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Capital Allowances

As a general rule, expenditure incurred in carrying out the compulsory business is not allowed to be used a deduction in the calculation of the adjusted profits of a business. Similarly, any depreciation given in the accounts must be added back for calculating taxes. However, capital allowances are offered as a financial relaxation to the businesses that purchase capital assets in the due course of carrying out business transactions.
Capital Allowance rules apply to companies, sole traders and partnerships equally. So if you work as a sole trader or partner and have an income of £150,000 or less a year, you should be able to use a simpler method called cash basis instead.

Capital Allowances can be claimed on
• Plant and machinery
• Business vehicles

The value of your capital allowance is calculated at different rates for different types of expenditure. In some special cases, the initial allowance in the first year is given at a higher rate, as a relief to the business to encourage investment.
Generally, the value of your assets is the same as you paid for it. However, you can claim, the allowance on items if
• the item personal belongs to you.
• Or it was gifted to you.
Capital allowance on expenditure cannot qualify for more than one category. There are different rules to apply for expenditure occurring under a different heading.

There are other expenses for running the business which is called business expenses or overheads. These could be
• Interest or other professional fees for buying assets
• Items bought for trading
• Running cost of your every day running of the business
Claim these expenses have a different procedure to follow.

There are many rules that apply to different types of assets to claim for capital allowances.
• The timing and the nature of the item would constitute to qualify for capital expenditure.
• The basis of allowance relief depends on the method and reason for calculating the expenditure.

All capital allowances must be claimed on the tax return. An accountant should be able to assist you with the details of the company tax return and income tax return.

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