Update on Capital Allowances

There have been some recent significant changes in capital allowances

All businesses incur expenditure on assets – buying anything from computers, through cars to complex plant & machinery or premises.

Using capital allowances is the method by which tax payers can recover the cost of that expenditure against their tax bill. The amounts involved can be significant and savings large so proper capital allowances advice is important.

As expert tax advisers in Surrey we often help our clients with Capital allowances. Some of the more common capital allowance issues are as follows:

Capital allowances – Annual investment allowance (AIA)

In the Autumn Budget 2018, the government announced an increase in the AIA from £200,000 to £1,000,000 in relation to qualifying expenditure on plant and machinery incurred from 1 January 2019 to 31 December 2020.

The majority of companies are able to claim a 100% AIA on the first portion of expenditure on most types of plant and machinery (excluding cars).

The AIA applies to businesses of any size, and most business structures. However, provisions are in place to prevent multiple claims, for example in the context of groups of companies.

Therefore it is important to ensure that the timing of qualifying expenditure is considered carefully in order to make best use of the increased AIA for the two year period.  Special rules apply to accounting periods which straddle these dates, as such care should be taken when reviewing the best timing of expenditure.

Capital allowances – Structures and Buildings

A new capital allowance, the Structures and Buildings Allowance (SBA), gives relief for expenditure on certain structures and buildings.

The allowance is available for new structures and buildings intended for commercial use, and the improvement of existing structures and buildings, including the cost of converting or renovating existing premises to qualifying use.

capital allowances update

Relief is limited to the original cost of construction or renovation and given across a fixed 50-year period, at an annual flat rate of 2% regardless of changes in ownership.

Only certain expenditure will qualify. The structures or buildings must be brought into use for qualifying activities. These include trades, professions or vocations and certain UK or overseas property businesses – essentially commercial property lettings.

Relief will be given on eligible construction costs incurred on or after 29 October 2018. Where a contract for the physical construction work is entered into before this date, relief is not available.

Capital allowances – large construction projects

As a reminder it’s important to ensure that detailed consideration is given to capital expenditure when large building projects are carried out.

A detailed review of the expenditure incurred and work undertaken, by capital allowance specialists, will ensure that maximum capital allowances are claimed.

For more information

For more information on capital allowances, please contacta member of our tax team us on:

01483 416232