Capital allowances provide tax relief for qualifying capital expenditures, primarily on plant and machinery. Toby Cotton from Kreston Reeves outlines the specifics of capital allowances available to businesses.
The Annual Investment Allowance (AIA) allows businesses to claim 100% relief on eligible expenditures, currently capped at £1 million. Additionally, full expensing permits limited companies to deduct the total cost of qualifying new and unused equipment from taxable profits for the year in which the expenditure occurs, excluding cars.
Capital allowances apply to specific assets used in business operations. Eligible items that generally qualify for full relief through AIA include computer equipment, vehicles, office furniture, and certain installations like electric vehicle charging points. However, assets such as cars, items acquired before starting a business, or donated items do not qualify under AIA.
Notably, while many businesses may overlook possible claims on buildings, expenses related to integral fixtures—such as lifts and heating systems—can sometimes be classified as plant and machinery, attracting a higher rate of capital allowance. The rules governing which items qualify are complex and derive from case law.
Changes stemming from the 2026 Autumn Budget will adjust the writing down allowance for businesses. The first-year allowance for capital expenditure will rise from 40% to 50%, while the main writing down allowance rate will decrease from 14% to 12%. These changes take effect in 2027.
In summary, businesses are encouraged to consult with qualified professionals, such as chartered surveyors or accountants, to identify eligible expenditures accurately and ensure they maximize their capital allowance claims.
Why this story matters: Understanding capital allowances can significantly impact a business’s tax strategy and cash flow.
Key takeaway: Capital allowances provide substantial tax reliefs for qualifying assets, and the recent budget changes enhance potential benefits.
Opposing viewpoint: Some businesses may find the rules around capital allowances overly complex and challenging to navigate without professional assistance.
