Capital allowances are tax reliefs that allow businesses to claim relief on the cost of certain assets that they purchase and use in their business. These allowances are designed to encourage investment in these assets, which are typically plant and machinery.
The annual investment allowance (AIA) is a permanent relief that allows businesses to claim a 100% tax relief in the first year of purchase on plant and machinery. The normal expenditure cap for the AIA is £200,000, but it has been temporarily increased to £1 million. The AIA is available for second-hand purchases and assets purchased for leasing, and is a good option for sole traders or partnerships.
The super deduction is a temporary relief that allows companies to claim a 130% tax relief on qualifying plant and machinery purchases. The super deduction is only available to limited companies, and is a more generous relief than the AIA.
If a business is unable to claim the super deduction or AIA, it can still claim writing-down allowances. Writing-down allowances allow businesses to deduct a percentage of the value of the asset from their taxable profits every year, with two rates applying: 18% main rate and 6% special rate. However, writing-down allowances are less generous than the super deduction and AIA.
In conclusion, it is important to plan well with an accountant to ensure that businesses choose the right capital allowances to claim, as there are different rules and restrictions for each type of relief. With the deadline for the temporary increase in the AIA and super deduction fast approaching, businesses should act quickly to take advantage of these generous tax reliefs.