Capital allowances in the final year of a business

When a trade or other qualifying activity stops for good, the period in which it stops is the final chargeable period for the main pool, the special rate pool and every other pool. In that period there is no annual investment allowance, no first year allowance and no writing down allowance; instead each pool is closed off with a single balancing allowance or balancing charge, worked out from what the assets were sold for or, if they were kept, their market value.

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Which period counts as the final chargeable period?

Section 65(1) of the Capital Allowances Act 2001 (CAA 2001) makes the final chargeable period for the main pool and a special rate pool the chargeable period in which the qualifying activity is permanently discontinued. HMRC’s Capital Allowances Manual at CA23270 adds that the same applies to a long life asset pool. A single asset pool, such as a car with private use or a short life asset, reaches its final chargeable period at the first disposal event (section 65(2)), and permanent discontinuance of the activity is itself one of the disposal events listed in section 61(1)(f).

What “chargeable period” means depends on who is taxed. Section 6 CAA 2001 defines it as a period of account for income tax and an accounting period for corporation tax. For a company, section 10(1)(d) of the Corporation Tax Act 2009 ends an accounting period when the company starts or ceases to trade, so the final chargeable period is the accounting period ending on the day trading stops. For a sole trader or a partnership of individuals it is the last period of account, which ends with the cessation. The wider income tax consequences of closing down are covered in stopping self employment.

Why is there no AIA, first year allowance or writing down allowance?

Three separate rules point the same way:

General exclusion 1 in section 38B says expenditure incurred in the chargeable period in which the qualifying activity is permanently discontinued is not AIA qualifying expenditure.
General exclusion 1 in section 46(2) says the same for first year allowances, which covers full expensing, the 50% special rate allowance, the 40% first year allowance and the 100% allowances for zero emission cars.
Section 55(4) says that where available qualifying expenditure exceeds disposal receipts the entitlement is to a writing down allowance “except for the final chargeable period when it is to a balancing allowance”.

GOV.UK’s guidance on the annual investment allowance puts it simply: if the business closes, AIA cannot be claimed for items bought in the final accounting period, and a balancing charge or balancing allowance is entered on the return for the year of closure. Spending bought in the final period still counts. It is added to the pool as ordinary qualifying expenditure, so it is relieved through the balancing adjustment rather than through an upfront allowance.

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What disposal value goes into each pool?

Section 61(2) contains a table of disposal values. Item 6 deals with cessation: where permanent discontinuance is followed by a sale, demolition, destruction or loss, the disposal value is the figure for that later event. In practice that means:

Assets sold, whether before or after the last day of trading, are brought in at net sale proceeds plus any capital insurance or compensation.
Assets sold to a buyer at less than market value are brought in at market value where item 2 applies, broadly where the buyer cannot claim allowances on the purchase and there is no employment income charge.
Assets scrapped bring in the scrap proceeds.
Assets the owner simply keeps fall within item 7, any other event, and are brought in at market value.

Section 62 caps the disposal value of any asset at the qualifying expenditure the person incurred on it, so a balancing charge can never exceed the allowances previously given. Where the asset came through a chain of connected persons, the cap is the highest expenditure incurred by anyone in the chain (CA23250).

The result for each pool follows section 56. If the pool balance exceeds total disposal receipts, the difference is a balancing allowance (section 56(7)). If receipts exceed the balance, the excess is a balancing charge (section 56(6)). The general mechanics are explained in balancing charges and allowances.

How do assets with private use work in the final period?

An asset used partly for non business purposes sits in its own single asset pool under section 206. On cessation its balancing adjustment is calculated in the normal way and then reduced to a just and reasonable amount under section 207. HMRC’s example at CA27005 shows the restriction reflecting the proportion of business use over the whole period of ownership, not just the final year. The same applies to a car a sole trader keeps after closing the business, which is common.

What does a final period computation look like?

Illustration only. Maria, a self employed joiner, stops trading on 30 September 2026. Her final period of account runs from 1 April 2026 to 30 September 2026.

Item	Main pool	Car (25% private use)
Brought forward	£18,000	£10,000
Saw bench bought June 2026 (no AIA)	£2,000
Tools and van sold to a third party	(£11,000)
Laptop kept, market value	(£300)
Car kept, market value		(£7,000)
Balancing allowance	£8,700	£3,000
Allowed after private use restriction	£8,700	£2,250

No writing down allowance is calculated on either pool, and the saw bench gets no AIA even though it would have qualified a few months earlier. The allowances are deducted as an expense of the trade under section 247 and may create or increase a loss in the final period; terminal loss relief can then carry that loss back. Had the tools and van fetched £25,000 instead, the main pool would show a balancing charge of £5,300, taxed as a trading receipt.

What if the business passes to someone else rather than closing?

A transfer of the whole trade is a cessation for the old owner too, but special rules decide the values:

Where the successor is not connected, section 265 treats the assets as sold to the successor at market value, and section 265(4) denies the successor any AIA or first year allowance on them (CA29030).
Where the two are connected, for example a sole trader incorporating, they can jointly elect under section 266 for the assets to pass at a value that gives neither a balancing allowance nor a balancing charge. See the section 266 election.
Where the successor inherits the trade under a will or intestacy, section 268 lets the beneficiary elect for the plant to pass at the lower of market value and the unrelieved expenditure.
In a partnership, a change of partners where at least one person carries on before and after is not a cessation for capital allowances (section 263; CA29010).

What mistakes come up most often?

Claiming AIA, full expensing or a writing down allowance in the final period. All three are blocked by statute.
Leaving kept assets out of the computation. A van or laptop the owner keeps is a disposal at market value, and leaving it out overstates the balancing allowance.
Using an unrealistic market value. The value for kept assets should be supportable, for example by reference to comparable second hand prices, because it directly drives the balancing figure.
Ignoring the cap. A disposal value above original cost is limited to cost under section 62; any excess may be a capital gains point instead.
Treating a company that stops trading but keeps its assets as having no adjustment. The accounting period ends on cessation and the pools close in that period whether or not the company is dissolved.
Missing a section 266 election on incorporation, which can turn a neutral transfer into a balancing charge.

Getting the final period right also feeds into the accounts: the profit or loss on disposal in the financial statements is reversed in the tax computation and replaced by the balancing adjustments described above.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.