Tax Relief Strategies - Claiming Capital Allowances, Part 1

Tax Relief Strategies for UK Limited Companies - 1/3 

Navigating the Tax Relief Maze

Navigating the complex world of tax relief can be daunting for many UK limited companies. But the savings you can make if you can only take advantage of all the tax reliefs available are eye-wateringly tempting!

There’s so much to say about tax relief strategies. Rather than hit you with all the opportunities in one long, unwieldy blog, we’re putting together three separate blogs, each dealing with a different aspect of the topic. In this blog, we’ll be exploring how to claim Capital Allowances. The next blog will be about Structuring Dividends and Salaries Efficiently. The last of the three will be about Employer Pension Contributions.

The three blogs will, between them, outline three of the most effective tax relief strategies.

Don’t miss potential big savings!

Announcing the Liondaris Tax Relief service 

We’d hate you to miss out on these vital potential savings. So - we’re announcing the new and unique tax relief consultation service. This will help you make the most of your tax-saving opportunities well before the end of the financial year. 

Strategy 1 - Claiming Capital Allowances

Capital allowances let you write off the cost of certain assets against your taxable profits – a great way to reduce your overall tax bill. This is a crucial area for limited companies to be looking at. Let’s look at three different types of allowance -

1.    Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA) offers significant tax relief by allowing you to deduct the full cost of qualifying assets from your profits before tax.

How much can I deduct?

You can deduct the full cost of assets that qualify from your taxable profits up to a (current) limit of £1,000,000. This could be whatever you’ve spent on machinery, equipment, and business vehicles.

Immediate Benefit
This could mean an instant boost to your cash flow. This immediate deduction can provide a substantial tax saving in the year of purchase

Qualifying Assets
Typical assets include office equipment, commercial vehicles, machinery, and certain fixtures in buildings. It doesn’t cover cars.

2.     Writing Down Allowances (WDA)

When your expenditure exceeds the AIA limit or involves assets that don’t qualify for AIA, Writing Down Allowances (WDA) come into play.

Gradual Relief
WDAs help you to spread the cost of an asset over several years. The result? You can write off a percentage of the asset’s value each year against your taxable profits.

Rates
The rates depend on the type of asset. For example, the main pool rate is currently 18% per year, while the special rate pool, which includes integral features and long-life assets, is 6%.

Flexibility
This method means that you keep benefiting from tax relief over the asset’s useful life, smoothing out your tax deductions.

3.    Enhanced Capital Allowances (ECA)

Enhanced Capital Allowances (ECA) are there to encourage investment in energy-saving technologies and environmentally friendly equipment.

100% First-Year Relief
ECA allows businesses to claim 100% of the cost of eligible energy-efficient equipment in the year of purchase.

Green Investment
This incentive supports your commitment to sustainability, allowing you to invest in environmentally friendly technologies such as energy-saving boilers, electric vehicle charging points, and water conservation equipment.

List of Qualifying Assets
The government provides an updated list of qualifying energy-saving products, ensuring you invest in approved technologies that contribute to your sustainability goals.

How about an example of claiming capital allowance?

Here’s one. Imagine your company invests £200,000 in new machinery that qualifies for AIA. You can deduct the full £200,000 from your taxable profits for the year, significantly reducing your tax bill. If your expenditure exceeds the AIA limit, say £1,200,000, the excess £200,000 can be claimed through WDA, spreading the deduction over the following years.

Save yourself ‘£000s in tax this year

Understanding and claiming capital allowances can make a massive difference to your tax position. It can make your cash flow healthier than you might ever have believed possible.

Our new consultation service will help you navigate these allowances. We’ll work with you to make sure you claim the maximum relief available. We’ll also strategically plan your investments for optimal tax efficiency.

Get in touch today. Find out more about maximising your tax savings.