Claiming tax relief is a great way to reduce your tax bill. When you’re registered as a limited company, there are many allowable reliefs HMRC has provided businesses to use in the preparation of their corporation tax returns, so let’s have a look at what’s on offer.
What are capital allowances?
A capital allowance is a type of tax relief you can use when you have purchased capital assets within the tax year. You can treat them as a type of business expense which in turn can contribute to reducing your taxable profit amount. This works well because corporation tax is calculated on your taxable profit total. So by reducing it, we consequently reduce the calculated corporation tax due. This tax is currently calculated at 19% of a business’s calculated taxable profit amount.
What capital allowances can I claim?
A business can claim a capital allowance when they make a large asset purchase. This type of purchase is usually different to typical business allowable expenses.
You can claim capital allowances on:
- Business vehicles
Such items are commonly categorised as "plant and machinery" (source: gov.uk) in your accounts.
Types of capital allowances
You can claim different amounts, depending on which capital allowance you use. If your capital item qualifies under more than one type, then you must choose which capital allowance to apply it under.
1. Annual Investment Allowance (AIA)
You can claim up to £1 million on certain plant and machinery. This amount was temporarily increased to £1 million between 1 January 2019 and 31 March 2023, so it’s good practice to check the current allowance value if you’re planning to apply under AIA.
AIA offers business owners the chance to deduct the full price of a capital asset from the company's taxable profits in the same accounting period that the asset was purchased in.
But it can’t be claimed on cars or items that were owned prior to starting your business. It also can’t be claimed on items gifted to you or your business.
2. 100% first year allowances
This allowance gives you the choice to claim the full amount for certain plant and machinery in the year that it was bought. If you buy an asset that qualifies for this allowance type, then you can deduct the full cost from your profits before tax.
What qualifies for this allowance?
You can claim ‘enhanced capital allowances’ for the following equipment, which must be new and unused:
- Electric cars and cars with zero CO2 emissions
- Plant and machinery for gas refuelling stations, for example storage tanks, pumps
- Gas, biogas and hydrogen refuelling equipment
- Zero-emission goods vehicles
- Equipment for electric vehicle charging points
- Plant and machinery for use in a freeport tax site, if you’re a company
The items cannot be claimed if they are going to be leased out for other people to use. Nor can they be claimed if they’re offered for use in a home that is let out by the business.
3. The super-deduction or 50% special rate first year allowance
This can be claimed for certain plant and machinery that was bought between 1 April 2021 up to and including 31 March 2023.
There are 2 types of temporary first year allowances:
- The super-deduction
- 50% special rate first year allowance (also known as SR allowance)
Bear in mind if you wish to use this allowance, the plant and machinery must be new and unused and only companies can claim these allowances.
What can you get?
The super-deduction allows you to reduce up to 130% of the cost from your profits before tax. The 50% special rate first year allowance lets you reduce 50% of the cost from your profits before tax.