligible for full expensing.

In addition, HMRC has included a new paragraph to confirm its position on the availability of full expensing and the 50% First Year Allowance (FYA) for expenditure incurred on new software, as well as improvements made to existing software.

Fixtures and chattels: updated guidance and examples

A further update focuses on how assets are classified as fixtures or chattels, a point that often leads to uncertainty, particularly in property transactions. HMRC’s revised guidance explains that:

• a chattel is a tangible, moveable asset. However, if it is fixed to land or a building, it may become a fixture. For instance, a radiator is considered a chattel until installed, at which point it would typically be treated as a fixture.

To support better decision-making, the guidance now includes more examples of items likely to be treated as fixtures versus those generally regarded as chattels. HMRC has also clarified what should be included in a valid section 198 election, offering additional practical support for businesses transferring property and capital allowances between parties.

Technical updates across capital allowance categories

HMRC has also made several targeted updates to technical sections of its capital allowances manual. These include:

• Expanded guidance on long-life assets at CA23700, aimed at improving clarity on how these rules are to be interpreted and applied.
• Clarification on Real Estate Investment Trusts (REITs) and their eligibility to claim first-year allowances, as referenced in IFM24010.
• Updates to remove outdated references to technologies such as word processors, and to refresh case law examples like SSE Generation previously cited at CA22005.
• Improved explanation of the interaction between different plant and machinery allowances, as set out in CA20008.

Areas of focus for future capital allowances guidance

While the latest changes represent a constructive step forward, HMRC has confirmed that its review is ongoing. Further updates are expected in several areas that continue to generate interpretation challenges:

 • The treatment of leasing arrangements
 • The entitlement of employees and office holders to claim capital allowances
 • The definition of “plant” within the legislative framework
 • How contributions to expenditure are to be treated under the current rules

These areas are of growing relevance as more businesses explore capital expenditure planning in response to fiscal incentives like full expensing and the extended Annual Investment Allowance (AIA).

Make the most of capital allowances with expert advice

Keeping up to date with HMRC capital allowances guidance is essential for businesses looking to maximise relief on qualifying expenditure. Misinterpretation of asset classification or uncertainty around eligibility can lead to missed opportunities or costly errors in claims.

At Rayner Essex, we work closely with clients to ensure that all available reliefs are captured and that claims are handled accurately, are tax-efficient and compliant. Whether they involve property, plant and machinery, or digital infrastructure.

Get in touch

If your business is planning significant capital expenditure and would like to optimise your capital allowance claim, or if you want to review whether your past claims align with current guidance, get in touch with our specialist team.

Speak to our tax experts today to ensure your claims are accurate, compliant, and optimised or learn more about our Capital Allowances services.