Capital allowances

What are capital allowances?

Capital allowances are a type of tax relief that can be claimed on certain business items purchased for trade purposes. There are two main methods to claiming capital allowances: plant and machinery allowances and structures and buildings allowances. These cover a vast range of expenditures, with common qualifying assets including:

Annual Investment Allowances are also available for the first £1m of expenditure you incur within plant and machinery allowances. The Government said this was ‘permanent’ which would provide a level of security when planning to invest in a business.

From 1^st April 2023, First-Year Allowances known as Full Expensing were introduced to replace the previous Super-deduction allowance and will remain in place until 31^st March, offering significant tax reliefs for corporate taxpayers. Another important first-year allowance is Land Remediation Relief, which is available to corporates only and can provide a total relief of 150%.

Who can claim capital allowances?

Capital allowances are a complicated field of tax that require specialist knowledge to navigate successfully. Many businesses owners and commercial property developers miss out on valuable tax incentives because they are unaware of the various reliefs available or how to claim them. These individuals often include:

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  People who have built or renovated commercial property

  You can identify and claim capital allowances on fixtures and fittings when renovating or building commercial property. A capital allowances review should be carried out to ensure that your assets are correctly pooled, any statutory requirements are satisfied, and your claim is robust. Our capital allowance experts will help you manage the intricacies of qualifying assets to capitalise on your available tax savings and maximise the return on your construction or renovation investment.

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  People who have bought commercial property

  Capital allowances are a valuable tax relief if you own a commercial property. There is no time limit to claim, if you still maintain an interest in the property and the fixtures you can still seek to make a claim. The complex rules and regulations surrounding relief on fixtures and fittings mean it is crucial to seek specialist support before claiming capital allowances. We can make sure you accurately identify all eligible assets and claim the maximum tax relief available.

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  People who have purchased assets and/or equipment for business use

  You can claim capital allowances on a vast amount of assets and trade equipment. Most businesses owners and commercial property developers can benefit capital allowances in some form. Speak to one of our capital allowance experts early on in a project to take advantage of any capital allowance opportunities available to you.

How do capital allowances affect tax?

As shown in the table below, claiming capital allowances can significantly decrease your taxable profits, shrinking the level of Corporation Tax that your company is required to pay. It is important to note, the sooner you start claiming capital allowances the higher the amount of tax relief you will receive.

	Without capital allowances	With capital allowances
Profit before tax	£1,000,000	£1,000,000
Capital allowances available	–	£500,000
Taxable profit after capital allowances adjustment	£1,000,000	£500,000
Taxable profit at 25% corporation tax	£250,000	£125,000

The Super-deduction

The predecessor to the new Full Expensing, the super-deduction capital allowance ended on 31 March 2023. The Super deduction allowed business owners to claim up to 130% in the year expenditure was incurred on plant or machinery that would normally fall within the main rate pool.

Although the Super deduction period has since finished, many companies may have qualifying expenditure that was incurred during the relevant two-year window that is still applicable for this level of tax relief.

It is essential that you revisit these computations to ensure that expenditure is accurately gathered to ensure that the relief is maximised in line with HMRC rules.

Claiming capital allowances

Capital allowances can significantly benefit almost every business and trade but accessing the relief you are entitled to is often a challenge.

Our capital allowance specialists are the key to unlocking your full entitlement. We can be your guide through the complex landscape of capital allowances, identifying qualifying assets and developing strategies to ensure the success of your claims. By utilising available tax reliefs, you can reduce your tax liabilities and increase your financial resources for future business investment.

Our capital allowances specialists can assist you with the following: