You spent £47,000 fitting out your new agency office in Manchester’s Northern Quarter. New desks, lighting, a breakout area, kitchenette, and that exposed brick wall you insisted on. It looks great. Clients love it. Your team actually wants to be in the office.
But here’s the question nobody asked you: how much of that £47,000 can you claim back against corporation tax?
If your accountant hasn’t mentioned capital allowances on office fit-out costs for your agency, you’re probably leaving money on the table. I see it all the time. Agencies spend serious money on their workspace, then treat the whole lot as a fixed asset depreciating at 10% a year. That’s the slow route. The tax-efficient route is claiming capital allowances on everything that qualifies as plant and machinery.
This article explains exactly what qualifies, what doesn’t, and how to structure your claim so HMRC doesn’t push back.
What Are Capital Allowances, Actually?
Capital allowances let you deduct the cost of certain assets from your taxable profits. Instead of spreading the cost over the asset’s useful life through depreciation (which isn’t tax deductible anyway), you write off the cost against your corporation tax bill.
For a limited company paying 19% or 25% corporation tax, every £10,000 of qualifying expenditure saves you £1,900 to £2,500 in tax. That’s real money.
The main reliefs you’ll use for an office fit-out are:
- Annual Investment Allowance (AIA): 100% relief on the first £1 million of qualifying plant and machinery expenditure per year. You deduct the full cost in the year you spend it.
- Writing Down Allowances (WDA): For assets that don’t qualify for AIA, or if you’ve used your AIA cap elsewhere. Typically 14% (main pool) or 6% (special rate pool) per year on a reducing balance basis. The main pool rate was reduced from 18% to 14% by Finance Act 2026 section 28, with effect from 1 April 2026 for corporation tax and 6 April 2026 for income tax.
- Structures and Buildings Allowance (SBA): 3% straight-line relief per year on the cost of the physical building structure itself. This applies to new builds or major renovations, not standard fit-outs.
Most agency fit-outs fall under AIA. The question is which bits of your fit-out count as plant and machinery, and which bits don’t.
What Qualifies as Plant and Machinery in an Office Fit-Out
HMRC defines plant and machinery broadly as equipment you use to carry on your trade. For an agency, that includes most of the things that make your office functional rather than just a shell.
Fixtures That Qualify
These items almost always qualify for capital allowances:
- Electrical systems: Power sockets, data cabling, lighting fixtures (but not the building’s main electrical supply)
- Heating and air conditioning: Boilers, radiators, air conditioning units, ventilation systems
- Sanitary ware and plumbing: Sinks, toilets, showers, kitchenette fittings
- Fire alarm and security systems: Detection, alarm panels, CCTV, access control
- Built-in furniture: Fitted desks, shelving, reception desks, kitchen units that are fixed to the building
- Floor coverings: Carpet, vinyl, laminate (but not the screed or subfloor)
- Blinds and curtains: Window coverings that are fixed in place
- Partition walls: Demountable or stud partition walls (but not load-bearing structural walls)
- Signage: Internal and external signage, including illuminated signs
- Telephone and IT infrastructure: Phone systems, server racks, structured cabling
For a typical agency fit-out, 60-80% of the total cost often qualifies as plant and machinery. That’s a significant chunk.
What Does NOT Qualify
Some costs are excluded from capital allowances. These are treated as part of the building itself:
- Structural walls and floors: Load-bearing walls, concrete floors, roof structure
- Main building shell: The basic fabric of the building, brickwork, windows, doors (unless they’re specialist)
- External works: Landscaping, car parks, paths (unless directly used in the trade)
- Decorative items: Free-standing artwork, plants, ornaments (but integrated lighting for display purposes may qualify)
- General repairs and decoration: Painting, plastering, re-carpeting like-for-like (these are revenue expenses, not capital)
Here’s where it gets tricky. If you replace an old carpet with a new one of similar quality, that’s likely a repair, deductible as a revenue expense in full. If you upgrade the carpet as part of a full fit-out, it’s capital. The distinction matters.
A Real Example: 12-Person Digital Agency Fit-Out
Let’s make this concrete. A Bristol-based digital agency spent £63,400 on their office fit-out. Here’s how the costs broke down and what qualified:
| Item | Cost | Qualifies? |
|---|---|---|
| Partition walls and glazing | £12,800 | Yes |
| Electrical and data cabling | £8,200 | Yes |
| LED lighting throughout | £4,600 | Yes |
| Air conditioning installation | £6,900 | Yes |
| Fitted desks and reception desk | £9,300 | Yes |
| Kitchenette with units and appliances | £5,100 | Yes |
| Carpet and vinyl flooring | £3,800 | Yes |
| Blinds and curtains | £1,200 | Yes |
| Painting and decoration | £3,500 | No, revenue expense |
| Free-standing sofas and coffee tables | £4,000 | Yes, separate plant items |
| Structural alterations to wall | £2,000 | No, building fabric |
| External signage | £2,000 | Yes |
| Total | £63,400 |
Total qualifying expenditure: approximately £57,900. Non-qualifying: £5,500.
Using AIA, the agency claimed 100% relief on the £57,900 in the year of expenditure. At 19% corporation tax, that saved them £11,001 in tax. At 25%, it would save £14,475.
The £5,500 on decoration and structural work was treated as a revenue expense anyway, so it was fully deductible against profits. The free-standing sofas and coffee tables? Those qualify as separate plant items, so they go through the capital allowances claim too.
How to Structure Your Claim
You can’t just hand your accountant a total fit-out cost and expect them to sort it out. HMRC expects a detailed breakdown. Here’s the process:
Step 1: Get an Itemised Invoice From Your Contractor
Before you pay the final bill, ask your fit-out contractor for a fully itemised breakdown. Not just “office fit-out, £48,000”. You need line items showing the cost of each element: partitions, electrics, lighting, flooring, joinery, decoration.
If the contractor can’t or won’t provide this, you’ll need a quantity surveyor or a capital allowances specialist to apportion the costs. That costs money, but it’s often worth it on fit-outs over £50,000.
Step 2: Separate Capital from Revenue
Go through the itemised list and split costs into three buckets:
- Capital, plant and machinery: Claim via AIA in the year
- Capital, building fabric: Claim via SBA at 3% per year (if you own the building)
- Revenue: Deduct in full as a trading expense (decoration, repairs, consumables)
Your accountant should do this with you. If they’re not comfortable with capital allowances, ask them to bring in a specialist. Many ICAEW firms have capital allowances partners they work with.