Capital Allowances Act 2001 section 210

Reduction of annual investment allowance and first-year allowances

Section 210 requires a reduction in annual investment allowances and first-year allowances where a partial depreciation subsidy is or will be payable in respect of the relevant plant or machinery.

• Where qualifying expenditure has been incurred on plant or machinery for a qualifying activity and a partial depreciation subsidy is or will be received, any annual investment allowance or first-year allowance must be reduced to a just and reasonable amount.
• The reduction must take into account the relevant circumstances, including the extent of the subsidy received or expected.
• When calculating the unrelieved balance of expenditure to be allocated to a capital allowances pool under section 58, the reduction in the first-year allowance is disregarded — meaning the full original expenditure less the unreduced first-year allowance forms the pool balance.
• This prevents a double penalty: the taxpayer's ongoing writing-down allowances are not further reduced simply because the initial first-year allowance was restricted due to a partial depreciation subsidy.