We get asked this a lot when we mention capital allowances to our clients and, as we’ve mentioned, it is a complicated and confusing subject. Not every asset you purchase as a business is eligible for capital allowances.
Capital allowances (often called fixed assets) are things that HMRC consider to reasonably be expected to continue to be in use by the business for more than a year.
To simplify some of the terminology, capital allowances are basically designed to do two things for businesses:
They provide businesses with reasonable support towards the cost of wear and tear on capital assets.
They help encourage investment in assets that are considered to improve business productivity, encouraging business growth (which should be good for the economy).
So, you can only really claim capital allowances on assets that are kept and remain in use by the business. Leased items, such as leased vehicles, are not eligible for capital allowances (but you can still claim tax relief on these as a business expense).
There are also some exemptions to capital allowances as well. For example, you can’t claim capital allowance for land, buildings, or structures – and this includes things like doors or gates. You also can’t claim for assets that will only be utilised for entertainment purposes – so, unfortunately, you can’t claim for that banging stereo system you bought to play music in your shop or, according to HMRC, that brand spanking new yacht you spent millions on…