Capital allowances reward investment in plant or machinery (fixed or moveable), know-how, dredging, mining and facilities for research & development.
By far the most common are plant and machinery allowances. They apply to most types of businesses (including individuals and companies) and are present in almost all types of properties.
UK taxpayers can offset the relevant allowance against their taxable profits, reducing the amount of tax that they must pay. Real Estate Investment Trusts (REITs) can also use the allowances to reduce the property income dividend (PID) and thereby increase the amount of cash available in their businesses.
Capital allowances can deliver: -
Some capital allowances are given in year 1 but most are spread over time and the role of a capital allowances specialist is not only to ensure you identify the optimum level of qualifying expenditure for your circumstances but that it is also relieved in the most efficient way.
Plant and machinery allowances are often referred to as the hidden capital tax relief because the items that most commonly qualify such as heating, lighting, air-conditioning, lifts, carpets, sanitaryware, counters, worktops etc. invariably form part of a more significant building or structural project that is not capable of qualifying for a tax deduction in its entirety.
This means the different assets in a new build, conversion or refurbishment project require segregation to identify the qualifying and non-qualifying parts. Because construction projects are not procured or designed for tax or accounting purposes this can result in additional complex calculations and analysis beyond the scope and expertise of the normal tax compliance process.
A business that incurs capital expenditure is not allowed to deduct it as a normal business expense. It is also not allowed to claim accounting depreciation. Without capital allowances, it would get no tax relief for any capital investment which is one of the reasons capital allowances are so important. They offer business the opportunity for an absolute tax saving, and in some situations a tax credit.
A claim for capital allowances must be made on the tax return for the period to which it relates and generally follows the normal self-assessment filing deadlines. Capital allowances claims that are not made within the normal filing deadlines are rarely lost but usually deferred into later periods and as such it is often possible to revisit old tax computations and make claims for unidentified or unclaimed assets in previous years.