CAS - Do I Qualify?
Capital Allowances (CA’s) are a critical aspect of the UK tax system designed to provide tax relief on certain capital expenditures. They are particularly relevant to property owners and investors, offering significant opportunities to reduce taxable profits.
Capital Allowances allow businesses to deduct the cost of certain capital expenditures from their taxable income. Instead of accounting for depreciation over time, capital allowances provide a way to write off the cost of assets, thereby reducing the amount of tax payable.
Understanding and leveraging capital allowances for properties can provide substantial financial benefits to property owners and investors in the UK. By effectively managing these claims, businesses can enhance their cash flow, reinvest in growth opportunities, and reduce their overall tax burden. Working with a specialist can ensure that all eligible expenditures are identified and claimed, maximizing the available tax relief.
To qualify for UK capital allowances, businesses must meet certain criteria and ensure that their expenditures fall within the guidelines set by HM Revenue & Customs (HMRC) Eligibility Conditions.
To keep it simple, in order to claim capital allowances a number of conditions must be met:
This means that businesses including limited companies must be liable for Corporation Tax. Individuals and Partnerships, such as landlords and property investors, must be liable for Income Tax.
Entities that are exempt from these taxes, such as pension funds, government bodies, charities, and public sector entities such as the police force, cannot claim capital allowances.
Importantly, being loss-making does not disqualify an entity from claiming capital allowances. Even if an entity has made a financial loss, they can still claim capital allowances, which may help offset future tax liabilities.
This means the entity claiming capital allowances must have paid for the asset or the qualifying expenditure themselves.
If an entity received a contribution or financial support, such as a grant, from another party, towards the capital expenditure, it’s crucial to determine who is deemed to have incurred the expenditure. A contribution may wholly or partly cover the expenditure incurred; in which case a capital allowances review must be completed to determine the level of allowances available.
A qualifying activity can include a trade, a UK Property Business, or a Furnished Holiday Letting business.
A trade can encompass various business activities, including manufacturing, retail, hospitality, construction, and more.
In cases where capital expenditure is being incurred prior to trading commencing capital allowances are deferred until the first financial period in which the entity is trading.
Capital expenditure must be incurred on the provision of assets to use for the purposes of their qualifying activity.
Before incurring the capital expenditure, the entity must have a relevant interest in the land where the asset is located. This includes holding a freehold or leasehold interest or a license to occupy the land.
Having a relevant interest in the land ensures that the capital allowances are claimed by the party that has a direct connection to the property and the qualifying activity.
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.
