Capital Allowances

  • Posted: 13th February 2020
  • Author: Kirsty McMullan
  • Link: Permalink

Are you a business owner and have you recently bought any assets such as equipment, machinery or even vehicles for the business? Or, are you a domestic Landlord who lets your Property out as a furnished holiday letting business for at least 3-4 months a year?

If so, have you considered an application for claiming relief of these items under Capital Allowances?

Capital allowances is a form of tax relief that allows you to deduct the expenditure of these items from your profits before paying tax.

Section 11(1) of the Capital Allowances Act 2001 (CA 2001) outlines that ‘allowances are available … on a qualifying activity and incurs qualifying expenditure’.

In order to satisfy this definition there are two elements to prove - ‘qualifying activity’ and ‘qualifying expenditure’:-

i. ’Qualifying activity’ …

Qualifying activity is defined as a trade, an ordinary property business or providing a furnished holiday lettings business.

ii. ‘Qualifying expenditure’

Briefly, ‘qualifying expenditure’ is defined as plant and machinery. Which then leads to the question of how to define plant and machinery.

‘Machinery’ will be classed as machines and parts of machines, however ‘plant’ is a lot harder to define legally and it is decided by vast array of case law.

Broadly speaking, in order to identify an item as ‘plant’, case law guidance indicates that the item must perform a function rather than being a setting. In order to fulfil these requirements, the definition of ‘plant’ must satisfy a degree of substance and integrity, which helps facilitate the running of the business. For example, this could be IT equipment, business cars and offices. Or alternatively, if your business is providing furnished holiday lets it could be the furniture and various other items you have put into the Property in order to assist your business.

The CA 2001 does however outline various works that are not classified as plant. These include expenditure on buildings such as mains services and fire safety systems (s21 CA 2001) and expenditure on structures (s22 CA 2001).

Should you believe that you fall within these criteria it is important to remember this when you are coming to sell your Property as well as at the point of finalising accounts for tax purposes!

A photo of Kirsty McMullan

This article was written by Kirsty McMullan. If you would like further information on the issues raised contact Kirsty to discuss in more detail.