Capital allowances – maximising the relief

‘Depreciation’ is not tax-deductible – instead, capital allowances are given, at rates prescribed by the Government, and which may encourage ‘green’ investment.

The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure on most types of plant and machinery (except cars). This is quite a high ceiling, but nevertheless it is worth bearing in mind if your business is incurring substantial amounts of qualifying expenditure – spreading the cost over two years may maximise tax relief.

In addition to the AIA, there are specific 100% allowances available for some investments, including energy-saving equipment and low-emissions cars. Plant and machinery not qualifying for 100% allowances are generally subject to an annual writing down allowance of 20% on the reducing balance, although there is a reduced rate of 10% for certain categories, including cars with CO2 emissions exceeding 160 g/km, long life assets and certain specified integral features of buildings.

In general, a purchase just before the end of the current accounting year will mean the

allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief or even an additional charge to tax.

Please contact us for more information and advice on the allowances that may be available to you.