What is a capital allowance?

A capital allowance is an expenditure the U.K or Irish business may claim against its taxable profit. Capital allowances may be claimed on most assets purchased for use in the business, ranging from equipment and research costs to expenses for building renovations.

The classification of these assets determines whether full or partial value can be claimed and whether the allowance is deductible in one year or over several. Once a business has calculated the number of capital allowance expenditures that may be claimed during a taxation period, it should include this information on its tax return, which in the U.K is submitted to HMRC

What can you claim?

You can claim capital allowances on items that you keep to use in your business –these are known as “plant and machinery”

In most cases, you can deduct the full cost of these items from your profits before tax using the annual investment allowance.

The most common assets which you may purchase and that will qualify for capital allowances are as follow

  • 1.Motor Car
  • 2.Van
  • 3.Computer, printer, etc
  • .4.Tools such as a screwdriver or a spanner
  • 5.Specialist machinery

The main items that will NOT attract capital allowances include the cost of buildings or property, although it is possible that part of the cost of the building might relate to integral features or to fixtures. You will only be able to claim capital allowances relating to a building if it’s not a residential property and the property is used for business purposes, for example, an office or a shop.

What does not count as plant and machinery?

You cannot claim capital allowances on

  • Things you lease –you must own them
  • Buildings, including doors, gates, shutters, mains water and gas systems Land and structures, for example, bridges, roads, docks
  •  Items used only for business entertainment, for example, a yacht or karaoke machine

What counts as plant and machinery?

Plant and machinery include:

  • Items that keep you to use in your business, including cars
  • Costs of demolishing plant and machinery
  • Parts of a building considered integral, known as “integral features”
  • Some fixtures, for example, fitted kitchens or bathrooms suits
  • Alterations to a building to install other plants and machinery –this does not include repairs.

How can you claim capital allowances?

They must be claimed in your self-assessment tax return and they must normally be claimed by 12 months after the 31stof January filing deadline for the return, you can get this done by contacting us at ASMAT & CO.

Writing down allowances

When you buy business assets you can usually deduct the full value from your profits before tax using an annual investment allowance

Use writing down allowances instead if:

  • You’ve already claimed AIA on items worth a total of more than the AIA amount
  • The item doesn’t qualify for AIA (for example, cars, gifts, or things you owned before you used them in your business

Writing down allowances is when you deduct a percentage of the value of an item from your profits each year

The percentage you deduct depends on the item. For business cars the rate depends on their C02 emissions.

Business cars

You can claim capital allowances on cars you buy and use in your business.

This means you can deduct part of the value from your profits before you pay tax

using writing down allowances to work out what you can claim –cars do not qualify for annual investment allowance (AIA)

Sole traders and partners

If you a sole trader or a partner you can claim simplified mileage expenses on business vehicles instead –as long as you have not already claimed for them in another way.

Employees

If you an employee you cannot claim capital allowances for cars. Motorbikes and bicycles you use for work, but you may be able to claim for business mileage and fuel costs