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Capital allowances for plant and machinery

How to minimise business tax in 2018/19.

If there’s one thing that keeps us awake at night it’s the thought of how many British businesses are failing to claim capital allowances to which they are entitled – worth billions of pounds across the board, according to some estimates.

Capital allowances provide the mechanism for tax relief on certain types of capital expenditure (the purchase of assets such as office furniture, or equipment) essentially providing a deduction against profits.

Depending on the nature of the allowances, the deduction may be up to 100%, providing full write-off against profits in the year of purchase.

Where 100% relief is not available, using what are known as writing-down allowances to deduct a percentage of an item’s value from your profits each year can be a way to extend the relief over a longer period. On the flip side, you may have to pay a balancing charge should you receive any proceeds from disposing of that asset.

There are various types of allowance available but not all allowances are available for all types of capital expenditure – the allowances that can be claimed depend on the type of capital expenditure.

You can’t claim capital allowances if you use the cash basis for your accounts, with the exception of cars.

Of course you don’t have to claim capital allowances and as long as you take care to follow the rules, you can pick and choose what to claim. This can be very useful from a tax-planning perspective.

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