What are capital allowances and what qualifies as a claim?
Rules & rates differ based on the circumstance
Capital Allowances are tax deductions that businesses can claim on certain capital expenditures. These can include machinery, Property Embedded Fixtures and Fittings (PEFFs), and other equipment. This equipment is essential for your trade to reduce their taxable profits. These allowances enable businesses to recover the costs of acquiring or improving assets.
Qualifying assets for CA claims generally include items used solely for business purposes. Here we’re focusing on assets that house commercial activity i.e. property, and the costs associated with a property such as fixtures, and fittings. Plus items such as ironmongery, sanitaryware, heating systems, air conditioning, lighting systems, shelving, and built-in units.
The specific rules and rates for CAs vary across different scenarios. So, businesses need to understand tax regulations or seek professional advice to determine eligible claims and the applicable allowances.
Can your business claim capital allowances?
Sole traders CAN claim capital allowances.
As a sole trader, you are considered self-employed, and you can usually claim capital allowances on the capital assets used in your business. The Annual Investment Allowance (AIA) may also be available to allow the full cost of the asset to be claimed in the year of purchase.
To claim capital allowances as a sole trader, you need to include the relevant information in your self-assessment tax return. It’s crucial to keep detailed records of your capital asset purchases, including invoices and receipts, to support your claim. Note that allowances are also normally available on pre-trading capital expenditure, but other than for cars, capital allowances can’t be claimed if you prepare your tax return on a cash basis.
Partnerships and Limited Liability Partnerships (LLPs)
Partnerships CAN claim capital allowances collectively, while LLPs CAN claim them as a separate legal entity.
In addition to sole traders, other businesses are also eligible to claim capital allowances. This includes partnerships and limited liability partnerships (LLPs). Again, the Annual Investment Allowance (AIA) may be available, but it should be noted that a Partnership that has a Company as a member is not eligible to claim AIA. It is important to consult with a tax advisor or accountant to ensure you are claiming the correct allowances based on your business structure and the timing of expenditure.
Limited companies CAN claim capital allowances.
If you operate your business through a limited company, you can claim capital allowances on qualifying capital assets used for business purposes. This includes machinery, equipment, and certain Embedded Fixtures and Fittings (PEFFs) items within buildings. Also included is qualifying expenditure on renovations and refurbishment. Limited companies can benefit from the Annual Investment Allowance (AIA), which currently provides a 100% deduction on qualifying capital expenditure up to a limit of £1million
To claim capital allowances, limited companies need to include the necessary information in their corporation tax return. It’s essential to maintain accurate records of capital asset purchases and associated costs.
In general, non-trading companies CANNOT claim capital allowances.
This is because by definition they are not using capital assets for trading purposes. However, there may be exceptions if the non-trading company incurs capital expenditure for specific purposes, such as the construction of new buildings for future use.
Non-trading companies, investment companies, and dormant companies can typically hold investments, properties, or intellectual property but do not carry out any active trading.
Non-trading companies need to consult with a tax advisor or accountant to determine whether any specific capital allowances can be claimed based on their unique circumstances.
To claim capital allowances what do you need to do next?
A phone call with an expert
To initiate the process of claiming capital allowances, the next step is to schedule a phone call with our team of experts. By engaging in a conversation with our specialists, we can thoroughly evaluate your case and determine your entitlement to claiming and the viability of pursuing a claim. Taking the time to review your situation individually allows us to gain a comprehensive understanding of your position.
It is important to note that our claim process operates under a ‘no result, no fee’ policy, meaning that exploring the potential for a claim incurs no risk or the financial obligation.
5 December 2023
Capital Allowances ManualCapital allowances play a significant role in taxation. Allowing businesses to claim deductions for the depreciation of their assets. Among these assets, plant and machinery are frequently mentioned. However, the term “plant and machinery” is not explicitly defined in tax law. It should also...
22 November 2023
Autumn Budget 2023: Changes to Capital AllowancesThe Autumn Budget of 2023 has arrived, and with it comes significant changes and developments the government has put in place. Chancellor Jeremy Hunt delivered the statement on Wednesday, 22 November 2023. For businesses and individuals alike, these adjustments in tax policies can have far-reaching implications.
Our expert team are here to help answer any of your capital allowances questions or enquires you have about your commercial property.