What are capital allowances?
Expenses incurred in a business are either capital or revenue expenditure. Revenue expenses are normally expensed for repairs, for example repainting walls. Whereas capital expenditure is usually expenditure on items which provide an enduring benefit for trade. This expenditure is usually not deductible from trading profits, so a measure of tax relief is received in the form of Capital Allowances. According to HMRC a clear definition of capital allowances is, ‘A tax incentive to invest in plant and machinery’. This Government incentive reduces taxable profits by claiming tax relief on certain types of capital expenditure (plant and machinery) to reduce taxable trading profits.
Capital allowances are also available to those who have incurred qualifying capital expenditure on the construction, fit out, refurbishment or acquisition of commercial property within a trade. This can include offices, hotels, restaurants, retail, industrial, mixed use developments and various others.