Categories of asset
Capital allowances were introduced in the UK in 1946 and may be claimed for: * plant and machinery * structures and buildings * business premises renovation (abolished for expenditure from April 2018) * flat conversion * mineral extraction * research and development * know-how * patents * dredging * assured tenancies Historically, there have also been capital allowances for industrial and agricultural buildings. These have now been phased out, though an allowance may now be claimed for features integral to a buildingPlant and machinery allowances
The far most commonly claimed form of capital allowances in the UK are plant and machinery allowances. Neither term is defined in legislation, though guidance is given by HMRC HMRC view machinery as brinh anything that has a moving part. It does not have to be mechanically powered, so a hand-operated device qualifies. The term "plant" is defined in case law, including ''Yarmouth v France'' which was not a tax case. This held that plant "includes whatever apparatus is used by a businessman for carrying on his business - not his stock in trade, which he buys or makes for sale; but all goods and chattels, fixede or dead, which he keeps for permanent employment in his business". In that case, it was held that his employer's horse was plant. The scope of exactly what comes within the definition has been the subject of many cases. Among the more important cases, the following have been held to be plant: * a shoe maker's knife that lasted for two years, but not one that lasted for less than two years * a large dry dock, which was held to be equipment rather than premises * swimming pools at a caravan park * artificial football pitch, held not to be part of the premises * grain silos * law books owned by a barrister * gazebo for smokers in the garden of a pub * decorative screens in the window of building society branches. Where a plant and machinery allowances claim has been made on a property a new purchaser, in most cases, will be restricted to the Sellers disposal value for the plant and machinery. Further claims can be made on a property where it is extended or re-developed but only on those new elements of plant and machinery fixtures introduced to the building. The amount of the allowance depends on what is claimed for. In some cases, the rates are different in the year a business entity made the purchase from those in subsequent years. A business operator cannot claim capital allowances for things bought or sold: these are claimed as business expenses. If a business asset is bought on aTypes of allowance
The main types of capital allowance are: * annual investment allowance (AIA) introduced from 1 April 2008 * first year allowance (FYA) * writing down allowance (WDA). * balancing allowance (BA). AIA is claimed for plant and machinery, with some exceptions such as for cars. It is fixed amount regardless of the size of the business and so is worth proportionately more for smaller businesses. The amount has varied many times since its introduction. In the 2015 summer Budget it was announced that it would be fixed at £200,000 until 2020. FYA may be claimed in the tax year in which the asset was acquired. It has largely been replaced by AIA. It may still be claimed for certain energy-saving products. WDA applies to such amounts of allowable expenditure that are not relieved by either AIA or FYA. Broadly it requires all assets to be put into either a general pool, a special pool or a single-asset pool. Assets in the general pool are written down at 18% while those in the special pool are written down at 8%. An asset in a single-asset pool is written down at either 8% or 18% depending on its nature. The advantage is that, on disposal, the whole of the written down value may be offset against taxable profits. The whole balance of a pool may be written off if it falls below £1,000. BA applies when a business ceases.Technical considerations
Capital allowance reliefs can be set against the client's taxable profits reducing the amount payable. Companies paySee also
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