What are capital allowances?
It goes without saying that for any business, utilising the tax reliefs available can help maximise your profitability. Capital allowances are a relief on your capital expenditure, allowing you to deduct part or all of the value of an item you’ve purchased from your taxable profits before the corporation tax due is calculated.
What costs can you claim?
Capital allowances cover items that have been capitalised on your balance sheet. This includes business vehicles, machinery and equipment that have been purchased to use for your business. HMRC categorise these as ‘plant and machinery’ – for more detail of what is and isn’t included see here.
How much can you claim?
This is where it can seem a little more complicated, the amounts differ depending on which of the capital allowances the item qualifies for:
- Annual investment allowance (AIA) – This allows you to deduct the full cost of a qualifying item, now permanently capped at £1,000,000 per tax year. Most items will fall into this category, except for cars, and items you’ve bought and used for other purposes before using them for business, for example a laptop you’ve been using for personal use previously.
- Writing down allowances – for items not qualifying for AIA, you can claim a percentage of the value, either 6% or 18 % depending on the item you have bought.
- 100% first year allowances – In certain circumstances you can still claim a full deduction for assets that do not qualify for AIA. This usually forms part of the government’s plans to encourage spending in certain areas. For example, brand new zero-emission vehicles qualify for first year allowances, rather than being added to the special rate pool with other cars which would be written down at 6% per year.
- Full expensing and 50% on special rate items – similar to AIA, this allows a company to deduct 100% of the cost of brand new, qualifying items. After initially being brought as a temporary measure, this was made permanent at the Autumn Statement 2023. This also brings a 50% first year allowance for special rate pool items – this includes any cars that are not brand new AND electric.
How do you claim capital allowances?
For limited companies, your capital allowances will need to be claimed via your company tax return in a separate calculation. It’s advisable to speak to your accountant – they will be able to work out how much you can claim and include this in your submission.
If you have any questions or need some advice, speak with one of our qualified accountants today. Or, if you’d like to find out about our accountancy packages which would cover your allowance claims for you and more, click on the link below.
