Unveiling the Overlooked: Capital Allowances Tax Relief

December 20, 2023

What are Capital Allowances?

Capital Allowances are a tax relief initiative offered by the UK government to encourage businesses to invest in capital assets. Qualifying expenditure encompasses costs incurred on commercial property acquisition, builds and refurbishments. Capital Allowances allow you to claim a portion of this expenditure against your taxable profits, resulting in a reduced tax liability.

Who can claim Capital Allowances?

In brief, any owner of a UK commercial property—be it a limited company, partnership, or an individual—is eligible to claim Capital Allowances on that property.

To qualify, you need to pay either corporation tax or income tax and engage in trading or renting out the property. This makes it likely that you can benefit from Capital Allowances tax relief.

What qualifies?

Not everything that you incur costs on will qualify for Capital Allowances and it can sometimes be unclear what can be accepted and what isn’t. Typically, items often integral to the day-to-day operations of a business, will be eligible for Capital Allowances. Examples include lighting systems, heating installations, and specialised equipment etc.

What are Writing Down Allowances? (WDA)

This is the most common way in which you will see Capital Allowances being claimed. The WDA’s consist of a general rate pool whereby tax relief Is claimed at 18% a year, and a special rate pool, where relief is claimed at a rate of 6% a year.

The Annual Investment Allowance (AIA)

A common term often used in the world of Capital Allowances is the “Annual Investment Allowance.” This is one of the most beneficial allowances when it comes to claiming and maximising Capital Allowances tax relief. AIA provides businesses with the opportunity to claim 100% tax relief on qualifying capital expenditures, up to a limit of £1,000,000 per tax year.

The catch here however is that you can only claim AIA in the year that you incur expenditure! For example, if you have a March year-end, and incurred capital expenditure in the year-end 31^st March 2022, then you only have until the 31^{st of} March 2024, to make a claim for AIA.

Are there any time restrictions on making a claim?

In theory, there are no time restrictions. You can claim on both historic and current expenditure providing you still own the commercial property, or the assets you incurred expenditure on are still in place within the property. Even if the AIA deadline is missed, you can still claim Capital Allowances, albeit by using the WDA pools instead.

There are additional deadlines associated with claiming on property acquisitions, but we will explore these in more detail in a forthcoming article.

Why do businesses miss out on Capital Allowances?

Within the intricate realm of tax relief, Capital Allowances often slip under the radar, with many businesses assuming their accountants have everything in hand. Accountants commonly limit their claims to loose fixtures and fittings, skipping over the potential within embedded plant and machinery. This oversight leads to unexplored opportunities for maximising capital allowances.

A recurring challenge also arises from accountants typically claiming only when there is a cost for each individual item. Faced with an invoice spanning an entire project, the complexity of dividing costs and attributing eligible amounts for Capital Allowances becomes evident. Consequently, substantial claims are overlooked, resulting in missed chances for significant tax savings.

Property acquisitions present another frequently passed over opportunity. The complexity of legislation, particularly regarding capital allowances in property acquisitions, leaves businesses uncertain about their entitlement to claim. Accountants and solicitors, who do not specialise in Capital Allowance nuances, may also struggle to navigate these complexities, resulting in further missed opportunities.

So how can we assist you?

This is where specialists like Bonham and Brook become essential; at Bonham and Brook, we go beyond the role of standard consultants, aiming to become an extended part of our clients’ teams.

We provide support from the outset, from proposing amendments for purchase contracts, to providing guidelines for record-keeping for ongoing build projects, our aim is to alleviate the burden of navigating intricate legislation.

Our in-house team of specialists are well-versed with the complexities of Capital Allowances, ensuring thorough exploration of all claims, including those lacking individual invoices or involving lump-sum costs.

Ready to get started?

If you’re approaching a year-end deadline and want to ensure you don’t miss the opportunity to claim AIA, have uncertainties about maximizing tax relief on your commercial property portfolio, or are involved in an ongoing refurbishment project, don’t hesitate to reach out to Bonham and Brook today!

To contact us, simply give us a call at 020 3523 9125 or send an email to info@bonhamandbrook.co.uk.