Capital allowances are government incentives that allow tax relief on certain capital expenditures, helping reduce taxable profits. However, not all capital expenditure qualifies for capital allowances, and different qualifying expenditures correspond to different rates of tax deduction.
Given the importance of cash flow start-ups and scale-ups, making sure to stay on top of your company’s capital expenditure and holdings, thus ensuring that you maximise tax savings and repayments, is a no-brainer.
How Do Capital Allowances Work?
Your business will qualify if you have incurred expenditure in the past on a property purchase, property renovation, or the purchase of fixtures, plant, machinery, or equipment. On a building project, a proportion of the preliminary costs and professional fees can also qualify.
Claims can be made on historical spending on property, fixtures, or equipment, with no time limit as long as assets are still in use and the HMRC filing period is still open or there is an open enquiry into an earlier year. Businesses can claim up to 130% of qualifying expenditure.
It’s important to note that tax laws and regulations can change, so it’s advisable to consult a tax professional for the most current information.
Main Capital Allowances Available
| Type of capital allowance | Asset Type | Tax deduction rate as a % of spend |
| Super deduction | New plant/machinery excluding cars (not integral features) | 130% |
| Annual investment allowance | Plant/machinery, integral features and long life assets but not cars | 100% |
| Main rate pool | Plant/machinery where neither AIA or first year allowances have been claimed and which is not allocated to the special rate pool. Plus certain cars. | 18% p.a. (reducing balance) |
| Special rate first year allowance | Special rate expenditure (see below) | 50% |
| Special rate pool | Electrical systems (including lighting systems); cold water systems; space or water heating systems; powered systems of ventilation, air cooling or air purification systems; lifts, escalators or moving walkways; external solar shading. Thermal insulation of an existing building | 6% p.a. (reducing balance) |
| First year allowances | Energy saving and environmentally beneficial plant/machinery. Plus certain cars. | 100% |
| Structures and buildings allowance | Construction or purchase of a commercial building or structure but not land. Expenditure on renovation/conversion of existing building plus incidental repairs. | 3% over 33 1/3 years |
How We Work
Our team of experts, led by Head of Tax Fiona Cross, will support your business by carrying out a capital allowances review to maximise your claim. Our team will provide you with a report detailing our findings and appropriate calculations, reconciling them to the additional figures in the accounts.
The capital allowance claims would then be included in the tax computation and tax return to be submitted to HM Revenue & Customs.
Talk to our Experts
020 3422 9800-
Fiona Cross Partner, TaxFiona is a Chartered Tax Adviser and Fellow Chartered Accountant with over 30 yeas of experience advicing on various Tax matters. Her expertise includes International Tax, M&A, Corporate Restructuring, Due Diligence, Share Schemes & EIS/SEIS among other Tax areas.
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FAQs
01. What companies can we support?
We primarily work with Limited Companies that are registered/have permanent establishments in the UK. Our clients are fast-growth businesses, mostly in the tech, financial, consumer goods and life science sectors and often backed by Angels and VCs investment.
However, we have extensive expertise and partners across other sectors too and we’re always excited to meet new ambitious founders.
02. What are the different types of capital allowances?
Super deduction, Annual investment allowance, Main rate pool, Special rate first year allowance, Special rate pool, First year allowances, and Structures and buildings allowance.
03. Does my company qualify for capital allowances?
Various allowances are available, including Super Deduction and First Year Allowances for specific types of expenditures.
4. What are First Year Allowances?
First Year Allowances attract a 100% tax relief on qualifying plant and machinery in the accounting period in which the expenditure has occurred.
5. Do I need to claim capital allowances?
Capital allowances are not given automatically, must be claimed in your tax return. There is no time limit if your asset is still owned and used within the trade.
