Capital allowances are annual allowances that allow certain items of capital expenditure to be offset against profits during the calculation of Corporation Tax. It is important to get this right when calculating tax due to be paid to HMRC and it’s also important not to miss this tax offset.
Annual Investment Allowance
This is a specific type of capital allowance that permits the cost of equipment or fixtures and fittings to be offset against company profits and in turn reducing corporation tax.
All companies can claim up to £500,000 each year for plant and machinery. This can include a laptop purchased for business use for example.
The benefit here is that 100% of the cost is taken as a qualifying expense within the year of purchase, rather than spreading the cost across the useful life of the equipment. Which means an instant reduction in tax for your company.
The allowance is due to be reduced to £25,000 with effect from 1 January 2016, so this should be taken into account when planning major equipment purchases.