Capital allowances can grant you tax relief for the reduction in the value of assets by letting you write off their cost against the taxable income of your business.
What is Capital Allowance?
You may be able to claim a capital allowance after buying an asset such as a car, machinery or other equipment that is brought for use in your business.
They are also available for certain building-related capital spending, like qualifying capital spent on research and development and donations of any used business assets to charity.
Capital allowances are available to the self-employed, sole traders as well as larger organisations liable for Corporation Tax.
What can you claim Capital Allowances for?
You can claim capital allowance for certain assets that are purchased for business use, providing the required conditions are met. The main condition is that you cannot claim capital allowances for the cost of items that your business buys and sells as part of its trade.
Equipment purchased and used in your business – tools, machinery, vehicles, computers, office equipment, plant and factory equipment should qualify for plant and machinery allowances.
Research and development (R&D) expenditure – you may qualify for allowances if any R&D relates to your business’ trade, including equipment used for R&D also.
Gifting equipment to charity – if any assets are donated to a qualifying charity that have originally qualified for plant and machinery allowances then you may be able to claim on any leftover written down value.
Integral features and certain fixtures in business buildings – any expenditure on fitted kitchens, sanitary ware and a few other fixtures in a building can sometimes qualify for plant and machinery allowances. Certain integral features expenditure of the building, such as electrical wiring, heating and air conditioning systems, cold water systems and lifts may also qualify.
Business premises renovation – renovations on business premises in designated ‘disadvantaged areas’ may qualify for Business Premises Renovation Allowance.
Other allowances available:
- Mineral Extraction Allowance
- Know-How Allowance
- Patent Allowance
- Contributions Allowance
- Assured Tenancy Allowance
- Dredging Allowance
You can claim First-Year Capital Allowances to give you tax relief for the value of assets purchased for business use by letting you write off any cost against the taxable income of your business.
For example, plant and machinery first your allowances allow you to make a claim for up to 100% of the cost of any qualifying items against business profits within the year of purchase.
The current 100% first-year allowances are:
- Energy-saving and water-efficient equipment – but only if on the list of qualifying equipment
- Any new car purchase with low carbon dioxide emissions
- Certain vehicle refuelling equipment also
For further details on first-year capital allowances head to the HMRC website
How to claim capital allowances
Claiming capital allowances is different depending on if you’re self-employed, a partnership, or a company or organisation that must pay corporation tax.
If you’re self-employed you need to claim any capital allowances within your self-assessment income tax return, these should be made within 12 months after the 31st January filing deadline.
As a partnership business, you need to claim your capital allowances on any assets owned by the partnership mutually in your partnership return, and not in returns for any individual partners. Again, these claims need to be made within 12 months after the 31st January filing deadline.
Companies or organisations that pay Corporation Tax
If your company or organisation pays Corporation Tax then you must claim capital allowances on your company tax return, but you must include a separate claim showing your capital allowances calculations.
What your calculation must show:
- What specific allowance are you claiming for?
- How did you calculate your claim?
- How much are you claiming for?
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For any help with your bookkeeping, you can find your nearest Rosemary Bookkeeper and they can give you more time to grow your business by taking all aspects of your bookkeeping off your hands.