Capital allowances ― introduction

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Capital allowances ― introduction
  • Background
  • General principles

Background

A corporation tax deduction is not generally available for capital expenditure incurred by a company. However, where capital assets are used by a company for the purposes of its trade, the value of those assets will tend to decline with use. For accounting purposes, a depreciation charge is debited to the profit and loss account on a straight line basis over the expected useful economic life of the asset. For tax purposes, the depreciation charge must be disallowed as it relates to a capital item, and instead the tax legislation allows a mechanism for recognising the decrease in value of the asset by making a claim for capital allowances.

Capital allowances are considerably more restricted than the accounts depreciation. The relevant legislation is set out in the Capital Allowances Act 2001.

Capital allowances are only available for a limited range of assets, each with a separate set of rules:

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