Capital allowances are complicated, so professional advice is both essential and worthwhile
Capital Allowances
Capital allowances are complicated, so professional advice is both essential and worthwhile
If you’re looking to make tax savings from your property expenditure, you need to get to grips with capital allowances offered by HMRC.
But understanding the changing rates and how to maximise them is a time-consuming and relentless task, particularly when the allowances are so project-specific and therefore very few people have the knowledge and experience of applying them on a regular basis.
From identifying qualifying plant and machinery elements (heating, electrics, fittings) to applying the correct level for the type of project (commercial construction, alterations, refurbishments), there’s a host of factors to take into account.
That’s why our specialist team makes capital allowances their focus, combining skills in tax and property to prepare claims that will generate the greatest possible savings in the least possible time.
Extensive experience
Benefit from genuine expertise provided by tax-qualified chartered surveyors with extensive experience in all aspects of capital allowances.
Comprehensive documentation
Receive robust and fully supportable claim documents in a format that goes beyond HMRC disclosure requirements.
Full Expensing Capital Allowances
In order to incentivise business investment and fill the void left by the removal of the super deduction in March 2023, ‘full capital expensing’ has come into effect for at least the next three years.
What is full capital expensing?
What is full capital expensing?
Businesses will now receive up to 25p of tax relief for every £1 invested into qualifying main pool assets (IT equipment, plant or machinery).
As a result of measures announced in the Spring Budget 2023, businesses will now benefit from:
- Full expensing – which offers 100% first-year relief to companies on new main rate qualifying plant and machinery investments from 1 April 2023 until 31 March 2026.
- The 50% First-Year Allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026.
The Annual Investment Allowance (AIA), which provides 100% first-year relief for plant and machinery investments up to £1 million, is also available for all businesses including unincorporated businesses and most partnerships.
Full capital expensing explained
Full capital expensing explained
Full expensing is a 100% first-year allowance which allows companies to claim a deduction from taxable profits equal to 100% of their qualifying expenditure in the year that expenditure is incurred.
Expenditure must be incurred on the provision of “main rate” plant or machinery on or after 1 April 2023 but before 1 April 2026.
Full expensing is available to companies subject to Corporation Tax only.
Therefore, unincorporated businesses cannot claim, but such businesses are entitled to claim the AIA which offers the same benefits as full expensing for the investments it covers (up to £1 million per year).
The plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else.
Expenditure on second-hand assets and those bought to lease to someone else can still qualify for the AIA.
For “special rate” expenditure (typically integral features such as lighting, electrical systems and HVAC), which doesn’t qualify for full expensing, a 50% first-year allowance can be claimed instead, subject to the same conditions that apply for full expensing.
This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred. Capital allowances can be claimed on the balance of expenditure in subsequent accounting periods at the 6% rate of WDAs for special rate expenditure.
Example of full capital expensing and 50% first-year allowance
Example of full capital expensing and 50% first-year allowance
A company incurs expenditure on a new state-of-the art production line including £10 million on various items of main rate plant and machinery.
In addition, the company spends £2 million installing a brand-new electrical system, which is special rate expenditure.
Because of the new full expensing and 50% first-year allowance, the company can claim £10 million under full expensing and £1 million under the 50% first-year allowance in the year the expenditure is incurred. The remaining balance of £1 million can be added to the special rate pool in a subsequent accounting period.
Our service is designed to save you tax in a number of areas
Our service is designed to save you tax in a number of areas
Here are some of the ways Azets’ capital allowances specialists support the many clients we work with on a daily basis:
- Claims for major new builds, extensions, and refurbishments. Big projects often suffer from a lack of cost information from contractors, meaning valuable allowances are missed. We can produce detailed and effective capital allowances claims, even where no cost information exists.
- Claims for property acquisitions. The price of a property will partly depend on its qualifying assets – however, by advising on elections in contracts and preparing specialist tax valuations, we can often ‘unlock’ the qualifying element from the purchase price.
- Support with conveyancing to make sure entitlement issues are addressed. Thanks to further tightening of tax legislation, capital allowances can be permanently lost if contracts do not include appropriate elections or clauses. We make sure our clients’ capital allowances are safe.
- Capital allowances claims for the purchase and renovation of furnished holiday lets, ensuring our clients shelter taxable rental income.
Land remediation claims for expenditure on cleaning up contaminated land and buildings. - Dealing with HMRC enquiries into capital allowances claims.
Of course, your business and needs are unique, so get in touch to discuss how we can help today.
Whatever your size or industry, our local teams are ready with practical, personal advice.
Tax planning is a phrase to fill some with organisational dread, but at Azets we plan with efficiency and shine a light on existing and changing ways to be as tax efficient as possible. Contact us to put a plan in place for the now and make it sustainable for the future.