As a business in the UK, you have certain obligations to fulfill, especially when it comes to your tax returns. But at the same time, there are some benefits you can take advantage of in regards to taxes as well. One of these is capital allowances. So what are capital allowances, and how can you make use of them to provide you with some tax relief? Let’s find out.
The gist on Capital Allowances
Basically, your business can receive capital allowances for the assets you purchase for business use. These assets would include business equipment and machinery as well as business vehicles. But there are other claims for business expenses as well, such as expenses for research and development activities, expenses for patents, expenses for the renovation of your business premises (provided your location is in a disadvantaged area), and more.
When you claim expenses for the above-mentioned items or assets, you should be able to deduct a part of the item’s value or the entire item’s value before you settle your taxes. Additionally, if you are operating only as a sole proprietorship or trader or a business partner and your income totals less than or equal to £83000 per year, you can make use of a simpler process or system for the calculation of expenses and capital allowances, called ‘cash basis.’
Your Asset’s or Item’s Value
Your item’s or asset’s value is simply what you paid for it. However, you can list down the actual market value of the item (the actual amount you would expect when you sell it) if you already owned it prior to using it for business purposes, or if it was given to you as a gift.
Other Claims for Business Expenses
You can also claim for other expenses in your business, such as your daily operational costs, the items which you are buying or selling as part of your business’ operations, and the financial expenses or payments on interest you incur when you buy certain assets. If you operate as a business partner or a sole proprietor or trader, you can claim the above costs as business expenses, and if you are a limited enterprise or company, you can deduct the above costs from your business’ profits.
There are also other types of capital allowances you can claim, and this includes the renovation of your premises, particularly if the premises are in a disadvantaged location, are derelict, or haven’t been used for a minimum of one year. Research and development expenses can be claimed as capital allowance as well, and so are expenses for business activities such as dredging and the extraction of minerals. For a complete understanding of capital allowances, you can always turn to accountants in central London such as those from GSM & Co.