types of capital allowances

What are the Different Types of Capital Allowances?

19/09/2022Dividend Allowance

The tax is a serious affair that keeps a non-stop communication and relation between the people who are carrying out business and the government in the UK. The good news for the business people here is that if your business is eligible enough and you can claim the tax relief as well. Any product or tool that is used for the benefit of your business, in the long run, can be considered a part of the capital allowance. This tells us that such items are treated as a business expense and this will be able to reduce the taxable profit. You must be aware of the multiple types of capital allowances.

Moreover, in today’s guide, we will help you to develop an understanding of the set of rules that you must consider before you plan to write off the business expenses in the form of the asset cost. This will be against your taxable profits. Further in this guide, you will gather more about the types of allowances and what is there for you to claim for tax relief in the process.


Reach out to one of our professionals to get to know what is the best way to use types of capital allowances UK  for your business. We will love to offer instant help!


What is the Capital and What are the Different Types of Capital Allowances?

We all are well aware of the fact that the eligible capital of a business must be under the ownership of the business and its usage as well. The asset must be in the use of the business for a long period. The minimum period in the business is considered a period of more than one year. In the case of the leased or hired asset, there can not be a claim for capital allowance. However, this still allows you to enjoy the benefits of the relief on the assets of the business. Machinery and plant are the usual examples of capital. The cost you spent on the property or the building is not allowed to claim. Some parts of the property and building can be considered in some circumstances. The usual examples that easily qualify for capital allowances include the following:

  • Machinery and specialised equipment
  • Equipment like saws and other tools
  • Vans and the cars

Moreover, some parts of a building that is used for business purpose can be considered for capital allowance. These are called fixtures and integral parts. You must be wondering what exactly are the fixtures and integral parts. Well, the parts of a property that are not removed easily are in the list of fixtures and integral parts of the building. The heating system, ventilation system, and electrical system are a few such examples of the integral parts of the building that is used for business purpose. Moreover, the multiple types of capital allowance are listed and explained below.


1- Annual Investment Allowance

An annual investment allowance gives you the opportunity to claim 100% cost that you spent on the machinery and plant for business purposes. However, there is an annual limit to this type of allowance. You are not allowed to claim for the annual allowance when it comes to your car, however, your work van can come into the list of eligibility and qualifies for the claim. The process must be completed within the same financial year in which you bought the plant or machinery. In the case the total cost is exceeding a certain limit, it will then fall into writing down allowance.


2- Writing Down the Allowance

When the limit of your business expense exceeds the certain limit of the annual investment allowance, you will be guided to claim for the writing-down allowance. This type of allowance allows you to make a deduction of the qualifying assets cost from your business profits annually. The rate is depending on the asset type. You are required to make groups that are according to the qualifying factors and rates. When items are not qualified for annual investment allowance, you are allowed to add them to the writing-down allowance. Your car and vans that you used to own before the business also are a few such examples.


3- First-Year Allowance

Just the way you do in the annual investment allowance, qualifying asset costs can be claimed 100%. Just ensure that you do it in the same accounting year of the purchase. This case is applicable for a few expenditure types that are listed below:

  • Refuelling equipment of vehicles
  • Machinery and plant used for the enterprise zone.
  • The machinery that is used for water and energy saving.
  • Zero emissions vehicles
  • CO2B emission cars.

Moreover, there are exceptions for the cases of prior used items, gifts and other such item stat are in the use of sole traders prior to incorporation.


4- Small Pool Allowance

Once you have reached the annual investment allowances limit, you are allowed and suggested to make a small pool allowance. This way you will be able to make a claim for the whole amount rather than going for the writing down allowance.


The Bottom Line

Now that you have gathered a fair amount of information about the types of capital allowances, we can say that you can get the benefits of allowances only when you know the professional procedure to make a claim for the assets and capital you are using for business purposes. There are a few exceptions that are needed to be considered as mentioned above. We hope these few minutes of reading have helped to develop a better understanding of how to make a successful claim and keep yourself gaining the most benefits from the suitable type of allowance.


Get in touch with our young, clever and tech-driven professionals if you want to choose the best types of capital allowances for your business. 


Disclaimer: The information about the types of capital allowances provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.

Related post

Capital Allowance on Property
Learn To Claim Capital Allowance on Properties!

26/04/2022Business , Dividend Allowance

Do you have a furnished holiday let or any other commercial property? If yes, this article is important for you to know more about Capital Allowance on Property. As this is a form of tax relief which will be valuable for you. Regardless of how old is your property or when did you build it, …

Read more