As we regularly emphasise here on our blogs, all business owners need to know the basics of bookkeeping or employ a bookkeeper to ensure everything is done correctly. There are so many different taxes, allowances and procedures to get to grips with that it can be quite stressful ensuring you’re claiming everything you’re entitled to.
In this blog we’re going to have a look at capital allowances, and how good bookkeeping procedures can guarantee comprehensive records for their calculation.
What are capital allowances?
Capital allowances are a type of tax relief for businesses. They allow the deduction from your taxable profits of some or all of the value of an item which has been purchased for the business, prior to paying your tax. This helps to reduce your business’s tax liability and encourages growth and investment.
You can claim capital allowances on equipment. For example, a chainsaw or ladder if you run a tree surgery business, on machinery, such as a dishwasher or food processor if you’re a caterer, or on business vehicles if you need a car, van or lorry to travel for or run your business.
What types of capital allowance are there?
There are a number of different types of capital allowance within these categories. For example, under annual investment allowance (AIA), you can claim up to £1 million on particular types of plant and machinery. Under the 100% first year allowance, you can claim the full amount for an item in the tax year that it was purchased. If an item meets the requirements for more than one allowance, you can choose which one to claim under.
There are also some lesser-known capital allowances; among others, you may be able to claim them for the extraction of minerals, research and development work, patent rights, dredging allowances, and investing in bringing land and property, which has been in a state of long-term dereliction in a disadvantaged area of the UK, back to working use.
What do I need to do to claim capital allowance relief?
As with any form of business tax relief, to ensure your annual self-assessment tax return is sufficiently accurate to pass muster with HMRC, you must keep meticulous records. Receipts for the purchase of equipment, machinery or vehicles must be kept and transactions recorded so you have a paper or electronic trail of everything you want to claim for. It’s also very important to log dates of purchase so you know which tax year they occurred within, as in some circumstances you could be eligible to carry part of your capital allowance forward to the following tax year.
Capital allowances are only available on assets in long term use, so you need to be able to demonstrate in your business plan how the asset will be utilised over the coming years.
How can a bookkeeper help with claiming capital allowances?
At AMR Bookkeeping Solutions, we help businesses of all sizes with all bookkeeping requirements. Our friendly team will report back to you on a regular basis so you’re always aware of the current status of your finances; we can advise on procedures for claiming capital allowances and other forms of tax relief, as well as practical ways to keep your documentation up to date and relevant for claims.
Our expertise can give a real boost to your cash flow and profitability, so why not contact us on 01892 559480, or check out the rest of our website, and find out more.
