Get more from your investments – Maximise your capital allowances claim

The Capital allowances regime allows businesses to claim tax relief on money invested into qualifying capital assets such as machinery, equipment, or certain commercial vehicles.

There are a variety of capital allowances available, including:

• Full Expensing
• Annual Investment Allowance (AIA)
• Writing-Down Allowances (WDA)

The allowance that your business is eligible for depends on what you buy, how much you invest, and how your business is structured.

Full Expensing

Full Expensing allows companies to deduct 100% of the cost of qualifying plant and machinery assets from taxable profits in the year of purchase.

The relief applies to new and unused assets and is only available to limited companies subject to Corporation Tax. It cannot apply to assets that are purchased to lease to someone else unless they are within a building.

There is no limit to the amount of Full Expensing that a company can claim but if you sell an asset in future on which the relief has been claimed, corporation tax will be charged on any proceeds you receive.

Full Expensing is an ideal option if you are looking for immediate relief or if you are using the investment to improve cash flow but due to the conditions and exclusions, utilising the AIA may be more beneficial depending on your situation.

Annual Investment Allowance (AIA)

The AIA offers a similar benefit to Full Expensing but it is more flexible in its use and is available to sole traders and partnerships in addition to limited companies.

This allowance allows for a 100% deduction from taxable profits and can apply to both new and used assets.

However, unlike Full Expensing, AIA is restricted to £1 million per accounting period. Whilst this limit is more than enough for many small businesses, those with significant investment should consider utilising the AIA in conjunction with Full Expensing.

Writing-Down Allowances (WDA)

WDAs can apply to qualifying expenditure that either cannot qualify for Full Expensing or AIA, or exceeds the AIA threshold where an alternative relief is not available.

Whilst the WDA does not provide a significant immediate tax saving, it is certainly still worth claiming. These allowances instead offer tax relief on a reducing balance basis spread over several years.

WDA of 18% per year can apply to assets falling within the general rate capital allowances pool such as plant and equipment or 6% per year to assets falling within the special rate capital allowances pool such as high-emission cars.

How to claim capital allowances

Not all assets qualify for beneficial reliefs so a full review of your acquisitions should be undertaken to not only confirm the rate of relief applicable, but to ensure that you are maximising the relief you can claim by utilising reliefs in the correct order or against certain assets.

Capital allowances must be claimed within your tax return but there is no real time limit when claiming allowances so if you purchased an asset which is still owned and used by your business, but haven’t claimed allowances in the past, you may still have the opportunity to do so.

If you would like to know more about the capital allowances available to your business, or you are planning a significant purchase, please get in touch to speak to one of our tax advisers who can assist you in maximising any claim to capital allowances.