Year end Tax Review 2023/2024 – Blog 14 – Capital Expenditure

Capital allowances can be claimed on expenditure on certain types of assets used in your business. You must be careful to distinguish between

• ‘plant and machinery’ (P&M), which includes many fixtures and fittings (such as desks or chairs for an office); and
• structures and buildings.

The latter attract much slower tax relief.

The rules on capital allowances can be quite nuanced and there are lots of cases where the taxpayer does not get the tax relief they were expecting, so please check the likely tax treatment with us before undertaking any major expenditure. However, we explain below some of the key points of which you should be aware.

P&M allowances

• The Annual Investment Allowance (AIA) is a particularly valuable relief for businesses. 100% relief is given for expenditure on most types of P&M, up to a limit of £1m p.a. Apparently, 99% of businesses have annual P&M expenditure below this figure.

• Cars (with a few exceptions, such as dual control driving school vehicles) are not eligible for the AIA (or the FYAs mentioned below).

• Any other expenditure eligible for capital allowances generally attracts an annual capital allowance of 18% or 6% (depending on the nature of the expenditure) on a reducing balance basis.

• For expenditure on new, unused P&M by companies, there is now a First-year Allowance (FYA) of either 100% (‘full expensing’) or 50%, depending on the type of P&M bought.

• Most businesses will be better off claiming the AIA though, as:
  • It is available on second-hand plant;
  • It is available to unincorporated businesses, not just companies (although certain businesses cannot claim the AIA, including partnerships with a corporate member); and
  • Unlike the new FYAs (and the 130% super-deduction that was available from 1 April 2021 to 31 March 2023 for companies buying new, unused P&M), there are no special rules that apply when the asset is eventually disposed of.

Structures and buildings

• Structures & Buildings Allowance (SBA) can provide relief for expenditure on new non-residential buildings (including new conversions and renovations).

• Relief is normally given at a flat rate over 33 1/3 years at 3% per annum of qualifying cost (which will always exclude the cost of land).

• Garden offices used purely for business purposes will NOT qualify as they are built on residential property.

• If the business is in one of the government’s designated Freeport or Investment Zone sites, the SBA rate is 10% p.a.; various other tax advantages also apply to businesses in such sites.

Planning points

• To accelerate tax relief, consider purchasing new assets
  • just before the end of your accounting period (companies); or
  • before the end of the tax year (unincorporated businesses)

• Consider the timing of the disposal of cars and other equipment on which allowances have been claimed. The taxable profit or loss that occurs will increase or decrease the profits for the period in question.

• If your company previously claimed super-deduction, make sure that any disposal proceeds of that asset are separately identified; they will be treated as taxable profits of your company in the period of disposal.

• If you are intending to purchase commercial property (including Furnished Holiday Lettings (FHLs)) containing fixtures that are P&M, seek advice to ensure that the maximum capital allowances can be claimed. On purchase, any value attributed to the fixtures must be agreed by a joint election between the seller and the purchaser.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.