Capital Allowances – How businesses can save money

What are Capital Allowances, and how does it benefit me?

Let’s look at a simple example of the difference Capital Allowance makes to a tax bill:

Without Capital Allowance factored in:
Total profit for the year = £300,000
Total tax to be paid @ 25% on amount of £300,000 = £75,000

With Capital Allowance Factored in
Total profit for the year = £300,000
Investments made during the first year (10 office chairs, 10 bench desks, and 2 printers) = £10,000
Capital Allowance = Profit minus any investments made = £290,000
Total tax to be paid @ 25% on amount of £290,000 profit = £72,500
This means that your tax bill reduces by £2,500

It’s important to keep a close record of all your purchases and investments during the claim period, including receipts and invoices. Also, document all the assets you currently have within your business that are eligible for Capital Allowance, and where you could look to invest further.

Who can claim Capital Allowances?

Almost any business that is subject to Corporation Tax – Limited companies, Sole Traders, Partnerships, and Limited Liability Partnerships (LLPs) can claim capital allowances. There are other types of Capital Allowances for unincorporated businesses, which you can speak to your tax specialist about.

What specified period can I claim for?

For Full Expensing, which will offer 100% first-year relief to businesses, this applies to investments made from 1 April 2023 until 31 March 2026.

What investments CAN be used to claim Capital Allowances?

Any tangible assets (also referred to as Plant and Machinery) that the company purchases, for example:
• Office equipment like desks and chairs
• Machines like computers and printers
• Tools such as ladders.

What investments CAN’T be used to claim Capital Allowances?

• Used or second-hand assets
• Cars
• Assets given to the company as a gift, or that will be leased to someone else
• Land and buildings.

Why was this introduced?

In the Spring 2023 budget speech, the UK Government announced the Capital Allowance offer, which would benefit businesses when paying tax. The government is encouraging businesses to do this, as investing strongly encourages productivity growth.

In a Capital Allowance survey conducted last year, businesses showed a strong preference for the full expensing option over the other types under consideration, because of how simple and generous it is.

Where can I find out more?

Please refer to the gov.uk website or your financial/tax advisor for further advice and guidance.