Capital Allowances – where they rank in terms of Tax Relief?

Capital allowances play a crucial role in the tax strategy of many businesses, providing significant opportunities for reducing taxable profits.

In terms of importance, let’s look at how capital allowances rank among business tax relief options and their benefit for businesses of all sizes and sectors.

Why Capital Allowances Are Significant

Substantial Tax Savings

Capital allowances enable businesses to deduct the cost of qualifying capital expenditures from their taxable profits. This includes investments in plant and machinery, integral features, and energy-efficient equipment. Such deductions can lead to substantial tax savings, making capital allowances one of the most impactful forms of tax relief. At Complete Capital Allowance, our average client claim is £350,000 of identified capital allowance!

Broad Applicability

Capital allowances are available to most businesses, regardless of their size or industry. This wide applicability makes them a fundamental component of tax planning for any business investing in capital assets or commercial property. At Complete Capital Allowance, we believe up to 90% of businesses have yet to submit a claim!

Key Capital Allowance Mechanisms

Annual Investment Allowance (AIA)

The AIA allows businesses to deduct the full value of qualifying items up to £1 million in the year they are purchased. This provides immediate tax relief and is particularly advantageous for businesses making significant capital investments.

First-Year Allowances (FYA)

First-Year Allowances enable businesses to claim 100% of the cost of certain qualifying assets in the year of purchase. This mechanism promotes investment in energy-efficient and environmentally beneficial technologies, providing immediate tax benefits.

Writing Down Allowances (WDA)

For assets not fully deducted in the year of purchase, WDAs allow businesses to deduct a percentage of the remaining value annually. This ensures continued tax benefits over the asset’s lifespan, contributing to long-term financial planning.

Comparing Capital Allowances to Other Tax Relief Options

Research and Development (R&D) Tax Credits

R&D tax credits offer significant relief for companies investing in innovation. These credits can sometimes provide more substantial benefits than capital allowances for businesses heavily focused on research and development. At Complete Capital Allowance, we have a company within our group that can assist with R&D claims.

Patent Box Regime

The Patent Box regime offers a reduced tax rate on profits from patented inventions. While beneficial for businesses with significant intellectual property, it is more niche compared to the broad applicability of capital allowances.

Business Rates Relief

Various business rates relief schemes provide savings, especially for small businesses and those in specific industries or regions. However, for companies with substantial capital investments, capital allowances generally offer more substantial benefits.

Strategic Use in Tax Planning

Capital allowances are a significant and integral tool in effective tax planning for businesses. By leveraging these allowances, businesses can manage their taxable income and improve cash flow, facilitating further investment and growth.

Conclusion

In the landscape of business tax relief, capital allowances rank highly due to their wide applicability and potential for substantial tax savings. While other forms of tax relief, like R&D tax credits and the Patent Box regime, can offer significant benefits, capital allowances remain essential for businesses with heavy capital expenditure, providing both immediate and long-term financial advantages.

So now you know how important it is to maximise your capital allowance tax relief, get in contact with Complete Capital Allowance today to start the ball rolling.