If you own a business property, capital allowances are a great source of tax relief. You can claim it regardless of how long you’ve possessed the property. It applies to all commercial properties, and the tax relief generally comes in the form of a significant rebate and a long-term reduction in your tax rate. In this blog, we’ll explain what capital allowances are available for you. So, let’s explore the details.
What are Capital Allowances?
Revenue (trade) and capital expenses are the two types of expenses you can incur in your firm. Normally, an item is classified as capital expenditure if it will provide a long-term advantage to the company, at least a year. Capital allowances are indeed a key way to get tax reductions on certain types of investments (capital expenditure). They are considered as a separate business expense, reducing your taxable earnings throughout the base period.
If capital gains tax calculation in the UK appears to be too difficult for you, you can always hire our chartered accountants to assist you. We can compute your capital gains tax quickly and at a low cost!
Types of Capital Allowances
The most common types of capital allowances are as follows:
- First-year Allowance
- AIA ( Annual Investment Allowance)
Is it True that all Capital Expenditures are Eligible for Capital Allowances?
You can not claim capital allowance on all types of expenditure; it should be of a certain type. In addition, you must own the asset for which you are claiming capital allowances in most cases.
Assets bought through hire purchase, or financing leases are subject to unique requirements. Even though legal ownership may not pass until the completion of the contract period, these assets are often considered as belonging to the person who is using them. You are required to use these assets in order to claim capital allowance. Any interest paid on purchase items is considered a revenue (trading) expense rather than a capital expenditure.
Please remember that the super-deduction capital allowance proposed in the March 2021 Budget is only available to corporations, not to unincorporated enterprises such as sole proprietorships or partnerships.
Claiming Capital Allowances – Procedure
They are required to be claimed in your Self Assessment tax return within 12 months of the return’s filing deadline, which is normally January 31st.
How can I Claim Capital Allowances?
- PAYE (Pay As You Earn) employees – correspondence with supporting proof must be submitted to the tax office for any amount up to £2,500. Anything valued at more than £2500 should be claimed on a Self Assessment tax return.
- Limited Company – are required to produce a capital allowance calculation apart from their other financial documents.
- A self-employed person – can claim capital allowances on their Self Assessment tax return.
- Partnerships – can claim capital allowances on their Partnership Tax Return.
We’ll look at plant and machinery allowances in this blog, but you may learn more about other sorts of allowances at the Government of UK website.
The following are the most frequent assets that you can buy and qualify for capital allowances:
- Engine vehicle
- Computers, printers, and other tools
- Specialised machinery
Building and property expenditures will not be qualified for capital allowances, even though it is likely that some of the building’s expenditures are related to integral features or fixtures.
What are Integral Features and Fixtures?
Fittings within the building that cannot be simply removed, such as electrical systems, cold water systems, heating or ventilation systems, and so on, are examples of integral features.
While fixtures are items that, with a little effort, could be removed from a building, such as shelving. For more information, go to Government of UK website.
At what Rates Capital allowances are Given on Equipment and Machinery?
Following are the rates at which standard capital allowances are given:
- A special pool writing down allowance of 6 percent
- A writing down allowance of 18 percent
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Our devoted staff consists of full-time chartered accountants & tax professionals that focus only on maximising and complying with our client’s tax depreciation/capital allowances claims. So, Contact us now to claim your capital tax allowances!
Disclaimer: This blog contains general information about Capital Allowance.