You can reduce your tax bill by buying assets for your business and claiming Capital Allowances. Whether you’re a sole trader, director of a limited company or a partner in a partnership, read on to find out how you can take advantage of Capital Allowances to benefit your business.
What are capital allowances?
Capital allowances are a type of tax relief which businesses can claim when they invest in long-term assets (fixed assets). These can be classified as assets which have an expected useful life to the business of more than 12 months.
Fixed assets are an investment for a business and the value is shown within the Balance Sheet within the accounts, meaning the cost of purchasing new assets doesn’t impact the profitability of the business for the financial period in question. However, claiming capital allowances, allows the business to claim tax relief on said assets. It works by allowing all or part of the asset value to be deducted from taxable profits in the year which the asset is purchased.
The amount of cost which can be offset each year depends on the type of asset, for example a printer purchased for use in the office is likely to achieve 100% capital allowance in the first year, meaning all of the cost is deducted from the taxable profit in the year the printer is purchased, however, a diesel car will usually only qualify for an annual capital allowance of 6%.
There can be big differences on the amount of allowance available on similar assets. Take cars for example. The capital allowances available on vans and electric cars is considerably better than traditional petrol/diesel cars.
As such we recommend you speak to your accountant, or other qualified professional before investing in an asset, to make sure you understand the tax benefits prior purchasing.
Loss-making businesses
If your business made a loss for the year, you can still claim capital allowances. The capital allowances can increase this loss which will then be available for relief in earlier or later accounting periods.
Claiming capital allowances
Capital allowances are a complex area of accounting and tax, with many considerations which must be made to determine the correct treatment of different asset purchases. As Chartered Tax Advisers, we’re well versed in the necessary legislation and have a wealth of experience to help you to make a decision surrounding the potential purchase of an asset, and to ensure any available capital allowances are claimed correctly.
Frequently Asked Questions:
Q. Can I claim the 130% super deduction?
A. The super deduction finished on 31 March 2023. Meaning any new assets purchased after 31 March 2023, will not benefit from 130% capital allowances.
Q. Is it difficult to claim capital allowances?
A. The short answer is no. It's not difficult to claim. But it can be difficult to identify the correct amount of allowance to claim and we recommend seeking professional advice before claiming capital allowances.
Q. Can I claim capital allowances on buildings?
A. It is possible to claim capital allowances on "integral features" within a commercial building. This includes items such as wiring, air conditioning etc. It is also possible to claim allowances via Structures and Buildings Allowance (SBA).
If you’re unsure on how capital allowances might impact your business, please get in touch and we’d be happy to help with any queries.
Contact us below, if you need more help:
Like all of our blogs, we aim to help make the world of tax more understandable to those it impacts. If one person reads this and feels they have learned something, we consider that a success. If this blog has helped you, please let us know by providing feedback below:
Has this blog helped you?
Yes
No