CAS - Capital Allowances
The system of capital allowances in the UK has evolved significantly over the years, reflecting changes in economic policy, technological advancements, and the government’s efforts to incentivise business investment.
There are 2 main types of CA claim that we focus on; ‘Purchase Claims’ & ‘Cost Claims’.
Capital expenditures on properties include costs incurred in the acquisition, construction, improvement, or renovation of buildings and other structures used for business purposes. This is distinct from routine maintenance or repair costs, which are typically treated as operational expenses.
Capital Allowances are a tax relief available to taxpaying entities to incentivise capital expenditure. This tax relief allows capital allowances to be claimed before calculating a taxable profit which can in some cases generate a tax refund if the business is loss making.
Main Pool Allowances apply to assets considered to be plant and machinery items. These assets typically include fixtures, fittings, furniture, machinery, and other items listed in the Capital Allowances Act 2001 (CAA 2001) List C. Taxpayers can claim a writing down allowance of 18% per year on the cost of these assets.
Special Rate Allowances are applicable to assets classified as Integral Features. These include assets such as lifts, escalators and moving walkways, hot and cold-water systems, heating, ventilation, and air conditioning units, electrical systems and lighting, solar panels, and thermal insulation. Taxpayers can claim a writing down allowance of 6% per year on the cost of these assets.
Introduced in October 2018, Structures and Buildings Allowances (SBA) allow taxpayers to claim a straight-line allowance of 3% per year on qualifying structural works. These works can include structural changes to ceilings, walls, and floors, as well as external works.
Structures and Buildings Allowances have to be deferred until the building has been brought into non-residential use following the construction works.
When claiming Structures and Buildings Allowances an SBA statement containing specific details about the expenditure and the property must be held and passed on to future buyers to transfer the structures and buildings allowances at the point of sale.
Research and Development Allowances provide a 100% allowance on capital expenditure relating to research and development activities, for example, a fit out of a pharmacy in which R&D activities take place. RDAs can be claimed on all or part of the capital expenditure incurred.
Please note that a full R&D report may also be required to determine the eligibility of R&D allowances.
This is a temporary first year allowance of 130% which is available on main pool qualifying expenditure. This temporary relief is available on expenditure incurred between 1 April 2021 and 31 March 2023.
This temporary relief has a number of complex eligibility rules including: the earliest written contract relating to this expenditure must be dated no earlier than the 3 March 2021, items must be new and not second hand, they must not be used for leasing (note there are additional rules around background plant and landlords) and title of the asset must pass within the year end in which the expenditure has been incurred.
This is a temporary first-year allowance for Special Rate pool qualifying expenditure available from 1 April 2021 to 31 March 2023. This allowance provides a 50% first-year deduction followed by a 6% annual writing down allowance for the remaining balance.
The same complex eligibility requirements are implemented for SR Allowance as described in the Super Deduction Allowance above.
From 1 April 2023, entities can claim 100% tax relief in the first year on eligible main pool assets.
This temporary relief has similar rules to the 130% Super Deduction including items must be new and not second hand, they must not be used for leasing (note there are additional rules around background plant and landlords) and the title of the asset must pass within the year end in which the expenditure has been incurred. There have not been any additional rules in relation to contract dates for the full expensing legislation.
The 50% Special Rate Allowance mentioned above has been extended from 1 April 2023.
Claiming capital allowances may seem hard at first, but at the BSE Group, we’re here to help you through the process. Our time within the financial field has given us the expertise needed to help your business claim tax relief. Our services help businesses across the UK to boost their performance, allocating the tax relief gained towards more important projects.
Are you maximizing the tax relief available on your property and equipment investments? If not, you could be leaving significant money on the table.
