Factory Capital Allowance: What Manufacturers Can Claim on Plant, Power and Premises

A factory capital allowance claim covers the qualifying capital spend across a working industrial site that can be deducted from taxable profit: the production machinery and its foundations, the compressed air ring main and three-phase distribution, extraction and process ducting, silos, storage tanks and cold stores, the racking and the loading bay, and the shell around all of it.

Factory spend reaches relief by four routes:

• First-year allowances and the annual investment allowance, which relieve qualifying new spend in the year it is incurred
• The main pool, where the rest of the plant and machinery is written down annually
• The special rate pool, which holds integral features, thermal insulation and long-life assets
• The structures and buildings allowance on the shell, which is where the rest of the site's construction cost lands

The argument of this guide is that an industrial unit holds far more qualifying spend than the machinery line of the fixed asset register shows. A director who wants to claim capital allowances across the whole site needs to know which route each cost takes, and at what rate.

What a Factory Can Claim: the Four Routes

The routes are not alternatives the claimant picks between at will. Each cost is tested, allocated, and then relieved at the rate attaching to where it lands.

Route	Rate	What it holds
Full expensing (companies)	100% in year one	New and unused main-rate plant
40% first-year allowance	40% in year one, balance written down	New and unused main-rate plant bought on or after 1 January 2026
Annual investment allowance	100% in year one, up to £1m	Qualifying plant and machinery, new or used
Main pool	14% from April 2026	Production plant, machinery, racking, tooling
Special rate pool	6%	Integral features, thermal insulation, long-life assets
Structures and buildings allowance	3% straight line	The shell, the yard, the extension

Two of those routes are 2026 arrivals or changes, which is why most factory guidance online is now out of date. The article states both below, with the date each took effect.

Production Plant and Process Machinery on the Shop Floor

Claiming capital allowances on plant and machinery in a factory starts with a statutory list rather than a firm's marketing schedule.

Section 23 of the Capital Allowances Act 2001 sets out List C: expenditure that the buildings and structures exclusion does not block. The items that matter on a shop floor are (HMRC, Capital Allowances Manual CA22030, accessed 13 August 2026):

• Manufacturing or processing equipment
• Storage equipment, including cold rooms
• Machinery not falling within any other item on the list
• Gas and sewerage systems provided to meet the particular requirements of the trade
• Silos for temporary storage, and storage tanks
• Pipelines and underground ducts
• The alteration of land for the purpose only of installing plant

That last item is the one directors most often miss. Excavating and forming a reinforced base so a press or a CNC machine can be installed is not building work for these purposes: it is expenditure on installing the plant.

Being on List C is not the end of the test. The manual is explicit that the list does not itself make anything plant, and an item still "has to pass the normal tests for being plant in common law before allowances are due". A structure that merely houses a process is not plant because a process happens inside it.

The rest of the shop floor follows the same logic. Overhead cranes and gantries, machine guarding, conveyors, dust and fume extraction serving the process, mezzanine floors installed to hold plant and racking systems all qualify as main-rate plant.

Process development work on that same equipment may support a separate relief on top of the allowances. That question is covered in R&D Tax Relief for Manufacturing and Engineering Firms; this guide stays with the tax treatment of the asset.

Power, Compressed Air and Building Services

The capital allowances special rate pool is where a factory's infrastructure lands, and it relieves at 6% rather than 14%. That is a slow route, but the alternative for most of these items is no allowance at all.

HMRC's integral features are lifts, escalators and moving walkways, space and water heating systems, air-conditioning and air cooling systems, hot and cold water systems but not toilet and kitchen facilities, electrical systems including lighting, and external solar shading (GOV.UK, "Work out your writing down allowances: Rates and pools", accessed 13 August 2026). In an industrial unit that captures the three-phase distribution and switchgear, the high bay lighting, the warm-air heating and the site's water installation.

Two further categories sit in the same pool:

• Capital allowances thermal insulation added to an existing building is special-rate expenditure, not main-rate plant
• Long-life assets, meaning plant with a useful economic life of at least 25 years from new, once the year's long-life spend exceeds £100,000

The long-life threshold catches heavy process installations more often than directors expect. A large press line or a bulk handling installation with a design life beyond 25 years crosses into the 6% pool once the £100,000 test is met.

A compressed air ring main splits. The compressors and receivers are main-rate plant serving the process. Where distribution pipework forms part of the building's general services rather than the process, it follows the services. Extraction and ventilation in a catering setting are treated in Capital Allowances for Pubs, Restaurants and Commercial Kitchens; here the test is whether the installation serves a production process. The borderline cases in the category itself are covered in What Counts as an Integral Feature for Capital Allowances?

Buying or Refurbishing an Industrial Unit

Capital allowances for industrial buildings on a second-hand purchase are conditional, and the condition is settled before completion or not at all.

The buyer can claim on fixtures already in the building only where the seller pooled the expenditure before the sale, and where the two sides fix a value within two years of the transfer, by election or by application to the tribunal (GOV.UK, "Plant and machinery: allowances on fixtures when there's a change of ownership", published 4 December 2014). A unit bought without either point resolved may hold significant embedded value that nobody can now claim. The pre-completion mechanics are covered in Capital Allowances When Buying a Commercial Property: What to Agree Before Completion.

On a refurbishment, the first question comes before the pools: is the spend a repair or is it capital? A like-for-like re-roof is a repair, deducted in full against profit in the year. A re-roof that upgrades the specification, or a new power supply installed to serve a line relocation, is capital and splits between plant, integral features and building. The general test is covered in Which Refurbishment Costs Qualify for Capital Allowances?

A manufacturer occupying a leased unit claims on the plant and fit-out it paid for. The landlord's building sits elsewhere, and a landlord's contribution to the works has to be tested against the contribution rules before the spend is treated as the occupier's own (HMRC, GfC5 part 2, last updated 27 July 2026). The tenant and landlord boundary is covered in Can You Claim Capital Allowances on a Leased or Rented Property?

Spend on assets still owned but never analysed does not expire the way a filing deadline does. Unclaimed plant and machinery expenditure from earlier years can still be identified and brought into a pool.

The Shell and the Yard

Capital allowances structures and buildings cover what is left once the plant is out: the frame, the cladding, the floor slab, the offices, the yard and the hardstanding.

The allowance is 3% a year on qualifying construction, renovation and conversion costs of a non-residential structure, on a straight-line basis over an allowance period of 33 and one third years (GOV.UK, "Claiming capital allowances for structures and buildings", published 15 August 2019, last updated 3 September 2020). All construction contracts must have been entered into on or after 29 October 2018, and an allowance statement is required to support the claim and to pass it to a future owner.

Qualifying costs never include anything that qualifies for plant and machinery allowances. The two are mutually exclusive on the same expenditure, which is what makes an itemised construction invoice worth more than a lump sum. A contractor who prices the whole unit as one figure makes the split impossible after the fact.

Full Expensing and the 50% First-Year Allowance

Capital allowances full expensing gives a company 100% relief on the cost of new and unused main-rate plant in the year of purchase, with a 50% first-year allowance on new special-rate expenditure, on spend incurred from 1 April 2023 (GOV.UK, "Claim capital allowances: Full expensing", accessed 13 August 2026).

Three restrictions decide whether a manufacturer can use it:

• It is open to companies only, so a partnership or sole trade uses the annual investment allowance instead
• The asset must be new and unused, which rules out second-hand and ex-demonstration machines
• Cars are excluded, as is plant bought to lease out unless it is background plant in a building

For a company buying a new machine, full expensing is the fastest route to the deduction and generally beats every alternative.

Rates from 2026: the 40% First-Year Allowance and the 14% Main Pool

Two changes arrived as one measure, and both matter to a manufacturer planning a purchase. Most capital allowances WDA rates published online still give the old figure.

The main pool writing down allowance fell from 18% to 14% on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. The special rate pool is unchanged at 6%. An accounting period spanning the change applies a hybrid rate based on the proportion of the period falling either side of it (GOV.UK, "Work out your writing down allowances: Rates and pools", accessed 13 August 2026).

Alongside it, a 40% first-year allowance applies to plant or machinery bought on or after 1 January 2026 that is new and unused, qualifies for the main rate and is not a car, with writing down allowances running on the remaining 60% (GOV.UK, "Claim capital allowances: 40% first-year allowance", accessed 13 August 2026; HMRC policy paper "New first-year allowance and main rate of writing-down allowances", 26 November 2025). Unlike full expensing, it is open to unincorporated businesses and to assets bought for leasing.

The arithmetic on a £500,000 machine bought new by a company shows what the routes are worth in year one:

• Full expensing: £500,000 deducted in the year of purchase
• 40% first-year allowance: £200,000 in year one, with the remaining £300,000 entering the main pool and giving £42,000 at 14%, so £242,000 in total
• Main pool only: £70,000 in year one at 14%

Where the Annual Investment Allowance Fits

The capital allowances AIA limit is £1 million of qualifying plant and machinery per accounting period, and it is open to companies, sole traders and partnerships alike (GOV.UK, "Claim capital allowances: Annual investment allowance", accessed 13 August 2026). It is apportioned for an accounting period shorter than twelve months.

Its advantage over full expensing is coverage: the annual investment allowance applies to second-hand plant and to special-rate spend, both of which full expensing excludes.

The timing rule is where a factory year-end order goes wrong. Expenditure is dated by when the contract was signed if payment is due in less than four months, and by when payment falls due if it is due later. A machine ordered in March against payment terms of six months is expenditure of the later period, not the earlier one.

Second-Hand and Ex-Demonstration Machines

Can you claim capital allowances on second hand equipment? Yes, but not through the first-year routes.

Full expensing and the 40% first-year allowance both require the asset to be new and unused, so a used or ex-demonstration machine fails both. It falls back on the annual investment allowance, which gives the same 100% relief in the year up to the £1 million ceiling, or on writing down allowances at 14% if the ceiling is already used.

For a manufacturer buying heavily on the used market, the practical consequence is that the annual investment allowance is the binding constraint on the year rather than an afterthought.

Machines Bought on Hire Purchase

Claiming capital allowances on hire purchase assets follows the asset, not the payments schedule. Where plant is bought under a hire purchase contract, allowances can be claimed on all the payments due under the contract once the item has been brought into use. Interest payments cannot be claimed as capital expenditure; they are a financing cost (GOV.UK, "Claim capital allowances: Annual investment allowance", accessed 13 August 2026).

Two points follow. The machine must be brought into use, so a machine on site but not yet commissioned at the year end does not carry the claim into that period. And an asset leased from someone else normally gives the lessee no plant and machinery allowances at all, because the lessee never owns it.

How a lender underwrites the deal and what documentation moves it faster is covered in Asset Finance for Manufacturing Machinery: How It Works. The point here is only that the funding route changes the allowance.

Tooling and Other Short-Life Assets

Capital allowances short life assets are a timing tool for plant the business does not expect to keep: tooling, jigs, moulds and rigs on a short replacement cycle.

An asset can be placed in its own single asset pool at the main rate, so that when it is sold or scrapped the unrelieved balance is written off in full at that point rather than continuing to be written down inside the main pool. The rules that bound it (GOV.UK, "Work out your writing down allowances: Rates and pools", accessed 13 August 2026):

• Cars and special-rate items cannot be treated this way
• An asset still in use after eight years returns to the main pool
• A company must tell HMRC within two years of the end of the tax year in which the asset was bought

Disposals cut both ways. Scrapping or selling a machine that was written off in full under the annual investment allowance or a first-year allowance produces a balancing charge added back to profit where its pool cannot absorb the disposal value (GOV.UK, "Capital allowances when you sell an asset", accessed 13 August 2026).

What to Do Next

Walk the site and record the position before the year end rather than after it. For each machine and installation, note the invoice, the date the contract was signed and the date payment fell due, whether the item is new or second-hand, how it was funded, and which pool it belongs in. That record is what an adviser can price.

A tidy fixed asset register proves nothing on its own. HMRC's own guidelines say errors arise where claimants assume rather than check, that treating something as capital because the accounts do is a known error, and that construction projects are where significant errors are made (HMRC, "Help to avoid errors in claims for plant and machinery allowances", GfC5, published 7 May 2024, last updated 27 July 2026).

An online estimate is not entitlement either. It applies a percentage to a cost, and it cannot know whether the fixtures were fixed by a previous owner's election, never pooled, or belong to a landlord. The number is a reason to investigate, not a claim.

Run the site through the estimator on the claim capital allowances page to put a figure against the unit before approaching an adviser.