Capital Allowances: Maximising Your Deductions
Capital allowances are a way of claiming tax relief on capital expenditure. Instead of deducting the full cost of an asset in the year of purchase, you claim capital allowances over several years. Understanding how to maximise these allowances can significantly reduce your tax bill.
**Plant and machinery**
The main type of capital allowance is for plant and machinery. This includes equipment, machinery, vehicles, and computers. The general rule is that you can claim 18% per year on a reducing balance basis. This means you claim 18% of the cost in the first year, then 18% of the remaining balance in the second year, and so on.
**Annual Investment Allowance**
The Annual Investment Allowance (AIA) allows you to claim 100% relief on the first £1 million of capital expenditure on plant and machinery in each accounting period. This is a significant benefit, as it means you can claim the full cost of the asset in the year of purchase, up to the £1 million limit.
**First Year Allowance**
For certain types of expenditure, such as energy-saving equipment and low-emission vehicles, you can claim 100% relief in the first year. This is known as First Year Allowance (FYA).
**Industrial buildings allowance**
If you've invested in industrial buildings, you might be able to claim Industrial Buildings Allowance. However, this was abolished for new buildings from April 2011, so it only applies to buildings acquired before that date.
**Integral features**
Integral features of a building, such as electrical systems, heating systems, and water systems, can qualify for capital allowances at 18% per year. This is a valuable relief that many businesses overlook.
**Claiming allowances**
You claim capital allowances on your corporation tax return. You need to keep detailed records of the assets purchased, including the cost, the date of purchase, and evidence of the expenditure. HMRC can ask for evidence of these claims, so proper documentation is essential.
**Learn more:** For professional guidance on this topic, visit [Accounted For Ltd](https://accountedforltd.co.uk/corporation-tax).
Learn more: For professional guidance on this topic, visit Accounted For Ltd