Baffled by Business Expenses?
Part Two: Capital Allowances
In part one of Baffled by Business Expenses we looked at ordinary allowable expenses. But there are other forms of business expenditure that are tax deductible.
Under the Capital Allowances Act, businesses may claim for assets purchased for use in the business. This includes equipment, machinery or vehicles (collectively known as plant and machinery), research and development costs and renovations to business premises.
The two most commonly used types of capital allowances available to businesses are the Annual Investment Allowance (AIA) and Writing Down Allowance (WDA).
The AIA allows businesses to deduct the full value of most items used solely for business purposes, up to the limit of the allowance (currently £200,000). Most plant and machinery can be claimed under the AIA. The exceptions are items purchased outside a company which have been transferred in or gifted to the company.
When AIA is not available WDA can usually be claimed. This enables a business to deduct a percentage of the value of an item from their profits each year. This is mainly used in cases where a business has already claimed the full limit of the AIA on qualifying expenditures for that taxation year. It will also be used for items that are not eligible for AIA, such as items introduced to the business and most cars.
You cannot claim capital allowances on things you lease (you must own them); non-integral parts of buildings including their doors, gates, shutters, mains water and gas systems; land and structures for example bridges, roads or docks; and items used only for business entertainment, such as yachts or karaoke machines.