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Capital allowances enable the cost of capital assets to be written
off against the taxable profits of a business. They are given in lieu of
depreciation charged in the commercial accounts, which is not allowed for tax
purposes. Originally allowances of up to 40% were only available for the first
year, however was extended for purchases of
machinery or plant by both incorporated and unincorporated small and
medium-sized businesses. These are defined as companies with a turnover of not
more than £11.2 million and with no more than
250 employees. Many SMEs in the UK do not claim their full entitlement for capital
allowances. Part of this is due to ignorance - many company directors do not
know the extent to which they are entitled - and part is due to complications
involved in making the claims. You should seek advice on this, but for present purposes you are
entitled to claim capital allowances for any significant investments in your
business. These can include: - Property, either investing in it or occupying it. Recognising
the availability and potential value of this tax relief within capital
expenditure planning can significantly affect the nature of real estate
decisions. For example, factoring in capital allowances could improve property
investment yields, make marginal schemes viable or influence the design
specification of a new build
- Plant and machinery (e.g. new equipment)
- Investment in information technology (e.g. computers, WAP
phones). SMEs currently receive capital allowances of 100% for investment in
information and communications technologies
- Expenditure on business vehicles.
Capital allowances do not apply or are restricted as regards: - Ordinary business expenses
- Buildings or equipment that is leased, or not owned by the
claimant. In other words, where there has been no capital
expenditure.
Any taxpaying property owner may be entitled to these benefits. It is
no more than prudent business practice to ensure that all capital allowances
are correctly claimed. However to do this you must have a clear business plan which
identifies any areas where you are likely to be making any capital expenditure.
And, as mentioned earlier, it must be capital expenditure, not just
conventional business expenses that are claimed from the Revenue in the normal
manner.
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