Capital allowances provide tax relief for capital expenditure on assets purchased for use in your business. Example of assets which qualify include machinery, equipment, computers and business vehicles. Capital allowance rates are dependent on the type of asset purchased.
Annual investment allowance (AIA)
AIA is available to most businesses and the full cost of the qualifying asset can be deducted from your profits before tax. AIA is available on most plant and machinery (except cars) and the good news is that the limit has been temporarily increased to £1 million for expenditure during the period between 1 January 2019 and 31 December 2020. After this period it will revert back to £200,000. If your accounting year straddles the 1 January 2019 the AIA will have to be calculated to account for this.
Writing down allowances
When businesses spend more than the AIA limit on qualifying assets, the purchases fall into the main pool and will attract an annual writing down allowance (WDA) of 18%. Certain expenditure on building fixtures known as integral features such as lifts, water heating systems, air-conditioning, and lighting systems can only be allocated to the special rate pool and capital allowances are available at a rate of 6%. Prior to April 2019 this was 8%.
There are special rules for business cars bought from April 2018:
* New cars with CO2 emissions which are 50g/km or less (or car is electric) will qualify for the first year allowance. The full cost can be deducted from your profits before tax.
* Cars with CO2 emissions not exceeding 110g/km or less will be included in the main pool and WDA of 18% of the cost is available.
* Cars with CO2 emissions exceeding 110g/km will be allocated to the special rate pool and capital allowances are available at a rate of 6%.
Structures and buildings allowance (SBA)
There has been no tax relief available for the building of structures or new buildings in recent years. However the new structures and buildings allowance announced in the 2018 budget has been introduced for eligible construction expenditure. The aim of the SBA is to relieve the costs of physically constructing new structures and buildings. However please note neither land nor dwellings will be eligible for relief.
Businesses that incur qualifying capital expenditure on or after the 29th October 2018 on structures or buildings used for qualifying activities will be able to claim the SBA. Unfortunately relief will not be available for structures or buildings where a contract for the physical construction works is entered into before 29 October 2018.
SBA will be allowed as a deduction from profits at an annual rate of 2%, over a 50 year period. The relief will be available to businesses that are chargeable to income tax and companies chargeable to corporation tax.