Capital allowances compensate for depreciation not normally being deductible for tax purposes. Qualifying activities for capital allowances are:
- A trade
- A property business (UK or overseas)
- A furnished holiday lettings business (UK or within the European Economic Area)
- A profession or vocation
- An employment or office
- Special leasing of plant and machinery
- Managing the investments of a company with investment business
- A concern in mines or transport undertakings
Capital allowances apply whether you own the property as an investment, or it is used in your trading business.
The scope of definitions across all areas is extremely broad, which makes it easy for businesses to overlook certain types of expenditure that are in fact eligible.
It is common however for businesses to underestimate the proportion of their capital expenditure that qualifies for capital allowances. This means you may be paying too much tax.
There are many situations that give rise to eligible capital expenditure. Generally speaking, a business’ expenditure on plant and machinery will qualify for capital allowances. This tends to be well-known by accountants and business owners.
However, the potential for relief however is much broader. Capital allowances apply to a wider range of business assets, with companies yet to take full advantage of this wider application and financial benefit.
Not only this, on the purchase of a commercial property, a further series of rules apply which may even restrict the ability to claim for capital allowances on any exiting plant and machinery within the building. This can often be a shock to purchasers but also can have a bearing on agreeing commercial terms within the sale and purchase agreement. Ensuring that you have full support during this process of acquisition can ensure that both a) any potential pitfalls are identified and mitigated and b) you are paying fair market price for the purchase of the building.