Capital allowances

Capital allowances were first introduced to the UK and Ireland in 1946 and were intended to support the British industry following the war.

Despite the fact they’re one of the most established tax reliefs in our economy, they remain one of the most complex, and are the source of a lot of confusion for business owners, with many not aware of what qualifies or how to claim.

To clarify, capital allowances are a way of gaining a tax relief on tangible capital expenditure, as the cost is expensed against a business’ annual pre-tax income.

This relief covers a wide range of assets purchased for business use, ranging from equipment, to research and development, to some company vehicles.

There are several different types of capital allowance, each with their own rules and qualifying criteria. The main ones are:

  • Annual Investment Allowance (AIA)
  • First Year Allowance (FYA)
  • Writing Down Allowance (WDA)
  • Balancing Allowance (BA)

The process of claiming capital allowances can be time consuming, and the legislation increasingly complex, meaning a lot of businesses unknowingly underclaim if they have not sought appropriate advice.

Whilst it is relatively simple to claim capital allowances when purchasing plant and equipment, complexities can arise when determining the level of capital allowances that may be available in property refurbishment, construction or purchase. It is therefore vital that sufficient time is dedicated to such cases, ensuring a company’s eligible assets are accurately assessed against HMRC’s requirements, as this can provide a valuable boost to revenue.

Here at Smith Cooper, our team of dedicated tax experts are on hand to help you plan a tailored and tax-efficient approach to tax affairs that ensures you and your business maximise the tax opportunities available. We can help you navigate the complexities governing taxes, making them easier to understand and beneficial to you.

If you believe you may be entitled to unclaimed capital allowances, or have any other queries relating to tax reliefs, please get in touch with a member of our specialist tax team today.