Capital allowances are tax breaks allowing you to claim certain
amounts against your taxable profits. The rules usually change every
year but a new regime was introduced in April 2008 so hopefully we
should have some stability for a while.
What qualifies for a capital allowance? Well normally it has to be
capital expenditure on assets which are used within the business in
order to facilitate trading. This excludes stock and investments. It also
excludes buildings or anything that forms an actual part of a building
such as doors, windows, roofs, extensions, loft conversions and
internal partitions (unless they are moveable). However, you can now
claim for integral or installed assets such as cold water systems,
electrical and lighting systems, heating and air conditioning systems,
lifts, escalators, etc.
Sometimes it is necessary to decide whether expenditure is capital or
revenue and the definitions are not necessarily the same as those that
apply for accounting purposes. The distinction is not always obvious. It
is generally better from a tax point of view for expenditure to be
revenue as then you can normally claim 100% against tax as a trading
expense in the same year that it is incurred. However, some revenue
expenditure is not allowable as a trading expense, so if you cannot
claim for capital allowances either then there is no tax deduction
allowed for it at all.
Come and speak to us if you are unsure as to what qualifies for capital
allowances. It is always worth negotiating with HM Revenue &
Customs for things like refurbishment as they will usually agree a split
between revenue and capital.
Please see the following Information Sheets for further details:
Annual Investment Allowance
Written Down Allowances
Enhanced Capital Allowances