Companies are regularly spending money acquiring assets for use in their business. Assets such as cars, vans or pieces of machinery may be purchased throughout the year however, other assets such as plant and machinery or fixtures and fittings acquired as part of a property purchase or as a part of a larger refurbishment of an already acquired property may only occur once or twice in a company’s lifetime and ensuring tax reliefs under the Capital Allowances regime are maximised is essential.
The capital allowances rules provide for some initial key allowances:
- 100% corporation tax deduction on the first £200,000 of qualifying expenditure in the year;
- 18% writing down allowance on qualifying plant and machinery with the balance being carried forward each year to provide further deductions in future years; and
- 8% writing down allowance on qualifying special rate assets with the balance again being carried forward for future years.
These allowances are significant for small businesses allowing them to offset some or all of their qualifying expenditure on capital items in order to minimise their total cash layout by reducing the corporation tax liability that would otherwise be due.
In addition to the standard capital allowance pools above, there are also a number of special allowances that can be claimed on certain assets:
- R&D Allowance – although R&D tax relief is only available on revenue expenditure (i.e. day to day running costs), if your business is involved in R&D and you spend money on capital assets for use in your R&D then you may be able to claim a 100% tax deduction for these items (this is on top of the 100% Annual Investment Allowance);
- Enhanced Capital Allowances (“ECAs”) – certain energy-saving plant or machinery that a business purchases can benefit from a 100% tax deduction in the year of purchase (again, this is on top of the 100% Annual Investment Allowance).
Maximising these reliefs to their fullest is crucial and RMT has experience of identifying qualifying expenditure and allocating the expenditure to the appropriate capital allowance pools to claim the most allowances possible. Some of our recent work has included:
- Assisting a client in identifying all of the qualifying expenditure following the significant refurbishment of a hotel and restaurant establishment;
- Analysing the works carried out by a client who had constructed a new building and the associated fit out costs that had been undertaken; and
- Advising clients who are considering buying or selling properties to ensure that any capital allowance claims are maximised.