Capital Allowances

A better way to obtain valuable savings on capital spend. We can help your company obtain valuable cash tax savings and improved business cash flow. The UK government allows businesses who pay tax in the UK to claim capital allowances on qualifying capital expenditure they incur, when they buy equipment or buildings, carry out new construction, refurbishment works or fit out works.

About capital allowances

  1. This is a form of tax relief that incentivise businesses to invest in capital expenditure.
  2. This means that businesses can deduct the value of their qualifying spend from their profit, before calculating their tax liability.
  3. This can sometimes take the form of a tax credit or refund if the business is loss making.

Find out how much you can claim

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      Additional tax relief may also be available through the structures and buildings allowances.

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        Types of capital allowances

        1. Plant and machinery allowances (PMA)

          PMA provide tax relief on capital assets such as business equipment qualifying as plant and machinery. Furthermore, there are three main types of PMA as follows:

          First-year allowances (FYA)
          This allows a full deduction of the costs incurred on certain qualifying capital assets in the form of plant and machinery, during the (first) year the spend was incurred. Hence it is called “first year” allowances.

          Annual investment allowances (AIA)
          This allows a full deduction up to a certain annual limit in respect of the costs incurred on certain qualifying capital assets in the form of plant and machinery, during the year the spend was incurred. The current annual limit is £1m.

          Writing down allowances (WDA)
          This allows tax deduction at a reducing balance basis. The WDA has two pools or rates which includes the main pool (MP) rate of 18% on assets such as business equipment and furniture. There is also the special rate pool (SRP) of 6% on assets such as heating, ventilation, and air-conditioning systems. Some categories of WDA such as the following exist:

          Integral features (IF)
          These relate to lifts, heating, air-conditioning, electrics, lighting, water systems, etc.

          Short-life assets (SLA)
          These relate to assets with useful life of not more than 8 years.

          Long-life assets (LLA)
          These relate to assets with useful life of at least 25 years. The rate of tax deduction on the above categories is MP for SLA claims, and SRP for both IF claims and LLA claims.

          Where FYA and AIA does not apply, tax relief on PMA would typically default to WDA.

        2. Structures and buildings allowances (SBA)

          SBA was introduced on 29th October 2018 (operative date). It is available on structural and similar building related works like walls, floors and roofs, in respect of a non-residential business activity. It is only claimable at 3% straight-line deduction annually. SBA is available where the construction work commenced (and its agreement entered into) on or after the operative date. Generally, except for land, the part of the asset or property that do not qualify for PMA may potentially qualify for SBA, assuming the operative date requirement above is met. To be able to claim SBA on a qualifying second -hand building, the claimant would need to be in a possession of a compliant “Allowances Statement” obtained from the vendor of the building to confirm certain legislative basis of claim.

        3. Research and development allowances (RDA)

          RDA is available in respect of assets used in the process of carrying out research and development (R&D) such as building, equipment and furniture. The benefit is claimed in full at 100% in the year the spend is incurred. Less than 100% can be claimed in that year, but the balance cannot be claimed later. RDA is only available for businesses carrying out the qualifying activity of a trade. The tax relief is claimed from when the trade begins if the qualifying expenditure was incurred prior to that.

        4. Other forms of capital allowances

          Other forms of capital allowances such as mineral extraction allowances and dredging allowances exist. There are also other capital allowances schemes such as Business Premises Renovation Allowances (BPRA) in respect of disadvantaged areas, and Enhanced Capital Allowances (ECA) in the first year that you purchase certain types of equipment. It is also worth noting that there are other capital allowances related tax relief such as, land remediation relief (available in respect of removal of contamination in land and buildings); and capitalised revenue deduction (available in respect of repairs and like for like replacements).

        How to claim

        Most accountants and tax compliance advisors will typically have the knowledge to assist in making capital allowances tax relief claim on easy to identify business equipment such as IT kit, furniture, machines etc. For capital expenditure on less obvious qualifying assets such as those relating to buildings or large-scale industrial / engineering plants, the skills and services of a specialist capital allowances advisor would typically be required in order to maximise the tax relief benefit.

        The tax relief is obtained by introducing the claim into the tax return submission for the relevant accounting period. For registered companies, this would be the company tax return (CT600). For partnerships, this would be the partnership tax return (SA800), while for sole traders, it will be the self-assessment tax return (SA100/SA200). If the tax return for the relevant accounting period has already been filed with HMRC, the claim may be filed by amending the tax return if it is still available for amendment. Alternatively, the claim can be introduced into the tax return for any future accounting period.

        The benefit of the tax relief claim comes as a tax saving by default. I.e., reduction in tax liability. In some cases, when the business is loss making or does not have sufficient income or profit to absorb the tax relief, it is possible to do a loss carry back. The loss carry back to a prior profitable period will generate a cash refund from HMRC due to overpaid tax. It may also be possible to surrender the losses for a tax credit from HMRC in respect of qualifying expenditure on certain types of assets.

        How we can help

        Our capital allowances team of qualified specialists with diverse experience and multidisciplinary construction, engineering, surveying, accounting and tax advisory skills, leverage on their expertise to maximise cash saving benefits for businesses who incur capital expenditure. Throughout our capital expenditure review process, we work closely with businesses to identify all qualifying expenditure. We however work in such a way that minimises your involvement in the review process, so as not to disrupt your core business activities.

        Do not lose out on valuable cash savings for your business

        Are you concerned you are out of time?
        If you still own the asset in respect of which you are claiming, the UK capital allowances scheme is designed in such a way that you can introduce the claim in your tax return for any future period, or by amending a recent tax return that is still available for amendment. A claim can sometimes take the form of a tax credit or refund if the business is loss making.


        Are you deterred by a lack of cost information?
        You do not need to refrain from claiming capital allowances because you no longer have access to detailed cost information relating to the asset. With our quantification and costing skills, we can price up the relevant assets in order to identify the items and expenditure qualifying for tax relief.


        Are you worried about the complex rules?
        We can apply our experience and knowledge of the legislation, relevant case laws and HMRC guidelines to identify allowances for you. Most accountants and tax compliance advisors will typically have the knowledge to assist in making capital allowances tax relief claim on easy to identify business equipment such as IT kit, furniture, machines etc. For capital expenditure on less obvious qualifying assets such as those relating to buildings or large-scale industrial / engineering plants, the skills and services of a specialist capital allowances advisor like us would typically be required in order to maximise the tax relief benefit.

        Incurred or planning to incur capital cost for your business?

        Do you have any historic, recent or planned building or industrial and engineering plant related capital spend for your business, which may fall under any of the following categories?

        ·         Refurbishment works
        ·         New construction works
        ·         Fit out works
        ·         Acquisition of buildings

        We can provide a whole development lifecycle advice, aimed at identifying valuable capital expenditure tax relief from the planning stage, to construction, occupation and subsequent sale or acquisition.

        Why work with Leyton?

        We are an international consulting firm which helps businesses leverage financial incentives to accelerate their growth and achieve long lasting performance.

        With a multifaceted skillset comprising of construction, engineering, surveying, accounting and tax advisory, our dedicated capital allowances team is uniquely placed to apply their technical expertise and experience in identifying and maximising qualifying capital expenditure. This subsequently leads to valuable cash tax savings and improved business cash flow.

        We always keep compliance front of mind and have been delivering optimal services for over 24 years. This provides our clients with the peace of mind that they will receive the maximum financial benefit without unnecessary risks.

        Our Key Figures

        Clients

        26 000

        Years of experience

        25

        Experts

        2 200

        Meet our experts

        Bradley Maughan

        Capital Allowances Senior Manager

        Ryan Watson

        Capital Allowances Manager

        Unlock and maximise your cash tax savings and improve your business cash flow.

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