Tax deductions that UK businesses can claim on eligible capital expenditure, such as machinery, equipment and property improvements.
Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.
You can claim capital allowances on:
➡️ equipment
➡️ machinery
➡️ business vehicles
➡️ certain aspects of property expenditure
These are known as ‘plant and machinery’.
Types of capital allowances for plant and machinery
You can claim different amounts, depending on which capital allowance you use.
The capital allowances (also known as plant and machinery allowances) are:
➡️ Annual investment allowance (AIA)
You can claim up to £1 million on certain plant and machinery.
➡️ 100% first year allowances
You can claim the full amount for certain plant and machinery in the year that it was bought. Applied to all purchases of electric vehicles, meaning full tax relief for the cost of the car in the year of purchase.
➡️ Writing down allowances
You can claim these if your plant and machinery does not qualify for AIA or you’ve already claimed the maximum amount.
➡️ Full expensing
This available to companies who purchase new and unused plant and machinery and is an alternative/addition to the AIA with no annual limit.
If an item qualifies for more than one capital allowance, there is a choice of which one to use.
For example, where an item of plant or machinery is purchased, either AIA or full expensing can be applied, as long as the company has not already claimed £1m of AIA within the year. Whilst initially the relief may appear to be identical (ie 100% of the cost of the asset) there is a difference in how the assets are treated on disposal, depending on the capital allowance chosen.
Where AIA is claimed, upon disposal of the asset, the disposal proceeds will simply reduce the general pool amount, meaning there will be no balancing charge. However, should full expensing be claimed, the asset is placed within its own pool, which means that a balancing charge could immediately be payable upon disposal.
Therefore, it’s vital to ensure that the correct relief is chosen for each asset purchased, in order to avoid accelerating tax charges for your business.
Other capital allowances
As well as plant and machinery, you can also claim capital allowances for:
➡️ renovating business premises (in disadvantaged areas of the UK)
➡️ extracting minerals
➡️ research and development
➡️ intellectual property (about industrial techniques)
➡️ patent rights
➡️ dredging allowances
➡️ structures and buildings
If you would like to discuss in more detail, talk to:
Paul Buckley
paul.buckley@waltonsba.co.uk
or
Ben Bramwell
ben.bramwell@waltonsba.co.uk
Please note: Our blog articles could be subject to change following the new Chancellor’s upcoming Budget announcements.
