Most day to day business expenses can be deducted from business income when calculating your taxable profits. However, the rules are different for 'capital’ expenditure'. Capital allowances is the term used to describe the allowances which allow businesses to secure tax relief for certain capital expenditure. There are different rules that apply depending on the type of capital expenditure, and only the person who bought the item can claim a capital allowances.
We will focus below on what plant and machinery purchases HMRC say qualifies for a tax allowance.
Plant and machinery includes:
- items that you keep using in your business, including cars
- costs of demolishing plant and machinery
- parts of a building considered integral, known as 'integral features'
- some fixtures, e.g. fitted kitchens or bathroom suites
- alterations to a building to install other plant and machinery - this doesn’t include repairs
Integral features include:
- lifts, escalators and moving walkways
- space and water heating systems
- air-conditioning and air cooling systems
- hot and cold water systems (but not toilet and kitchen facilities)
- electrical systems, including lighting systems
- external solar shading
You can’t claim capital allowances on:
- things you lease - you must own them
- buildings, including doors, gates, shutters, mains water and gas systems
- land and structures, e.g. bridges, roads, docks
- items used only for business entertainment, e.g. a yacht or karaoke machine.