A capital allowances computation is a set of running balances rather than a single sum. Each pool carries forward from last year, takes in this year's additions, gives out this year's allowances and carries the rest forward. Once that shape is clear the arithmetic is straightforward, and the only genuinely difficult step is deciding which pool a given item belongs in.
The pools
The main pool holds most plant and machinery and is written down at 14% a year, reduced from 18% before April 2026. The special rate pool holds integral features, long-life assets, thermal insulation and higher-emission cars, and is written down at 6%. Single asset pools hold items with private use or short life. Every addition goes into one of them, and the whole computation is an exercise in allocating the year's spending to the right pool before any rate is applied.
The order of operations
Start with the brought-forward balance in each pool. Add the year's qualifying additions. Deduct disposal proceeds, capped at original cost, for anything sold. Then claim: first-year allowances and full expensing come off the qualifying additions in full, the annual investment allowance covers up to £1 million of what is left, and the writing down allowance applies its percentage to the balance remaining. What survives is carried forward. Pro-rate the annual investment allowance and the writing down allowances for a period shorter than twelve months.
A capital allowances example
A company with a 31 March year end brings forward £40,000 in the main pool, buys £120,000 of equipment and sells an old machine for £6,000 that originally cost £15,000. Additions are £120,000 and the disposal reduces the pool by £6,000. Claiming the annual investment allowance on the whole £120,000 leaves the pool at £40,000 less £6,000, or £34,000, on which a 14% writing down allowance is £4,760. Total allowances for the year are £124,760, and £29,240 carries forward.
Questions people ask about how to calculate capital allowances
What rate are capital allowances written down at?
The main pool is written down at 14% a year, reduced from 18% before April 2026. The special rate pool, which holds integral features and higher-emission cars, is written down at 6%.
How is the annual investment allowance calculated for a short period?
Pro rata. GOV.UK's own example: for a nine-month accounting period the allowance is nine twelfths of £1,000,000, which is £750,000.
What happens when an asset is sold?
The disposal proceeds are deducted from the pool, capped at the original cost. If that leaves a negative balance, the excess is a balancing charge added to taxable profit.