Capital allowances are sums of money a UK business can deduct from the overall corporate, partnership or personal profits in order to lower tax.
Capital allowances are derived from the purchase or refurbishment of a commercial property and are given for certain types of “plant and machinery” inherent within or installed on refurbishment. New build expenditure also qualifies.
“Plant and machinery” is a term used to describe items within the property that are used in the day to day running of the business.
Everything from lighting, heating and electrical installations through to toilets, carpets and door handles all attract capital allowances that can be used to reduce tax and enhance cash flow.
In most cases a tax refund is due.
WHAT IS PLANT?
WHAT ARE CAPITAL ALLOWANCES?
The tax relief from claiming capital allowances is realised by one of two methods, yearly writing down allowances or the annual investment allowance.
WDA's are a yearly amount that is offset against your profits over a period of time.
The AIA is a first year allowance which allows you to write off up to £1,000,000 worth of profits at first instance.
HOW DOES IT WORK?
Purchase Price = £880,000
Capital Allowances = £252,000
Refurbishment Cost = £1,470,000
Capital Allowances = £970,200