Capital allowances: areas of uncertainty – update for stakeholders

9 Jun 2025

HMRC has shared with us, and confirmed that we can share with our members, the message below regarding where they are with areas of uncertainty around capital allowances.

As requested at the end of the message from HMRC, please let us know if you have any suggestions on areas where the guidance on capital allowances could be clarified to provide clarity on HMRC’s view. Suggestions should be sent to [email protected].

HMRC message: 

In the Autumn, you kindly submitted your views to HMT and HMRC on how the capital allowances guidance could be improved to provide greater certainty on the operation of the capital allowances regime. We wanted to provide a brief update on this work. 

There was general agreement with the main areas of uncertainty identified but the responses highlighted that in many cases the uncertainty was an outcome of the principles-based nature of the legislation rather than a deficiency of guidance. Some very specific changes were suggested which have been simple to adopt where we agreed with the point being made (for example, providing better links to the guidance on the intangibles regime and capital v revenue for software). Some more general comments were provided which are harder to implement but will be kept in mind when considering changes to the guidance (for example, general requests for additional examples). Similarly, various suggestions were made for process improvements that could be made to HMRC’s approach to guidance. We will keep these suggestions in mind in our approach to guidance and we have shared these insights with HMRC’s central guidance team. There were some suggestions made where we think the guidance is already sufficiently clear in setting out HMRC’s view, so we are not proposing to make any changes in those cases (for example, it was suggested that we should clarify whether a s198 election is needed in the case of a s266 transfer – the answer is ‘yes’ and this is already covered in CA29040). In addition, there were several policy changes suggested and, whilst your views on potential policy changes are helpful, we are not taking those forward as part of this project. Some of the feedback also relates to areas which are the responsibility of other teams within HMRC and, where this is the case, we have shared the feedback with the relevant team (for example, we have shared the feedback on the distinction between capital and revenue expenditure with the business profits team who are responsible for the relevant guidance in this area). 

What we have done 

We have updated guidance in the following areas: 

  • Outdated References – We have amended references to outdated technologies (e.g. word processors) and case law (e.g. references to SSE Generation in CA22005). 
  • Interaction between different allowances – We have published guidance on the interaction between different plant and machinery allowances at CA20008. 
  • Software – We have amended guidance to improve the links between different parts of HMRC’s guidance on the tax treatment of software (CA23410) and to confirm HMRC’s view in respect of how the second-hand asset exclusion applies to capital expenditure on improvements to existing software (CA23174AB). 
  • Second-Hand Assets – The guidance at CA23174AB (referenced above) has also been updated to provide further clarity on HMRC’s view on how the second-hand asset exclusion applies in other cases. 
  • Long-Life Assets – We have updated and clarified the guidance on long-life assets starting at CA23700 to provide greater clarity on HMRC’s view on how the long-life asset rules should apply. 
  • Real Estate Investment Trusts (REITs) – We have clarified the guidance on REITs claiming first-year allowances at IFM24010. 
  • Furnished Holiday Lettings (FHL) Repeal – We have published guidance in respect of FHL repeal, which in respect of capital allowances is available at CA20025. In connection with that work, we have also updated the outline of plant and machinery allowances at CA20006 and improved the guidance on qualifying activities at CA20010 including better linking to other parts of HMRC’s guidance which might be relevant to the user. We have also made various other consequential amendments to the guidance as a result of FHL repeal. 
  • Fixtures – We have made several updates to the guidance on fixtures. In particular, CA26025 has been updated to include further examples of items that would normally be regarded as fixtures and those which would normally be regarded as chattels. Changes were also made to the high-level guidance in in HS252 and GOV.UK. An example has been added to CA26850 to aid understanding of the information that should be included in a section 198 election. The example also illustrates that non-taxpaying purchasers can enter into s198 elections and explains why they might want to do so (there are other references to this point in the manual, e.g. in CA26478). 

What we are still doing 

Some of the areas raised required more detailed consideration due to their complexity, and further areas where the guidance could be improved have been identified through the process of improving the guidance. In this regard, we are continuing to consider how guidance could be improved in respect of the following areas: 

  • Leasing – The Business Leasing Manual is being updated to reflect the amendments to FRS 102. As part of this process, we are updating the guidance in the Business Leasing Manual and moving content to and from other manuals to remove duplication and make sure it is in the most appropriate place for users to find. 
  • Employees and Office Holders – We are in the process of making changes in respect of the guidance on the entitlement to capital allowances for employees and office holders in the Employment Income Manual (EIM36500) where the capital allowances aspects of this guidance are very out of date. 
  • Meaning of Plant – We are considering whether changes to the guidance on the meaning of plant could be helpful in light of the feedback received and recent case law considering this point. 
  • Contributions – We are considering how we can clarify the guidance on contributions where we think there may be some scope for improving the guidance. 
  • Various Miscellaneous Issues – There were various other discrete issues raised where further clarity in guidance might be helpful and we are continuing to consider those points and whether guidance updates could be helpful. 

“On the provision of” 

We recognise that one of the main areas of uncertainty relates to the application of the legislative wording “on the provision of”, particularly in light of the various court decisions in the case of Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2025]. Given the ongoing nature of this litigation, we must be very careful when considering guidance changes, particularly given the read across from that case to the meaning of the words “on the provision of”. Therefore, it is unlikely that we will change this guidance in the short term. 

Of course, we continue to welcome feedback on areas where the guidance could be clarified to provide clarity on HMRC’s view.