Planning to expand your business by investing in new equipment or upgrading your facilities may be more cost-effective than you think, thanks to capital allowances. These allowances can significantly reduce your tax bill by allowing you to deduct certain expenses from your taxable profits.
What Are Capital Allowances?
Capital allowances are tax reliefs that businesses can claim on qualifying purchases and investments. In simple terms, a portion of these costs can be deducted from your taxable profits, effectively lowering the amount of tax you owe.
Businesses can claim capital allowances on:
- Plant and machinery: This includes equipment, machinery, office furniture, vans, tools, and computer equipment.
- Buildings and structures: Including renovations, fitting out commercial premises, or converting spaces above shops into flats for rental.
- Research and development (R&D): For investments in innovation and new product development.
Annual Investment Allowance (AIA): What You Need to Know in 2024
The Annual Investment Allowance (AIA) is one of the most valuable tax reliefs available to businesses. As of 2024, businesses can claim 100% tax relief on the first £1,000,000 spent on qualifying plant and machinery. This includes items such as vans, office equipment, fixtures, and fittings, but excludes motor cars.
The AIA limit of £1,000,000 is set to continue indefinitely, which provides businesses with the certainty to plan their investments confidently. By leveraging the AIA, you can deduct the full cost of qualifying investments from your taxable profits in the year of purchase.
Super-Deduction and Full Expensing: Additional Tax Reliefs
In addition to the AIA, businesses can also benefit from the Super-Deduction and Full Expensing schemes:
- Super-Deduction (available until March 31, 2025): Allows companies to deduct 130% of the cost of new qualifying plant and machinery investments. This effectively reduces your corporation tax bill by more than the amount you invested.
- Full Expensing (introduced in April 2023): Enables a 100% deduction for most capital expenditure on plant and machinery in the year of purchase, making it easier for companies to claim immediate relief on their investments.
These reliefs are particularly beneficial for companies looking to expand, modernise, or increase efficiency.
How to Claim Capital Allowances
You can make a capital allowance claim at any time up to the standard time limit for making or amending your Income Tax or Corporation Tax Return, usually 12 months after the filing date. If there is an HMRC enquiry into your tax return, this period may be extended.
Businesses can choose to claim varying amounts of the allowance each year. For example, if you choose to claim only 10% instead of the full 18% available for plant and machinery, the remaining balance can be pooled and carried forward to future years, allowing for flexibility in tax planning.
If your business operates as a partnership, remember that capital allowance claims must be made collectively rather than by individual partners.
Need Help Maximising Your Capital Allowances?
Navigating the rules around capital allowances can be complex, but the potential tax savings are significant. At Yorkshire Accountancy, we’re here to help you identify qualifying expenses, maximise your claims, and optimise your tax relief.
Contact us today to learn how we can assist you in making the most of capital allowances and reducing your tax bill.
