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Capital Allowances

TBAT can help you claim Capital Allowances tax relief to offset capital expenditure.

What is Capital Allowances Tax Relief?

Capital allowances tax relief give taxpayers relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income.

UK businesses can claim capital allowances tax relief when they buy assets that are kept to use in the business, for example: equipment, machinery, business vehicles – these are known as plant & machinery.

There are a number of capital allowance schemes offered by the Government, one of these is Research and Development (R&D) Capital Allowances.

Research and Development Capital Allowances Tax Relief

Research and Development Capital Allowances give relief for capital expenditure on qualifying research and development. Applying for these allows you to release cash into the business in the year of expenditure and can also be claimed up to two years in arrears.

R&D Allowances provide 100% uncapped first year writing down allowances on R&D assets such as facilities, plant & machinery and IT systems.

The allowance is especially valuable if you have capital spend on the buildings and facilities utilised for R&D work, as these might not be eligible for 100% relief utilising other types of capital allowance. Expenditure that can be covered by this allowance includes the purchase, building, extension and refurbishment of these R&D facilities.

RDAs could also include build-costs which do not usually benefit from other forms of tax deduction.

R&D Capital Allowances Example

Unlike other capital allowances, such as Annual Investment Allowance (AIA), the R&D Allowance is not capped and so all eligible spend can be claimed at 100% (the AIA offers a 100% deduction for plant and machinery expenditure, but it’s limited to £200k per annum – Plant and machinery expenditure which does not fall under the AIA will attract relief at either 18% or 8% – much lower than the 100% relief offered by RDAs).

Company X buys new manufacturing equipment and extends its factory to accommodate the new equipment. It spends £200k in total; £100k on the equipment and £100k on the building.

In scenario 1, the equipment totalling £100k is allocated to the Annual Investment Allowance (AIA) scheme and deducted in full. The balance of £100k relating to the building work is not deducted for tax purposes. At 19% corporation tax rate, the company, therefore, makes a £19k tax saving under the AIA scheme.

In scenario 2, TBAT points out that although a manufacturing facility, qualifying R&D is undertaken in the facility, so therefore a proportion of the building capital expenditure should be eligible for RDAs at 100%. Assuming a proportion of 50% of the building cost, this equates to £50k, at 19% corporation tax, gives a tax saving of £9.5k. The total tax saving now is £28.5k (£19k from equipment spend under the AIA scheme and £9.5k from the building spend under the RDA scheme).

Talk to us to understand what the best combination of tax allowances would be best for your specific scenario.

How can TBAT help with Capital Allowances Tax Relief?

Our expert Consultants can assist you to make a robust R&D Allowances claim by helping you identify all of your eligible expenditure and calculate the value of your claim. Contact us here.

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Assists organisations in accessing research and development grant funding across a range of UK and EU schemes and industry sectors.

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