Capital Allowances
What are capital allowances?
Capital allowances are tax reliefs that allow businesses to deduct the cost of certain assets (such as machinery, equipment, and fixtures) from their taxable profits. These allowances help reduce your overall tax liability, making them essential for optimising your financial position.
Qualifying Expenditure and Activities
Qualifying Expenditure:
- To claim capital allowances, you must have incurred qualifying expenditure on eligible assets. This includes both the purchase price and any associated installation costs.
- Examples of qualifying assets:
- Plant and machinery (eg computers, vehicles, manufacturing equipment)
- Fixtures (eg lighting, heating systems, air conditioning)
- Integral features (eg lifts, escalators, fire alarms)
Qualifying Activities:
Capital allowances can only be claimed for assets used in your business activities. For instance:
- A hotel can claim the cost of a chandelier in its reception area because it enhances the aesthetic appeal and attracts guests.
- However, a shoe factory cannot claim the same chandelier because it doesn’t directly contribute to shoe production.
Types of Capital Allowances
First-Year Allowances (FYA)
- FYA allows 100% of the cost of a qualifying capital assets (e.g., machinery) to be claimed in the year acquired.
Annual Investment Allowances (AIA)
- AIA permits a full deduction up to an annual limit (currently £1 million as at July 2024) for qualifying capital assets acquired during the year.
Writing Down Allowances (WDA)
- In some circumstances, including if the AIA has been exhausted, a business can simply claim an annual WDA, which is claimed at the following rate:
- Main Pool (MP): 18% rate for assets like business equipment and furniture.
- Special Rate Pool (SRP): 6% rate for assets such as air-conditioning systems.
Structures and Buildings Allowances (SBA)
- Introduced in 2018, SBA applies to structural works (eg walls, floors, roofs) related to non-residential businesses.
- It is claimed at a fixed 3% straight-line deduction each year.
Other Forms of Capital Allowances
- Business Premises Renovation Allowances: For disadvantaged areas.
- Enhanced Capital Allowances: First-year relief for the purchase of specific equipment.
- Research and Development Allowances: 100% claim in year 1 available for assets used in R&D processes.
At Phinch, capital allowances are a form of tax relief that allow you to deduct the cost of qualifying assets from your taxable profits. This includes items like equipment, machinery, and certain property features, helping to reduce your overall tax liability.
We use capital allowances to help reduce your tax bill and improve cash flow. By claiming relief on qualifying assets, you can lower your taxable profits and reinvest those savings back into your business for growth and development.
Capital allowances can be claimed on assets such as machinery, vehicles, computers, office equipment and fixtures within commercial properties. These must be used in your business and are typically long-term assets rather than everyday expenses.
We apply capital allowances by deducting the cost of qualifying assets from your profits before tax is calculated. This reduces your taxable income, meaning your business pays less corporation tax while remaining compliant with HMRC rules.
The Annual Investment Allowance allows you to claim 100% tax relief on qualifying plant and machinery up to a set limit, which is currently £1 million. This means you can deduct the full cost of eligible assets in the year of purchase.
Yes, capital allowances can be claimed on certain elements within commercial properties, such as heating systems, lighting, and fixtures. While land and buildings themselves are not usually eligible, many embedded assets can still qualify.
Capital allowances apply to long-term assets that provide value over time, while business expenses cover day-to-day costs. Allowances often spread tax relief over time, whereas expenses are typically deducted in the same accounting period.
Yes, we support businesses across Bristol, Bath and surrounding areas with identifying and maximising capital allowance claims, ensuring you claim all eligible reliefs while staying fully compliant with HMRC requirements.
We recommend considering capital allowances whenever you invest in assets or property. Planning ahead ensures you maximise available reliefs and avoid missing opportunities to reduce your tax liability as your business grows.
Yes, capital allowances can improve cash flow by reducing your overall tax bill. By lowering the amount of tax payable, your business retains more funds which can then be reinvested into operations, equipment or future growth.
Testimonials
What our clients say about us
Mike Perry
The whole team are incredibly helpful and great at what they do. I can't recommend them enough!
Malia Brown
Thank you to [The Phinch] team for all your support over the years. It's very much appreciated and valued.
Grace Eden
Excellent guidance through process with a high degree of expertise. A very smooth experience.
Jennifer Muller
I have used [Phinch] services for many years. [The] team have guided me through the complicated processes of US taxes as an expat, and stayed on top of any changes in filing rules. Highly recommended.
Larissa Bulla
[The Phinch] team have been incredibly helpful in the preparation and filing of my US tax returns and FBAR submissions, even when I have been less than fully organised. The team are always prompt and professional. They stay abreast of changes in annual tax rulings and have helped me secure rebates or stimulus payments where these are due. I highly recommend this company.