Capital Allowances

Capital allowances can provide valuable tax relief for your business. Relief is qualifying assets such as plant and machinery, cars, vans, fixtures and fittings and commercial properties.

The capital allowances rules provide for some initial key allowances:

• 100% corporation tax deduction on the first £1000,000 of qualifying expenditure in the year (Annual Investment Allowance);
• 18% writing down allowance on qualifying plant and machinery;
• 6% writing down allowance on qualifying special rate assets; and 2% writing down allowance on qualifying structures and buildings.

These allowances are significant for small businesses allowing them to offset some or all of their qualifying expenditure on capital items in order to minimise their total cash layout by reducing the corporation tax liability that would otherwise be due.

In addition to the standard capital allowance pools above, there are also a number of special allowances that can be claimed on certain assets:

• R&D Allowance – although R&D tax relief is only available on revenue expenditure, if your business is involved in R&D and you spend money on capital assets for use in the R&D then you may be able to claim a 100% tax deduction for these items (this is on top of the 100% Annual Investment Allowance);
• Enhanced Capital Allowances (“ECAs”) – certain energy-saving plant or machinery that a business purchases can benefit from a 100% tax deduction in the year of purchase (again, this is on top of the 100% Annual Investment Allowance).

Maximising these reliefs to their fullest is crucial and RMT has experience of identifying qualifying expenditure and allocating the expenditure to the appropriate capital allowance pools to claim the most allowances possible. Some of our recent work has included:

• Assisting  a client in identifying all of the qualifying expenditure following the  significant refurbishment of a hotel and restaurant establishment;
• Analysing the works carried out by a client who had constructed a new building and the associated fit out costs that had been undertaken; and
• Advising clients who are considering buying or selling properties to ensure that any capital allowance claims are maximised.