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TaxationWeb by Decision Finance

Decision Finance provide a brief introduction to Capital Allowances claims by Small and Medium Sized Enterprises (SMEs)Capital allowances enable the cost of capital assets to be written off against the taxable profits of a business. They are given in lieu of depreciation charged in the commercial accounts, which is not allowed for tax purposes.

Originally allowances (currently 40%) were only available for the first year, however the government extended this indefinitely for purchases of machinery or plant by both incorporated and unincorporated small and medium-sized businesses. These are defined as companies with a turnover
of not more than 11.2 million and with no more than 250 employees.

Many SMEs in the UK do not claim their full entitlement for capital allowances. Part of this is due to ignorance - many company directors do not know the extent to which they are entitled - and part is due to complications involved in making the claims.

You should seek advice on this, but for present purposes you are entitled to claim capital allowances for any significant investments in your business. These can include:

• Property, either investing in it or occupying it. Recognising the availability and potential value of this tax relief within capital expenditure planning can significantly affect the nature of real estate decisions. For example, factoring in capital allowances could improve property investment yields, make marginal schemes viable or influence the design specification of a new build;

• Plant and machinery (e.g. new equipment);

• Investment in information technology (e.g. computers, WAP phones).

• Expenditure on business vehicles.

Capital allowances do not apply or are restricted as regards:

• Ordinary business expenses;

• Buildings or equipment that is leased, or not owned by the claimant. In other words, where there has been no capital expenditure.

Any taxpaying property owner may be entitled to these benefits. It is no more than prudent business practice to ensure that all capital allowances are correctly claimed.

However to do this you must have a clear business plan which identifies any areas where you are likely to be making any capital expenditure. And, as mentioned earlier, it must be capital expenditure, not just conventional business expenses that are claimed from the Revenue in the normal manner.

Action Checklist:

• To secure your full entitlement you should select an accountant that can guide you through the complex regulations which govern this area. Choose a company familiar with your line of business;

• Keep your records clear. This means all receipts, business plans, leasing agreements, etc;

• Make sure you include all items you think might be eligible, your provider can only say no;

• Above all be sure to apply. It makes no sense to be entitled to capital allowances and not to get them. But the initiative has to come from you!

© Copyright BusinessEurope.com

November 2005

About Decision Finance

Decision Finance is a trading name of Xbridge Limited. The business was founded in early 2000, and claim to be the UK's leading online commercial and business finance intermediary and facilitate appropriate solutions for small and medium-sized businesses (SMEs).