Ideally, tax payment must be made whether we whims at the thought of it or not. That explains why the thought of anything that will relieve tax sounds great and is a great idea. Since tax evasion is not an option, relief is of great help. Relief generally reduces the tax burden on firms and individuals. This article entails everything you need to know on what capital and gains allowance are, its integral features as well as an allowance on cars and buildings in the UK. Read on !!!
Getting allowance on your capital is all about tax relief on your assets. Tax relief sounds great, right? Well let”s find out
What Capital Allowance is All About?
Capital allowance is a method of allowing taxpayers to seek tax relief on capital expenditures by deducting them from their taxable income in the UK. This relief is allowed on capital expenditures that do not qualify for a revenue deduction. This simply means that expenses for fixtures and fittings, equipment, motor vehicles, and other such items can be deducted. Generally, capital allowance-eligible expenses will be incurred on designated capital assets, with the deduction often spread out over several years.
Integral Features Capital Allowance
Integral features refer to every item that is necessarily an important part of capital allowance tax relief. These are majorly plant and machinery and this is because both plant and machinery plays an important role to any firm and are therefore the fundamental features of capital allowance.
The plant and machinery include integral elements, although they, like Fixtures, must be assessed individually since they are subject to a different set of criteria and capital allowance rates.
The following are integral features of a capital allowance
- A power supply system
- Cold waterSystem
- Solar shading from the outside
- Powered Ventilation
- Air Condition
- Air Purification System
- A lift
- Moving walkway
- Heating system
- Escalator
Any asset whose primary function is to insulate or enclose the interior of a structure to provide an interior wall, floor, or ceiling that is intended to remain in place indefinitely is expressly excluded from the definition of integral features.
Capital Allowance On Buildings
Just in case you are about to or desire to buy buildings, as much as you can run the show yourself, it is crucial you involve an expert. An expert will help you assess the rates of relief on the buildings. This is basically because there is no capital allowance on buildings but on their fixtures and fitting. Since there are no fixed rates on tax relief, an expert will guide you in buying your building at the right time to benefits from great rates. Also, experts help you in identifying the key fixtures and fittings that add up to the capital allowance on buildings.
Since Oct 2018, capital allowance can now be claimed on buildings. However, the tax relief is not on the building itself but on its furniture and fittings as well as other expenditure. This is known as structure and building allowance (SBA).
Examples Of Some Expenses That Qualifies For SBA
- Construction Costs: Examples of this as indicated by the HMRC include; legal expenses, financing costs, Site preparation and design fee and so on.
- Purchase Of Used or Unused Buidings
- Contsruction capital expense
Basic Conditions For SBA Claims
The following are some of the conditions that must be met before An SBA claim is considered.
Building Existence
To be eligible for SBA claims, the construction of a building and the expenses incurred must have started on or after October 29, 2018.
Use Of Building and Nature Of Expenses
Anyone incurring the expense must be doing a qualifying activity with the structure and its first use after the qualifying expenditure is for non-residential purposes.
SBA Claims And Allowance Statement
You need to fill out the allowance statement before filing a claim. The allowance statement include the following;
- Specifications of the structure or building;
- The date of the first contract for the building construction
- The amount of qualified spending on its construction or acquisition
- The date on which the building is first used for non-residential purposes.
Capital Allowance On Cars
For cars used for business purposes, you can deduct part of the car’s worth from profit before paying tax on it. This simply means you can claim capital allowance on cars. However, as much as allowance is claimable on cars, to enlist your car, you use the writing down allowance to underscore your claims not. This is because the annual investment allowance is not available on cars.
Writing Down Allowance
For capital allowance on cars, vans, trucks, and lorries the WDA allow an 18 per cent Writing Down Allowance for claims.
What Is Writing Down Allowance?
Since the AIA is not available on cars, the WDA, Writing Down Allowance is a means of getting tax relief.
How Does It Work?
The WDA works by deducting about 18 per cent of the cost of an item from its profits annually. There is no specific deductible percentage, it solely depends on the items. Furthermore, business cars measure their rate based on their CO2 emissions. This is basically to discourage the efficient use of CO2 emissions cars in the UK.
What Is Capital Gains Allowance
Over time, you can decide to dispose of something you own either by selling, swapping or even giving it out. When we sell or swap our personal possessions so long as they increased in value from the time of first possession, we make a capital gain on it. For instance, a house of £600,000 may worth over £1,000,000 within a decade. If you decide to sell at that point, the extra £400,000 is your capital gain and is subject to capital gain tax in the UK
However, there are capital gains that are tax-free in terms of allowance in the UK. The UK guide on capital allowance gains £12,300. This means if your gains on assets are not up to £12,300, then you do not need to pay tax on your gains.
Conclusion
Since capital allowance reduces tax payments in the UK, most businesses take advantage of it. Therefore it is imperative that you consider the various options in fixtures and fittings, as well as plant and machinery as this, will determine the amount of tax relief you will get.
FAQs On Capital Allowance
Can I claim AIA on a van?
It’s available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. It does not apply to cars. You can find guidance on claiming AIA in the Capital Allowances Toolkit
Can you choose not to claim capital allowances?
Of course, you don’t have to claim capital allowances and as long as you take care to follow the rules, you can pick and choose what to claim. This can be very useful from a tax-planning perspective
How does capital allowance affect tax?
Capital allowances mean that the whole cost of an asset will eventually be allowed for tax. A lower rate consequently means that this process will take longer. The higher rate pool attracts writing down allowance of 18% a year; the lower rate pool at 8% a year.
