Capital allowances are a valuable aspect of the building industry, providing tax relief for businesses involved in construction, renovation, or conversion projects.
The primary objective of capital allowances is to incentivise investment and stimulate economic growth. These allowances enable businesses to deduct a portion of their qualifying expenditure on assets from their taxable profits.
There are different types of Capital Allowances:
Structures and Buildings Allowances (SBAs) are applicable to non-residential structures and buildings. Businesses can claim a tax deduction of 3% per year on qualifying expenditures related to the construction, renovation, or conversion of commercial properties, offices, retail spaces, and warehouses.
The Annual Investment Allowance (AIA) allows businesses to claim 100% first-year relief on qualifying plant and machinery investments, including those used in the building industry. The AIA limit is currently set at £1 million per year.
Writing Down Allowances (WDAs) permits businesses to claim a percentage of the cost of their qualifying capital expenditure each year. The WDA rate is 18% for main rate plant and machinery and 6% for special rate assets.
In the building industry, Qualifying Expenditure typically includes costs directly incurred for construction, renovation, or conversion projects. This covers expenses such as materials, labour, professional fees, and integral features of the building, such as heating, electrical systems, and sanitary installations.
Both incorporated businesses and unincorporated businesses, such as partnerships and sole traders, involved in construction-related activities are eligible to claim capital allowances in the building industry.
Capital allowances effectively reduce a business's taxable profits, leading to a lower tax liability. By claiming capital allowances, businesses can improve cash flow, potentially reinvest funds, and support further growth.
To discuss how Academy can assist you through this process, please contact consult@academy.eu.com
