Legally reducing your tax bill, and only paying what you actually owe should be a serious goal for every business – and when you own certain things that are used for your business, you may be eligible for Capital Allowance Relief – a tax deductible expense that is available to be offset against certain qualifying assets.
So, what do you really need to know, in order to make use of Capital Allowances Tax Relief for your business?
If you’re a UK taxpayer, and you (or your company) own commercial property, then you are likely to meet the minimum criteria to qualify for Capital Allowances Tax Relief.
You can generally claim Capital Allowances for ‘Plant and Machinery’ costs (this covers applicable equipment, machinery, and business vehicles), and this Tax Relief allows you to deduct some (or all) of the value of the item/s from your profits before tax is calculated.
The relief is generally applied to permanent fixtures on the commercial property, these are generally split into ‘integral features’ and ‘fixtures’ but working out what is covered isn’t always quite so straightforward – for example, hot and cold-water systems are considered ‘integral features’ but not toilet or kitchen facilities, these are considered ‘fixtures’ – which although are claimable, mustn’t be listed in the wrong area.
Aside from the difficulty in determining what is applicable for Capital Allowances, there’s also issues of working out what the correct cost or value can be claimed, whether any other Capital Allowance claims are applicable (such as renovating business premises in disadvantaged areas, research and development, patent rights, etc), and determining if your business qualifies in time-restricted areas (such as with letting out residential property – and meeting the necessary qualifications for availability).
There’s also the issue of working out what qualifies as a Capital Allowance, and what should be claimed as a ‘business expense’ – for example, if you’re claiming for day-to-day running costs, or the interest payments on the finance cost of buying the asset, you would be incorrect to assume these as Capital Allowances – they’re business expenses (if you’re a sole trader or partner) or should be deducted from profits as ‘business costs’ (if you’re a limited company).
Understanding what can be claimed, how it should be claimed, and where it needs to be recorded is essential for getting it right – especially as HMRC require this information to be entered into the appropriate year’s return (this could be a Self-Assessment form for a sole trader, a Partnership Return for Partners, or a Company Tax Return for Limited Companies – and in the case of LTD companies, a separate Capital Allowances calculation is required).
It’s not even limited to self-employed either, employees have to keep records and there’s a process for claiming for them too.
There are different levels and types of allowances that are associated with Capital Allowance, such as a First Year Allowance, or your Annual Investment Allowance (AIA) – and these also have strict criteria on what can or can’t be claimed for – for example, you cannot claim AIA on business cars, items that have been given to you (or your business), or items that were owned for another reason before you started using them for your business.
If you’re operating as a sole trader or partner, and your income is £150,000 per annum (or less) you may need to use the cash basis system instead of AIA to deduct the costs from your profits, so it’s important to know which system you should be using when determining how to claim your reliefs.
Capital Allowance Tax Relief can be complicated, and it’s important to get it right – if you’re looking for advice on what you should be doing, want someone to review your existing set up, or simply want to discuss making better accounting decisions for your business, you should get in touch with us now.
Our process is updated on a regular basis, so all our information on legislation and case law is up-to-date, and a complete (risk free) assessment only takes around 30 minutes! We will assess your case carefully and will let you know whether you’re eligible for Capital Allowance Tax Relief or not and will work with you to determine what the best next move is for you and your business.
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