Most people are aware of capital allowances, but surprisingly few realise how many of their business assets they could claim on – for instance, did you know that CCTV and air-conditioning systems can qualify?
It’s true that there is a complex set of rules around capital allowances, which can make investigating your eligibility feel like an ordeal you’d rather do without. Yet it’s estimated that billions of pounds of unclaimed tax relief are wasted each year – so fail to claim those allowances you are entitled to, and you could be losing out on serious savings for your business.
So what are capital allowances, and who can claim?
Essentially, capital allowances offer a way to obtain tax relief within your business by using capital expenditure to reduce your taxable profit. All taxpayers are entitled to claim capital allowances on certain assets that are bought to keep and use within their business.
Plant and machinery items such as equipment and business vehicles can be claimed for, as long as your activity and its incurring expenditure qualifies. Generally, if you have hired or leased the asset, you wouldn’t be eligible to claim for that item (although special rules can apply).
If you do qualify to claim capital allowances, you will be able to deduct some, or all, of the value of each qualifying item from your profits before you pay tax.
What can you claim capital allowances on?
The terms “plant and machinery” can be somewhat ambiguous, leading to mistaken ideas on what you can – and can’t – claim for.
For clarity, qualifying plant and machinery can include:
- items such as cars that you keep to use in your business
- tools and specialist machinery
- the costs involved with demolishing plant and machinery
- parts of a building considered integral such as lifts, escalators and air-conditioning systems
- some fixtures, for instance, fitted kitchens, bathroom suites, and CCTV systems
- alterations to a building to install other plant and machinery
If you own any plant or machinery that is energy-efficient and beneficial to the environment, you may be able to claim enhanced capital allowances (see below).
But it’s not all about plant and machinery…
Here’s where many businesses don’t realise the extent of capital allowance opportunities – you can also claim on various other types of assets, as well as plant and machinery, including:
- alteration of land to install plant and machinery
- caravans for holiday lettings
- storage tanks
- sound installation
- electrical systems
- silos for temporary storage
Moving offices?
If you are moving offices or making renovations, it pays to check if you can claim capital allowances in your new building – if your assets and fixtures qualify, you can claim whether you own, or rent the building.
Does your new building contain lifts, air-conditioning or CCTV? Or are you looking to install them in your office? Many businesses are sitting on considerable tax savings, without even knowing it.
What about enhanced capital allowances?
For those businesses that invest in energy-saving and environmentally-beneficial plant and machinery, 100% first-year allowances can be claimed on their expenditure.
It’s a means for the government to encourage investment in energy-efficient items, that might otherwise be too expensive for businesses. Those that qualify can write off the whole cost of that expenditure against their taxable profits.
How to claim
If you qualify to claim capital allowances on any assets, you can claim 100% of the cost of the item in the year that you buy it – this forms part of your Annual Investment Allowance (AIA), up to a total value of £200,000 (though it doesn’t include cars). If you don’t claim in that first year, you will only be able to claim at the Writing Down Allowance (WDA) rate of 8 or 18%, so it is generally beneficial to be prompt with your claims.
You must claim your capital allowances in your self-assessment tax return, or company tax return if you are a limited company.
Knowing what you can, and can’t claim capital allowances for, isn’t always straightforward. If you’d like some help and advice or have any queries you need answering, feel free to contact us at Chippendale and Clark for a friendly, no-obligation chat.
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