Originally Posted by business link

To calculate the capital allowances you can claim for plant and machinery (P&M), first add up the cost of your qualifying expenditure on P&M (excluding cars):

if the total is £50,000 or less, you can claim 100 per cent of that amount as your Annual Investment Allowance (AIA)
if you have spent more than £50,000 on P&M in a year, add the amount over the AIA to any expenditure brought forward from previous years to make a 'main pool' of costs
You can claim a writing-down allowance (WDA) of 20 per cent on the value of this pool, with the remaining 80 per cent being carried forward into the next year. For example, if you spend £60,000 on P&M in a year, £50,000 of the expenditure falls under the AIA. The remaining £10,000 goes into the main pool. You can claim £2,000 WDA on this amount (£10,000 x 20 ÷ 100) and £8,000 is carried forward.

In certain cases you may also have incurred expenditure on P&M that qualifies for the 10 per cent special rate allowance. In such cases you will need to allocate that expenditure to the special rate pool and write it down at 10 per cent.

However, you may use your £50,000 AIA wholly or partly against this expenditure first, in preference to expenditure that qualifies at the 20 per cent rate. Any balance of expenditure after the AIA has been taken off will be included in the 'special rate pool' and will qualify for allowances at 10 per cent.

For example, you spend £100,000 on P&M in a year, £70,000 of which relates to main pool expenditure and £30,000 to special rate expenditure. You can allocate all the £30,000 special rate expenditure to the AIA and £20,000 of the main rate expenditure. The remaining £50,000 should be allocated to the main pool and written down at 20 per cent.

Note that for the 12-month period beginning on 1 April 2009 for Corporation Tax and 6 April 2009 for Income Tax, any new expenditure (excluding that on cars, leasing, and expenditure brought forward which continue to be written down at 20 per cent or the appropriate rate and special-rate expenditure of 10 per cent) temporarily qualifies for a 40 per cent WDA.

Also note that if you have incurred expenditure on purchasing energy-saving and water-efficient equipment, which qualify for a 100 per cent first-year allowances (FYA), and you have used up your AIA on other items, you can claim 100 per cent on that expenditure in the year you make the purchase, regardless of any other P&M expenditure. See our guide on first-year allowances.