Capital allowances & agriculture – are you claiming everything you’re entitled to?

What are capital allowances?

Capital allowances (or CAs) are a valuable form of tax relief on capital expenditure, but many UK businesses do not fully maximise their claims. In some cases, it is possible to obtain a tax refund from HMRC following an historical review.

Without capital allowances, capital expenditure would not be deductible for tax purposes when calculating trading profits. Businesses are allowed to deduct CAs (which are a proportion of qualifying capital expenditure) each year, effectively allowing for the depreciation of capital assets over time.

There are a number of different types of capital allowances, such as for plant and machinery, integral features and structures and buildings, which give relief at different rates. In addition, there are various provisions for enhanced relief for certain expenditure, such as first-year allowances (also called full expensing) and the annual investment allowance, which can provide up to 100% tax relief.

Capital allowances can be claimed by sole traders and partnerships, but some of the enhanced capital allowances are only available to incorporated businesses.

What’s changing in 2026?

Changes relating to “main pool” plant and machinery allowances were announced in the Autumn Budget. The rate for this type of expenditure will reduce from 18% to 14% from April 2026.

However, a new first-year allowance (of 40% of total annual expenditure) is now available for main rate expenditure incurred from 1 January 2026. This new allowance is wider than existing first year allowances – it is available to unincorporated businesses and assets used for leasing (although not overseas). Cars and second-hand assets will also not be eligible. This change is of most benefit to unincorporated businesses which spend more than the annual investment allowance (£1m) on qualifying expenditure and/or those leasing assets, which is likely to include farmers.

Commonly missed claims in agricultural businesses

Many agricultural businesses will be aware of, and familiar with, claiming allowances on plant and machinery. Whilst expenditure on hired equipment isn’t generally covered, expenditure on tractors, combine harvesters, moveable dairy equipment and other farm machinery would all fall within a classic agricultural business plant and machinery capital allowances pool. In addition, leased assets are now eligible for the new first-year allowance discussed above.

However, it’s easy to overlook plant and machinery that is a fixture in a property (either when it was installed or when the building was purchased). For CA purposes “fixture” has a different (and wider) meaning than fixtures and fittings as it is more generally used. In addition, there are specific provisions for integral features – examples of integral features that may be relevant for agricultural businesses include hot and cold water systems, electrical systems and ventilation systems.

In addition to the standard plant and machinery allowances, there are also capital allowances (at a lower rate) for structures and buildings. These cover a wide variety of things – if something is built which alters the nature of the land then expenditure on it may qualify even if it’s not a classic “building”. So, in addition to expenditure on farm buildings and offices, this could cover fences, roads, bridges and reservoirs as well as non-residential conversions and renovations.

However, there are some specialist agricultural buildings which may qualify for capital allowances at the higher P&M rates, but which are often overlooked, such as slurry tanks/pits, silage clamps, anaerobic digestion plants and potato/grain/other crop silos providing temporary storage. A key question is whether they perform an active function which is essential to the farming process, and so is an area where specialist advice will be needed. When should I think about capital allowances?

In short, any time you are making any kind of capital expenditure. Just because it’s not on an item that does fit within a classic capital allowance claim, it doesn’t mean that the expenditure won’t qualify for CAs at all.

A sensible business strategy would include a periodic review of historic expenditure, to ensure that there isn’t expenditure which qualifies for capital allowances that hasn’t yet been claimed. An historic review may identify opportunities to obtain a tax refund.

It’s also important to consider CAs when buying a farming business or land with buildings on it. There may be valuable capital allowances which either have not been claimed by the vendor (whether because they have been overlooked or because the expenditure did not qualify for allowances when incurred by the seller but will when incurred by the buyer) or in respect of which a “section 198 election” can be made. This election allows a seller to pass on the ability to claim CAs in respect of its pooled historic expenditure on items that are transferring to the buyer as part of the sale.

Getting the right advice

Many farming businesses will already work with their existing accountants to claim capital allowances. However, if expenditure is being incurred on a more unusual item or on a business/land purchase, a review by a capital allowances specialist is likely to reveal extra scope of CA claims. Similarly, if you have not undertaken a CA review previously in respect of historic expenditure, engaging a capital allowances specialist may identify opportunities to obtain a tax refund.

Birketts has a corporate tax team which can provide general business tax advice. The team works with a capital allowances consultant who is both a qualified quantity surveyor and a tax advisor. This means we can advise on all aspects of a capital allowances claim using a combination of tax, surveying and property expertise.