Types of Capital Allowances
January 5, 2011 at Capital Allowances
Capital allowances are the amounts allowed to be written off as expenses when you incur long-term capital expenditure. You cannot write off the entire cost of long-term assets (that will be used over a number of years) as an expense in the year the expenditure was incurred. The general idea behind capital allowances is that the cost should be expensed over the period the asset is used.
The Capital Allowances Act 2001 is the current legislation for capital allowances. This Act regulates capital allowances for the following types of expenditure:
- Plant & Machinery Allowances: The expenditure must be “qualifying expenditure” incurred for the purposes of a “qualifying activity” such as trade, business or profession. The types of expenses that fall under this category is extremely varied and have been sought to be listed in the Act.
- Industrial Buildings Allowances: Buildings include (i) Walls, floors, ceilings, doors, gates, shutters, windows and stairs, (ii) Mains services, and systems, for water, electricity and gas, (iii) Waste disposal systems (iv) Sewerage and drainage systems, (v) Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed and (vi) Fire safety systems.
- Agricultural Buildings Allowances: Agricultural buildings include farmhouses, cottages, fences and such agriculture-related constructions.
- Flat Conversion Allowances: This has been defined as “qualifying expenditure” incurred in respect of a flat, i.e. a separate set of premises forming part of a building and divided horizontally from another part of the building.
- Mineral Extraction Allowances: Mineral extraction “consists of, or includes, the working of a source of mineral deposits.”
- Research & Development Allowances: Qualifying expenditure on research and development under the meaning given by section 837A of ICTA.
- Know-how Allowances: Qualifying expenditure on the acquisition of know-how, i.e. industrial information or techniques to assist in manufacture, processing, mineral extraction, agriculture, forestry and fishing.
- Patent Allowances: Qualifying expenditure on the purchase of patent rights.
- Dredging Allowances: Dredging generally means removal of anything forming part of, or projecting from the bed of the sea or any inland water for maintenance or improvement of the navigation of a harbour, estuary or waterway.
Assured Tenancy Allowances: Qualifying expenditure incurred on a building which is or includes a dwelling house let on tenancy.
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