In our previous article, we looked at the basics of capital allowances and how they can save you money on your taxes. In this article, we will take a more detailed look at facts surrounding capital allowances. Read on!
What Are the Different Types of Capital Allowances?
There are two main types of capital allowances: plant and machinery allowances, and structures and buildings allowances. Another type of property tax relief, called land remediation relief, is also available, but it is a corporation tax relief, not a capital allowance.
Plant and Machinery Allowances
These are the most common type of capital allowances and can be claimed on a wide range of equipment and machinery used in your business. All businesses can claim plant and machinery allowances, regardless of the size or type of the business.
The plant and machinery allowances are calculated as a percentage of the cost of the equipment or machinery. The rates of plant and machinery allowances vary depending on the type of equipment or machinery. For example, equipment used for heating or cooling purposes can be claimed at a rate of 100%, while equipment used for office furniture and fixtures can be claimed at a rate of 18%.
Structures and Buildings Allowances
Structures and buildings allowances can be claimed on the cost of building new commercial buildings, or on the cost of renovating existing commercial buildings. These allowances are calculated as a percentage of the cost of the building work, and the rates vary depending on the type of work. For example, building work on a new commercial building can be claimed at a rate of 2%, while the renovation of an existing commercial building can be claimed at a rate of 1%.
Land Remediation Relief
Land remediation relief can be claimed on the cost of cleaning up contaminated land. This relief is available at a rate of 150% of the cost of the work, and can be claimed on both new and existing commercial buildings.
How to Claim Capital Allowances
Capital allowances can be claimed either through your self-assessment tax return or your company tax return. If you are claiming capital allowances through your self-assessment tax return, you will need to include a list of the equipment or machinery that you are claiming allowances on, as well as the cost of each item.
If you are claiming capital allowances through your company tax return, you will need to include a list of the equipment or machinery that you are claiming allowances on, as well as the cost of each item, in your company’s annual accounts. You will also need to include a note in your company’s annual accounts explaining how the capital allowances have been calculated.
What Happens If I Get Rid of an Asset?
If you sell, give away, or otherwise dispose of an asset you have been claiming capital allowances on, you may have to pay back some or all of the allowances you have claimed. This is known as ‘balancing charges’.
The amount of the balancing charge will depend on how much you sold the asset for, and how much you paid for it. You will not have to pay a balancing charge if you sell the asset for less than you paid for it.
If you dispose of an asset that you have been claiming capital allowances on, you will need to let HMRC know. You will also need to let HMRC know if you stop using an asset in your business, or if you stop claiming capital allowances on an asset.
Conclusion
Capital allowance is an important tax relief available to businesses in the UK. It is a way of reducing your taxable profits by claiming back some of the costs of your business premises and equipment. There are several different types of capital allowance, and the amount you can claim depends on the type of asset you are buying and the level of expenditure. You should speak to your accountant or tax adviser to make sure you claim the right amount of allowance.
When it comes to capital allowances, it is crucial to seek professional advice to ensure you maximise what you deduct from your tax bill. At Accountants247, we offer a range of accounting services in Warrington that can help you achieve this. Schedule an appointment with us today!
