Investing in your business is often essential for growth, whether that means buying new equipment, upgrading your offices or expanding your operations, these investments can help your business move forward.
What many business owners don’t realise is that some of these purchases may qualify for plant and machinery capital allowances, helping to reduce their tax bill.
What Are Plant and Machinery Capital Allowances?
Capital allowances allow businesses to claim tax relief on qualifying investments in assets used within the business.
Rather than treating the full cost as an everyday business expense, qualifying expenditure may instead qualify for tax relief through the capital allowances system.
Depending on the asset and your business structure, relief may be available immediately or over a number of years.
What Types Of Assets Qualify?
Many everyday business purchases may qualify. Common examples include:
- Computers and laptops
- Office furniture
- Manufacturing machinery
- Construction equipment
- Commercial refrigeration
- Security systems
- Electrical installations
- Heating and air conditioning systems
- Certain fixtures within commercial buildings
The rules become more detailed where property purchases or refurbishment projects are involved.
Why Businesses Should Review Their Claims
Capital allowances are sometimes overlooked because qualifying assets aren’t always obvious. In many cases, businesses don’t realise they’ve purchased qualifying assets until long after the investment has been made.
For example, businesses may focus on the purchase price of a commercial building without considering that many of the fixtures inside the property could qualify for tax relief.
Likewise, businesses completing office or warehouse fit-outs may not realise that elements of the project could be eligible.
A review can often identify opportunities that were previously missed.
Common Mistakes
Some of the most common issues we see include:
- Assuming only machinery qualifies
- Not identifying qualifying fixtures within buildings
- Poor record keeping
- Claiming the wrong type of allowance
- Missing opportunities following refurbishment projects
These mistakes can result in businesses paying more tax than necessary.
Timing Your Investment Can Make a Difference
If you’re planning to invest in qualifying plant and machinery, the timing of the purchase can have a significant impact on when you receive the tax benefit. Buying an asset shortly before your accounting year end, rather than just after it, can often bring forward the corporation tax relief by up to 12 months.
For example, if your company has a 31 March year end and purchases qualifying equipment on 25 March, the expenditure will normally fall into that accounting period and the associated capital allowances can be claimed in those accounts. However, if the same purchase is delayed until 5 April, the claim would usually fall into the following accounting period, meaning the corporation tax saving may not be realised until much later.
This doesn’t increase the amount of tax relief available, but it can improve cash flow by accelerating when the tax saving is received. For businesses already planning to invest in equipment, machinery, vehicles or technology, it can therefore be worth considering whether bringing a purchase forward by a few weeks could provide an earlier tax benefit.
Why Professional Advice Matters
The capital allowances rules continue to evolve, and the relief available depends on several factors, including the type of expenditure, when it was incurred and the structure of your business.
Taking advice before significant investment can help ensure claims are made correctly and that your business receives the tax relief it is entitled to.
Speak To Greenstones
If you’re planning to invest in equipment, refurbish commercial premises or purchase business property, our team can help you understand how the capital allowances rules apply to your circumstances.
We’ll explain everything, identify potential opportunities and help you make the most of the available relief, so you can focus on growing your business with confidence.