Why do capital allowances matter for your business?
Capital allowances provide corporation tax or income tax relief for some, but not all, capital expenditure.
Capital allowances are sometimes referred to as “tax depreciation” because accounts depreciation is not tax deductible. The UK’s tax system has a set of specific rules which provide tax relief for a range of assets with varying rates of relief.
Relief for capital allowances stretches from 8% – 100% as a qualifying deduction for tax purposes. In certain circumstances, companies can also unlock cash tax repayments from HMRC to assist with cash flow.
The most obvious forms of relief may not be the most beneficial for the business. For example, you can maximise the relief by understanding the intended use of the asset. It may produce a better outcome than simply understanding the nature or location of the asset.
- What is the proposed or historic expenditure?
- What purpose was the expenditure incurred for?
- What are the range of reliefs which could apply?
- What is the optimal cashflow outcome for claiming reliefs?
What type of expenditure qualifies for plant and machinery allowances?
In order to qualify for plant and machinery allowances, expenditure must be:
- On qualifying plant and machinery, and;
- Wholly or partly for the purposes of a qualifying activity;
- In addition, the person incurring the expenditure must own the plant and machinery as a result of incurring it
Allowances other than plant and machinery
Capital allowances are also available for expenditure on:
- Patent rights
- Research & Development
- Mineral extraction
- Assured tenancies
- Business property renovation