Capital allowances ― introduction

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Capital allowances ― introduction
  • Types of capital allowances
  • Chargeable periods
  • Plant and machinery allowances
  • Plant and machinery ― other qualifying expenditure
  • Qualifying activities
  • Plant and machinery used for business entertainment
  • When expenditure is incurred
  • Hire purchase agreements and leasing

In the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the profits of a trade chargeable to income tax or corporation tax because it is an item of a capital nature.

 

In the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the profits of a trade chargeable to income tax or corporation tax because it is an item of a capital nature. See the Capital or revenue guidance note.

ITTOIA 2005, s 33; CTA 2009, s 53

Instead, relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits. Likewise, any charges are treated as taxable receipts.

ITTOIA 2005, s 28; CTA 2009, s 48
Types of capital allowances

The rate of relief available depends broadly on the type of capital expenditure incurred and the date the costs are incurred.

The most common expenditure on which capital allowances are claimed are:

  • plant and machinery, and
  • integral features

This guidance note gives an introduction to capital allowances.

A new capital allowance was announced at Budget 2018, available on new commercial structures and buildings. Structures and buildings allowance (SBA) has not yet been introduced, with FA 2019, s 30 broadly setting out a framework for the relief. Instead, it allows HM Treasury to introduce the measure by regulations, although these must be approved by a resolution of the House of Commons.

From FA 2019, s 30 it is known that SBA will broadly apply to construction expenditure on building new business property incurred on or after 29 October 2018. Writing-down allowances will be available at an annual rate of 2% of original qualifying costs. This will see structures and buildings written off on a straight line basis over 50 years. FA 2019, s 30 also states that land is not qualifying expenditure and that only

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