Capital allowances can be claimed on:

• Plant & Machinery: Equipment & Tools, Vehicles, Ladders, Computers and Business Furniture
• Industrial buildings
• Agricultural buildings
• Leased out buildings subject to conditions

Allowances can be claimed only on the original cost of an asset that is owned by you. This means that you cannot claim cost of financing such as interest payments if you buy the asset with external finance.

The asset should be used in the business. If an asset is used partly for business and party for private purposes, you have to reduce the claim for the extent of private use. You cannot also claim capital allowances on the assets if you are a trader of those assets.

For equipment, you can claim a 100% Annual Investment Allowance (AIA) in the year of purchase subject to specified limits. Writing-down allowance can be claimed for any expenditure incurred over and above the AIA limit. This is allowance is limited to a certain percentage such as 20%, and is claimed on the value as reduced by allowances claimed in previous years.

Capital allowances can also be claimed for expenditure incurred on construction and alteration of industrial and agricultural buildings.

When an asset used for business is sold, the issue of excess claims can occur, i.e. the total of the capital allowances claimed by you exceeds your actual cost for the assets. The sale proceeds of assets should be deducted from the “pool” of asset values you have brought forward and capital allowances can be claimed only on any remaining balance in the pool.

A balancing charge can also occur when a business ceases operations and you take over any assets for your own use. The values of these assets are deducted from the pool. Any balance remaining in the pool can then be claimed as balancing charge.

Pool means the net values of assets that you have brought forward net of the capital allowance claims you have made. Computing the pool might prove a little complicated for non-specialists. There are also special allowances and several rules to determine which expenses qualify for capital allowances and which do not.

The picture can prove to be more than a little confusing to lay persons and the best option in such a situation is to seek the help of an experienced tax consultant. You can also talk to concerned officials at HM Revenue & Customs for general clarifications.