Capital Allowances

The thrust of UK taxation is that business costs are deductible against taxable profit as costs are charged to the profit and loss account. This is the case unless the tax legislation states otherwise. One accounting cost which is usually disallowed is depreciation. Although the tax legislation disallows accounting depreciation it replaces the depreciation with a capital allowance deduction. Capital allowances are therefore the tax relief that a business can claim on the physical assets it uses within its business.

Capital allowances are deducted at varying rates of between 3% and 100% of the cost of the asset depending on the asset class in question. The assets on which capital allowances can be claimed vary depending on the industry and the method of financing of the asset. Capital allowance claims are subject to complex administrative process, especially when properties are bought and sold.

Even if capital allowances are available there is certain tax planning which makes it more effective to claim the allowances years later than the year of acquisition of the asset. This means that there are two aspects to consider – the extent that capital allowances can be claimed and the year in which the claim is made. Goodman Jones have expertise in identify assets on which claims can be made and maximising the benefit off this tax relief.

Capital allowance claims for a property refurbishment, fit out or new build settings can be particularly complex and we have helped our property and construction clients make considerable capital allowance claims. The complexity of these claims is particularly evidence when contracts for works provide an overall price and do not break the price into the cost of component assets. In the most complex situations we bring in property cost specialists, who have tax qualifications, to assist in determining the proportion of total expenditure that is eligible for each category of asset class.