Claiming capital allowances for limited company growth

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Once you’ve made the decision to start your own business, you’ll probably want to see it grow pretty quickly.

One way to achieve this is by buying assets along the way to help you carry out your work. Although they aren’t classed as tax deductible expenses, you can still claim tax relief in the form of capital allowances.

But how does it all work? To help, we’ve created the following guide to cover the basics:

What can I claim for?

You can receive tax relief when you buy assets to use in your business; also known as ‘plant and machinery’. They include:

  • Equipment – such as computers and furniture
  • Machinery
  • Business vehicles – such as cars and vans

You claim your tax relief by deducting the value of the item from your pre-tax profits. For all new items you buy, you can claim back 100% of the price you paid.

If you previously owned the item, or it was a gift, use the market value instead – basically the amount you’d expect to sell it for.

You can also claim for the following:

  • Integral features – such as electrical systems, lifts and air-conditioning
  • Some fixtures – such as fitted kitchens or bathroom suites (business use only)
  • Alterations to a building to install other plant and machinery
  • The cost of demolishing plant and machinery

Capital allowances are only available on items that you own, so anything you lease from another company won’t count.

Annual investment allowance (AIA)

As a company director, you can claim a 100% investment allowance for the first £200,000 you spend on plant and machinery – known as the Annual Investment Allowance.

Capital allowances on cars

The amount of tax relief you’ll get depends on the Co2 emissions of the car and the date that you bought it. For information on claiming capital allowances on a business car, see here.

Private use items

If you use an item outside of your business, you won’t be able to claim the full amount. You’ll only be entitled to receive a proportion based on the amount of time it’s used for business purposes.

For example, if you buy a laptop for £600 but use it for business purposes only half the time, your claim will be reduced by 50%.

How do I claim capital allowances?

Once you’ve worked out your capital allowances, you can claim your tax relief as part of your company tax return. The amount you claim will be deducted from your pre-tax profits.

Need more help?

We hope this guide has shed some light on the basics of capital allowances. If you want more advice, we’re here to help.

At ClearSky Contractor Accounting, we’re committed to helping our clients make the most of their hard-earned cash. That’s why we offer in-depth advice based on your own personal circumstances.

We’ve helped thousands of contractors reap the rewards of their busy WorkStyle, and are dedicated to being with them all the way throughout their contracting careers.

For more information, please call 0800 032 5326 or email enquiry@clearskyaccounting.co.uk.

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