National capital allowance expertise
Our capital allowance experts work with clients across renewables, leisure and tourism and office space/manufacturing.
Authors and contributed to: Claritax furnished holiday lets, Tolley’s Capital Allowances.
Capital allowances
Maximising tax relief on capital expenditure
Investing capital into new assets within a business can be a difficult decision
Making the most of the tax relief available on capital expenditure is therefore essential to guide the decision making.
Understanding the impact on your business of capital expenditure is vital to ensuring any investments made perform efficiently and tax relief is maximised.
Whether you are considering investment in a new assembly line, premises fit out, or acquiring a new premises altogether, our specialist team is here to guide you.
Capital expenditure
Tax relief on capital expenditure is given in the form of capital allowances, ranging from plant and machinery allowances to structures and building allowance.
Categorising expenditure can be complicated, and understanding how to apply allowances tax efficiently can save your business significant sums.
Types of allowances
The allowances available on expenditure on new plant and machinery is extremely broad, all with differing rates and applications.
Full expensing and 50% first year allowances for companies apply to expenditure on new and unused plant and machinery, providing a significant tax break in the year of investment.
The annual investment allowance, which provides 100% relief up to £1m, can also be utilised to maximise relief in year one.
Applying these reliefs efficiently can maximise a capital allowance claim, hopefully ensuring minimal expenditure is subject to writing down allowances (at either 18% or 6%) which spreads the tax relief over a large number of years.
The structures and buildings allowance (SBA) is aimed at relieving capital expenditure on qualifying structures and buildings and in combination with plant and machinery allowances, often means that the majority of expenditure on construction projects will be relievable.
The relief is provided relatively slowly, at a flat 3% per year, but on larger projects this can result in significant savings. The SBA brings forward tax relief and does impact on the capital gain when the asset is sold.
One key area where capital allowances are often overlooked is on the acquisition of new premises, whether that is purchasing the freehold, or agreeing a new lease.
Typically an election is required between the buyer and seller to fix the price of existing plant and machinery fixtures. This forms part of the negotiations and should be considered at an early stage to seek to maximise the tax relief available.
Advice should be sought when selling property to ensure that capital allowances can either be retained or consider tax-efficient negotiations.
Obtaining tax advice early to ensure the information is available to complete the Commercial Properties Standard Enquiries (CPSE) form is key.
Enhanced allowances at 150% are available where a company incurs qualifying expenditure on contaminated land. This enhanced relief is often overlooked as part of larger projects, but if the project involves, for example, the removal of asbestos, treatment of Japanese Knotweed, or removal of sub-structures, substantial tax relief can be available.
How can we help you?
Contact the capital allowance team and find out about maximising tax relief throughout the life cycle of your property ownership.