An Introduction to Capital Allowances

What are Capital Allowances?

Capital Allowances enable businesses to claim tax relief on assets you purchase in your business. They are treated as a business expense and can reduce your taxable profit. You can only claim capital allowances on commercial buildings and/or properties used for business purposes.

What items can I claim capital allowances for?

You can claim on plant and machinery items which include:

  • Furniture
  • Office equipment

You can also claim on integral features which include:

  • Lifts, escalators & moving walkways
  • Hot and cold-water systems (not including toilet and kitchen facilities)
  • Electrical systems, including lighting
  • Air conditioning and air-cooling systems
  • External solar shading
  • Space and water heating systems

If you’d like to picture this, imagine if you were to shake a building – everything that falls would classify as plant and machinery, the ones that stay in place would classify as integral features!

Who can claim this tax relief?

It is available to anyone who has purchased the property i.e. an individual, a partnership, a company.

What can I claim?

You can claim what you are entitled to using the writing down allowance. This means you are able to deduct a percentage of the value from your profits each year. This is spread out over a number of years at a rate of 18% for plant and machinery allowances (main pool) and 6% for integral features allowances (special pool).

For example, the capital allowances identified on a property for the main pool is £100,000 and the writing down allowance rate is currently 18%:

  • In Year 1, the allowance you can claim will be £18,000, with £82,000 being carried to Year 2
  • In Year 2, the opening balance will be £82,000, you can claim 18% of this which is £14,760

If you claim in time, you may be eligible for the Annual Investment Allowance (AIA). The latest you can make a claim for this is 2 years after the end of the accounting period of when you signed the contract or made payment.
The AIA essentially means that you are able to deduct the full amount of capital allowances claimed from your profits. The current AIA is £1,000,000 – where you are able to claim up to £1 million (until December 2020).

Should my accountant not know about this?

The majority of accountants are unaware of the fact that there are integral features within your building that qualify as essential to carrying out your business.
Additionally, to be able to calculate the amount of capital allowances you can claim, a thorough investigation of the property must be done by a qualified surveyor which is something an accountant simply cannot do.
This therefore means that unfortunately for many commercial property owners, this tax saving benefit remains hidden when they could be saving thousands!

How can I claim?

Once we have worked out your capital allowances, you claim by submitting your Self-Assessment tax return or Company tax return if you’re a limited company to HMRC.

We currently have a 100% success rate with our capital allowances claims to HMRC, so don’t hesitate to contact us how you can claim yours!