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A GUIDE TO CAPITAL ALLOWANCES IN THE UK


We are proud to partner with industry experts who will share relevant insights ensuring our customers are fully aware of tax relief schemes available to them.   Our first guide is written by Stacey Ferguson from tax incentives specialists Gateley Capitus.


A capital allowance is UK tax relief for ‘capital’ expenditure on business assets. In this insight we provide guidance on the potential value of capital allowances, the different types of allowance and who is eligible to claim.

 

Capital investment creates an asset for the longer-term and the spend is usually recorded in the business’s accounts on the balance sheet as a fixed asset. Claiming a capital allowance reduces the business’s annual taxable income, which in turn reduces the tax it has to pay.

 

Capital allowances may be available on a significant proportion of the expenditure incurred. Assets that attract greater or faster tax relief include air-conditioning and water systems through to data cabling, lighting and many other assets.

 

How do capital allowances work?

There are various types of capital allowances and rates available. These dictate the percentage of the asset’s cost that is written-down each year for tax. 


What are the different types of capital allowance?

The two main types of capital allowances are: 

  1. plant and machinery allowances; and 

  2. structures and buildings allowances

 

How do capital allowances effect tax?

The following example shows how capital allowances reduce the amount of tax payable, assuming a company tax rate of 25%. In the example below capital allowances is able to reduce the amount of tax payable by £250,000.



What are the benefits of claiming capital allowances?

As the example above shows, claiming capital allowances allows you to claim a proportion of your investment expenditure back against your taxable income or profits. This reduces the amount of tax payable on your profits and frees up cashflow for further investment in your business.

 

Who can claim capital allowances?

Capital allowances are available to property occupiers and investors, and both income and corporation tax payers. They are a valuable incentive to almost all businesses.

If you have recently incurred capital expenditure to buy, build or refurbish commercial property and you pay income or corporation tax then it is likely that you will be able to benefit from capital allowances. 

 


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