CAPITAL ALLOWANCES: THE BASICS - A SMALL BUSINESS GUIDE
There
are a number of tax schemes to encourage people to invest in businesses. One such scheme is called capital
allowances. When you purchase particular new equipment, invest in buildings or
research and development you can deduct a proportion of the cost from your
taxable profits and reduce your business tax bill.
Detailed
below are the main elements of the capital allowances scheme and how you may be
able to use it to benefit your business.
Plant
& Machinery
The
title ‘plant & machinery’ can be a little misleading as the grouping
includes common items that a business buys, especially those starting up.
You
can claim for the cost of:
- Vans
and cars
- Machines
or plant
- Tools
and essential items like scaffolding
- Furniture
- Computers
- Some
other equipment you need
You
are not able to claim for anything you buy or sell on a day-to-day basis as
part of your trade. The whole point of this scheme is to allow you to offset
the “one off” purchases, not the trading expenses.
Buildings
You
can claim for constructing industrial or agricultural buildings, commercial
buildings in enterprise zones and certain types of hotel. There are also
allowances for buying or constructing a building for what’s known as a
‘qualifying trade’ such as manufacturing or processing.
In
addition, you can also claim for renovating, converting space or interior
fit-out.
Research
& Development
You
can claim capital allowances on expenditure on research and development
providing the R&D is relevant to your business and involves creativity and
innovation in science and technology,.
Claiming capital allowances
You
claim capital allowances in your Income or Corporation Tax return through HM
Revenue and Customs.
When
making the claim:
- You
must make a separate claim for each accounting period of your business. In
the case of Income Tax, ifthis is longer than 18 months, you'll need
to split it into shorter periods and make separate claims for each. The
first 12 months is one period, and each subsequent period of 12 months or
less is another period. For Corporation Tax, you cannot have an accounting
period longer than 12 months.
- You can
make a capital allowance claim any time up to the normal time limit for
making or amending your tax return (Income Tax) or 12 months after the
filing date for your Company Tax Return. This will be extended if there is
an enquiry into the return.
- There
is no obligation to claim for the full amount of an allowance. If you
claim only part, eg 10 per cent instead of the 20 per cent you are
entitled to, then the pool balance carried forward will be higher so claims
for later years will be higher. You also do not have to claim the full
Annual Investment Allowance.
- If your
business is a partnership, you need to claim your capital allowances
collectively, not as individual partners.
- If
you're registered for VAT, you only claim capital allowances on the net
cost of the asset. If you're not registered for VAT, you claim capital
allowances on the total cost including VAT.
For further information on claiming capital allowances
please contact Elizabeth Ward at Jex Capital
Allowances by email or calling 0845 345
4964.
