Capital allowances are a type of tax relief that allow businesses to deduct the cost of certain capital expenditures from their taxable profits. Capital expenditures are the costs of acquiring, constructing, and improving assets used in a business, such as equipment, machinery, buildings, and vehicles.
In the UK, there are different types of capital allowances available, including:
Annual Investment Allowance (AIA): AIA is a type of capital allowance that allows businesses to deduct the full cost of qualifying capital expenditures up to a certain limit. As of the tax year 2022/23, the AIA limit is £1 million.
First-Year Allowance (FYA): FYA is a type of capital allowance that allows businesses to deduct the full cost of certain energy-efficient and environmentally-friendly equipment from their taxable profits in the year of purchase.
Writing Down Allowance (WDA): WDA is a type of capital allowance that allows businesses to deduct the cost of qualifying capital expenditures over several years, based on a set percentage.
Research and Development Allowance (RDA): RDA is a type of capital allowance that allows businesses to deduct the cost of certain research and development activities from their taxable profits.
The availability and amount of capital allowances that a business can claim depend on the type of asset and the business's circumstances. Some assets may not qualify for capital allowances, and some may be subject to specific rules and restrictions.
It's important for businesses to keep accurate records of their capital expenditures and claim all relevant capital allowances to reduce their tax liability. Businesses should seek professional advice to ensure that they are claiming the correct amount of capital allowances and complying with all relevant tax rules and regulations.
