Top Tax Tips for Owner Managed Businesses – Tip 10 – Capital Allowances

Top Tax Tips for Owner Managed Businesses

10.  Capital Allowances

Timing of expenditure is an important consideration with capital allowances, especially with frequently changing rates and allowances.

Specific comparisons should be done for large purchases and items such as cars where the rules can greatly slow down the rate of relief compared to leasing.

Capital allowances may be due to a business on elements of a building and this valuable tax relief is commonly missed.  A survey of the property may be required for tax purposes in order to maximise the relief.

It may also be possible to claim capital allowances on furnished holiday lets.

Replacing Integral Features

In dealing with a recent project in Leeds, we came across one of the many quirks of the tax system regarding Capital Allowances.

Certain capital expenditure is deemed to be an ‘Integral Feature’ which receives writing-down allowances at a low rate.  Such items include electrical systems, lighting systems and cold water systems.

Key here is that when an ‘integral feature’ is repaired, in certain situations, the cost may be treated as capital rather than as revenue thus causing a problem as relief is deferred.

In general, this rule will apply where the expenditure is more than 50% of the cost of replacing the whole asset, however tax advice should be taken on a specific case by case basis, to understand if the problem can be avoided.