UK Accounting Glossary
Capital allowances is the practice of allowing a company to get tax relief on tangible capital expenditure by allowing it to be expensed against it’s annual pre-tax income.
A capital allowance is the amount of expenditure that a British company may claim against it’s taxable profit as laid out in the Capital Allowances Act. It is regulated by HM Revenue & Customs (HMRC).
Capital allowance is where a company is able to get tax relief on what is known as tangible capital expenditure by enabling it to expense it against the company’s pre-taxed income. Usually, capital allowances can only be gained on specific items of tangible capital expenditure, the expenditure is normally spread out over a period of years. Capital allowance is a term that is used in Ireland and the UK.
Under the Irish Capital Allowance scheme, you are able to get tax relief on both tangible and intangible assets which can the be expensed against pre-tax income in Ireland. This is part of what makes Ireland so attractive for American companies to operate in, as it has allowed these multi-nationals to pay <3% in corporation tax in Ireland, which in 2015 is exactly what Apple did, this is also known as leprechaun economics.
Capital allowance is not the same as depreciation which is not admissible for tax relief. In the event that capital expenditure is not able to qualify for Capital Allowance, then the company will not be in receipt of tax relief for said expenditure.
The company may claim capital allowances when the obligation to pay for the cars has become unconditional.
Businesses are able to claim capital allowances for expenditure on machinery and plants, these can then be taken away from corporation tax on the profits the company has made.
From May, businesses will be able to claim the full purchase price of electric cars against tax under the new capital allowances scheme.
Capital allowances can be claimed on a variety of things that have been bought for a company’s professional use. It does not apply to items that have been leased. These items are often called plant and machinery.
Plant and machinery are inclusive of:
What else counts as fixtures?
What else counts as an integral feature?
Other items and activities that qualify for capital allowances:
Please note that the following is not included in capital allowances:
Be aware that you can not get capital allowances on items that have been leased for business purposes. Other things you cannot claim capital allowances on include.
On certain items, you are able to claim 100% of the expenditure you have made on ‘plant and machinery’; if you claim it in the year that you have bought the item it can be claimed as part of your first year’s allowance. This applies to machinery, equipment and vans. However, it should be noted as this does not apply to cars at present as they are often used for personal and not business use. The amount that you as a business are able to claim will vary from year to year, however, at present, the amount you can claim stands at £200,000.
A business is able to claim capital allowances when it buys assets for that company, this is inclusive of but not exclusive to vehicles such as vans, trucks and cars as well as machinery. It does not include anything that you lease for your business. So you are able to take away the some or all of the expenditure on these items from the profits your business has made before you pay corporation tax.
You are able to claim part of the amount back in your capital allowances, so claim part of it back by deducting it from your profits before you pay corporation tax. However, you are unable to claim it against your Annual Investment Allowance(AIA). You can only claim on cars that you have bought and are used for business purposes.
Any business that operates in the UK is able to claim capital allowances. If it claiming for expenditure on the acquisition of new assets such as vehicles, machinery and equipment. Otherwise known as ‘plant and machinery’.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Capital Allowances are sourced/syndicated from:
This glossary post was last updated: 8th May 2019.