Capital allowances on a hospitality fit-out

What qualifies as plant and machinery

Capital allowances give tax relief on things a business buys to keep and use. Plant and machinery covers equipment, furniture and fittings, and some parts of a building. HMRC's Capital Allowances Manual, in List C at CA22030, sets out items in a building that can still be plant. For a restaurant, pub or hotel these include:

• cold rooms, counters and display units
• cookers, fridges, washing machines, dishwashers, sinks and furniture
• sound insulation provided mainly to meet the needs of the trade
• computer, telephone and surveillance systems, including their wiring
• refrigeration and cooling equipment
• fire alarm and sprinkler systems, and burglar alarms
• signs and similar displays
• "Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades"

Alterations to a building made to install plant or machinery also qualify, though repairs do not. In rented premises you can claim for fixtures you buy, but only the person who bought an item can claim for it. Equipment you lease cannot be claimed, unless it is on hire purchase.

The building itself, walls, floors, doors, windows and the land are not plant. A business that uses the cash basis can claim capital allowances only on cars; it deducts equipment as an expense.

Integral features

Integral features are parts of a building that go into the special-rate pool. GOV.UK lists them as 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.

In a hospitality fit-out they can be a large share of the spend. A new heating system, rewiring and air conditioning in a restaurant are all integral features. Replacing more than 50% of an integral feature within 12 months counts as replacing the whole of it, which is capital spending (CA22340). Smaller repairs are an expense in the accounts.

The allowances

For a company, a fit-out of new equipment within £1 million is deducted in full in the year it is bought. Above that, full expensing gives 100% on new main-rate items with no cap, and the 50% first-year allowance covers new special-rate items. Sole traders and partnerships have the Annual Investment Allowance and, since 1 January 2026, the 40% first-year allowance on new main-rate items.

Allowances on plant and machinery in 2026/27

Allowance	Who can claim	Rate	What it covers
Annual Investment Allowance	Companies, sole traders, partnerships of individuals	100% up to £1 million a year	New or second-hand plant and machinery, main and special rate. Not cars
Full expensing	Companies	100%	New and unused main-rate plant and machinery. No cap
50% first-year allowance	Companies	50%	New and unused special-rate assets, including integral features
40% first-year allowance	All businesses, from 1 January 2026	40%	New main-rate plant and machinery. Not second-hand assets or cars
Main-rate writing-down allowance	All businesses	14% a year	The balance of the main pool
Special-rate writing-down allowance	All businesses	6% a year	The balance of the special-rate pool
Structures and buildings allowance	All businesses	3% a year for 33⅓ years	Building and structure costs under contracts from 29 October 2018

Full expensing and the first-year allowances need the item to be new and unused. Second-hand kitchen equipment bought with a business qualifies for the Annual Investment Allowance, or goes into a pool for the writing-down allowance. When a pool balance is £1,000 or less, it can be written off in one year as a small pools allowance.

Worked examples

A £150,000 fit-out by a limited company

• Kitchen equipment, new£60,000
• Furniture, bar fittings and tills, new£40,000
• Electrics, lighting, heating and air conditioning£50,000
• Claimed in year one under the Annual Investment Allowance£150,000

Where the company's profits are below £250,000, the corporation tax saved is lower because the small profits rate and marginal relief apply. A sole trader's saving depends on their income tax rate.

A £1.4 million hotel refurbishment by a limited company

• New furniture, beds, kitchen and laundry equipment: full expensing at 100%£800,000
• Electrics, lighting, heating, air conditioning and lifts: Annual Investment Allowance£600,000
• Annual Investment Allowance left unused£400,000
• Deducted in the year of spend£1,400,000

Selling equipment that was fully expensed

• New kitchen equipment bought by a company£40,000
• Full expensing claimed in the year of purchase£40,000
• Sold three years later with the business£12,000
• Balancing charge added to taxable profits£12,000
• Corporation tax at 25% on the balancing charge£3,000

Structures and buildings allowance on an extension

• Building work on a new dining room extension£300,000
• Allowance at 3% a year£9,000
• Years over which it is claimed33⅓
• Total allowance over the period£300,000

Budget 2026 proposals

The Budget on 28 October 2026 proposed two changes, published by HMRC the next day:

• the main-rate first-year allowance rises from 40% to 50% for expenditure from 1 January 2027
• the main-rate writing-down allowance falls from 14% to 12% for chargeable periods beginning on or after 1 April 2027 for companies and 6 April 2027 for income tax, with a blended rate for periods that straddle the change

Both are to be legislated in the Finance Bill 2026-27 and are not law yet. Full expensing and the £1 million Annual Investment Allowance are unchanged.

Buying premises or a fit-out

Where you buy a building or a business that includes fixtures, GOV.UK says you can usually claim only for items the seller claimed for, and you and the seller must agree the value of the fixtures. The value is fixed by an election under section 198 of the Capital Allowances Act 2001, made jointly in writing within two years of the purchase. It cannot be withdrawn, and a copy goes with the tax return (CA26850). If the seller did not pool the fixtures or the value is not fixed in time, the buyer can lose the claim on them.

The structures and buildings allowance gives 3% a year of the cost of building, renovating or converting non-residential structures, under contracts made on or after 29 October 2018. It runs for 33⅓ years. It does not cover the land, integral features and fixtures that are plant, or planning permission costs. To claim, the business needs an allowance statement giving the date of the first use and the qualifying cost.

Timing, groups and selling

• The Annual Investment Allowance is claimed in the period the item was bought. GOV.UK treats it as bought when the contract is signed, if payment is due within 4 months, or when payment is due, if that is more than 4 months later.
• Items on hire purchase qualify from when you start using them, for all the payments under the contract except the interest.
• The £1 million limit is scaled for an accounting period of more or less than 12 months. For a 9-month period it is £750,000.
• You can claim less than the full Annual Investment Allowance, for example in a year of low profits, and take writing-down allowances on the rest.
• A sole trader or partner who also uses an item outside the business reduces the claim by that share.
• There is no Annual Investment Allowance in the accounting period in which the trade ends.
• Two or more limited companies controlled by the same person get one Annual Investment Allowance between them, and choose how to share it.
• When equipment is sold, its sale value comes off the pool. Where it was fully expensed, the full sale value is taxed as a balancing charge, and half of it where the 50% allowance was claimed.

Common mistakes and what HMRC does

• Putting the whole fit-out invoice down as building work, so the plant inside it goes unclaimed.
• Claiming full expensing on second-hand equipment.
• Claiming full expensing as a sole trader.
• Using the Annual Investment Allowance on main-rate items while integral features wait in the 6% pool.
• Buying a pub or hotel with no section 198 election, losing the claim on its fixtures.
• Claiming structures and buildings allowance without an allowance statement.
• Forgetting the balancing charge when kit is sold with the business.

Where HMRC finds an over-claim, it amends the return and charges the tax with interest. A penalty can be added where the error was careless, up to 30% of the extra tax, or deliberate, up to 70% or 100%.

Records and deadlines

• Invoices for every item, with the contractor's breakdown of a fit-out between building work, integral features and equipment.
• An asset list showing the cost, date, pool and allowance claimed for each item.
• Any section 198 election and structures and buildings allowance statement.
• Sale proceeds of equipment sold or scrapped.
• Company tax return due 12 months after the end of the accounting period; corporation tax due 9 months and 1 day after it.
• Sole traders and partners file their 2025/26 Self Assessment return by 31 January 2027.

How we help

We split fit-out invoices between building work, integral features and equipment, and set each allowance against the pool that gives the largest deduction. Before you buy premises we agree the section 198 election with the seller's accountant. More on accounts and VAT and on buying or selling a hospitality business.