What are capital allowances, and who can claim them?

Your business may be eligible for capital allowances if it has invested money in permanent assets for the company.

Capital allowances are just one of the many specialist tax relief services we provide at Hamilton Blake Consulting. Keep reading to find out more about capital allowances, and if your business could be eligible…


What are capital allowances?

Capital allowances are a type of tax relief offered by HMRC. They allow your business to reduce its tax owed as a result of certain capital expenditures.

HMRC knows that occasionally businesses will need to invest in certain items outside their day-to-day running costs. Capital allowances is thus a mechanism for supporting businesses and making tax a fairer process.


What capital expenditure qualifies for capital allowance tax relief?

To be considered as capital expenditure, the qualifying purchase must be useful for the business for more than a year. This includes things like equipment, tools, and furniture. It doesn’t include the day-to-day expenses of running a business, such as rent, stationery, or stock.

Qualifying capital expenditure is referred to as ‘plant & machinery’, even if the items are not what we would usually consider plant or machinery (such as computers, sewing machines, photocopiers, desks, etc).

Here’s HMRC’s guidance on what counts as ‘plant & machinery’:

  • items that you keep to use in your business, including cars
  • costs of demolishing plant and machinery
  • parts of a building considered integral, known as ‘integral features’ (lifts, air-con, hot water systems, etc)
  • some fixtures, for example, fitted kitchens or bathroom suites
  • alterations to a building to install other plant and machinery – this does not include repairs


What capital expenditure does not qualify?

HMRC stipulates that businesses cannot claim capital allowances on:

  • things you lease – you must own them
  • buildings, including doors, gates, shutters, mains water and gas systems
  • land and structures, for example bridges, roads, docks
  • items used only for business entertainment, for example a yacht or karaoke machine
  • repairs to plant and machinery, including fixtures and fittings


Who can claim capital allowances?

To claim capital allowances, you must be a UK taxpayer, and your business must have spent money on qualifying capital expenditure. In order to claim capital allowances on the fixtures and fittings of your commercial property, you must own it (no lease or freehold).

If you are a sole trader, you should claim your business expenses through ‘cash basis’ accounting as part of your self-assessment tax return.

The following sectors are not eligible for capital allowances:

  • businesses that let residential properties
  • care workers (there are separate guidelines for individuals that run care businesses)


What are R&D capital allowances, and how do they differ from R&D tax relief?

Businesses that conduct innovative research and development can benefit from both R&D allowances and R&D tax relief.

R&D tax relief covers the operational costs associated with innovation, such as salaries, contractor costs, pensions, and consumable items. The R&D allowance, on the other hand, allows businesses to claim back tax on any specialist equipment required for R&D.


Are there any other types of capital allowance?

Yes. Although we have provided a basic overview above, there are several other types of specialist capital allowances. These include:

  • renovating business premises in disadvantaged areas of the UK
  • extracting minerals
  • ‘know-how’ (intellectual property about industrial techniques)patents
  • dredging
  • structure and buildings

As you can see, capital allowances are a very broad type of tax relief incentive. Working with a specialist tax account such as Hamilton Blake Consulting ensures that your business benefits from everything that it’s eligible for.


How does the capital allowance claims process work?

Capital allowance tax relief is a type of tax self-assessment. However, you can still work with an expert consultant to make the process easier, and maximise your chances of a positive result.

Here at Hamilton Blake Consulting, we start all our business relationships with an informal telephone assessment to see if this is something your business could benefit from.

Since capital allowances cover a broad range of areas, a consultant will dig deep in your business to uncover any qualifying expenses. To submit the claim to HMRC on your behalf, your consultant will need details of your qualifying expenses, including receipts/invoices.

While the Hamilton Blake Consulting team does the most of the heavy lifting, we like our clients to feel involved in the claims process. We’ll ask you to review the claim before we submit it to HMRC, and one of our company directors will check it, too.

Get in touch to find out more about making a capital allowances claim through Hamilton Blake Consulting.

Get in contact with us to see how we can help you apply for your R&D Tax Credits