Capital allowance is not the most easy to understand topic in the world, nor is it the most riveting, but it can save you money. In its simplest form capital allowance is a method of factoring in depreciation for tax purposes. What it means is that you will be able to write off the cost of the asset based on the type of asset and the rate of depreciation.
The following assets are eligible to be claimed as capital allowance:
- Plant and machinery costs
- Vehicles, machines, tools, equipment, computers, furniture etc.
- Some forms of construction i.e. property improvement and converting property above commercial buildings to rent as flats
You can easily find out more about what can and can’t be claimed under capital allowance from the Capital Allowances Act 2001. Capital allowance is most commonly associated with businesses but there are situations where you may be able to claim for items used at a personal property. Safe Site Facilities have a guide detailing those situations that may be of interest. Although be aware that if used on a personal property you will only be able to claim on the portion of the asset that relates to your trade or business.
For Business Property
Now that you understand a bit about capital allowance and how it works we’ll take a look at how it applies to business properties and what it could mean for you if you can claim under one of the following areas.
Renovating Business Premises:
The whole idea behind BPRA or Business Premises Renovation Allowance is to encourage the development of empty business properties located in ‘assisted areas’. The act provides 100% tax allowance for expenses incurred when renovating or converting vacant commercial building located within these disadvantaged areas. You can find more information regarding this act and what constitutes a disadvantaged area by visiting the HMRC website.
Also be aware that in order to receive this tax allowance the business premises must qualify by being from one of the following sectors:
- Shipbuilding
- Coal industry
- Steel industry
- Fisheries
- Synthetic fibres
- Certain agricultural products
- Milk or milk substitutes
Property Fixtures:
At the time of a property being sold or purchased the assets, for which capital allowances have been claimed, will need to be quantified for their contribution to the overall sale price.
As of April 2012 this portion of the purchase price must be agreed with the other party. The simplest way to do this is via a joint election (a section 198 or 199) which must be communicated to HMRC within a period of 2 years.
Make sure that the election includes:
- A description of the fixtures and their agreed value
- Information identifying both the buyer and the seller
- Details of the property
However if an agreement can’t be reached over the value of these assets then the case can be referred to a First Tier Tribunal. Again this must be done within 2 years.
Hopefully this article has provided some insights into the world of capital allowances. While the documentation can be hard going at times, ultimately there is money to be saved by claiming capital allowance where possible. One of the best places to start your quest is the HMRC website.
Article by Alex Murray – Community Coordinator, Safe Site Facilities.