Capital allowances

By Tolley

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

Capital allowances
Overview
Expenditure
Pooling of expenditure
General pool
Special rate pool
Single asset pool
Claiming capital allowances
Capital allowance reviews
Interaction with capital gains tax

Overview

Essentially, capital allowances are a form of tax-approved depreciation on certain capital assets. Relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits for the accounting period. This guidance note is intended to be a broad overview of the capital allowances regime, with links to the notes in the Owner-Managed Businesses module which explain the concepts further.

Allowances are available where a person carries on a qualifying activity and incurs qualifying expenditure. A person can be an individual, a trustee, a partnership or a company.
CAA 2001, s 11(1)

The following are the most common qualifying activities:

•a trade, profession or vocation

•an employment or office (see the Other expenses and capital allowances guidance note and CA20015)

•a UK or overseas property business (see Tolley’s Property Taxation 2019/20 Chapter 9, CA20020 and CA20030)

•a furnished holiday letting business (see the Furnished holiday lets guidance note and CA20025)

CAA 2001, s 15

Simplified cash basis and fixed rate expenses (2013/14 onwards)

Unincorporated businesses with turnover of less than £150,000 (or £300,000 for universal credit claimants) can opt to use the simplified cash basis. These turnover thresholds apply from 2017/18 onwards. For the thresholds that applied between 2013/14 and 2016/17, see the Simplified cash basis for small unincorporated businesses guidance note.

ITTOIA 2005, ss 31A, 31B

Whilst the unincorporated business is within the simplified cash basis no capital allowances can be claimed, with the exception of capital allowances on cars. If capital allowances have been claimed on a car used in the business, it is not possible to claim a flat rate expense for the business mileage. Therefore, the only option is for the business proportion of the capital allowance to continue to be deducted from trading profits.

CAA 2001, s 1A; ITTOIA 2005, s 94E

For more details on the adjustment required for capital allowances purposes on entering the simplified cash basis, see Tolley’s Income Tax 2019/20 Chapter 75.8.

Simplified cash basis for unincorporated property businesses 2017 18