Capital expenditure in business is very important to make them more productive.

Capital allowance is a relief that is given to business owners who purchase assets to be used in the business.

Businesses in the UK spend a lot of money on capital investments from time to time to run efficiently and maximize their profit.

Since capital investment consumes a lot of business owners’ finances, any tax relief claimed back could go a long way in supporting their business.

In spite of this, when business owners invest in capital investment, they cannot enjoy tax relief immediately unless particular allowances are claimed.

The business owner usually always wants to have tax relief on these investments as soon as they would if they were revenue expenses.

When an asset is bought, the normal accounting procedure is for the asset to be depreciated over a period and this depreciated amount will be deducted as an expense to reduce the profit that is taxable

In this blog post, we will explain some of the effects of purchasing capital allowance in the business.

The difference between capital and revenue expenditure.

The main difference is mostly the durability of the asset.

For revenue expenditure, you would have to replace the item regularly.

These items /assets usually don’t last more than a year.

Some revenue expenditure could last up to 2 years if managed properly but they would still need replacement before the end of the second year.

These assets, however, are durable.

They would usually last for more than 2years.

The business owner would enjoy the asset for more than 2years.

Accounting and tax treatment on capital expenditure

The accounting treatment of revenue expenditure is the deduction from the turnover to produce the net profit.

For capital expenditure, these expenses are disallowed from the expenses and are treated as assets on the balance sheet.

The depreciation would be deducted as an expense.

The tax treatment of capital expenditure, however, is to disallow the depreciation.

Reasons for disallowing depreciation on capital expenditure

The main reason for this is because it’s a cost that still relates to a capital asset.

Another reason is also business owners are always a judge of how much depreciation they charge to the asset.

So to make it fair and all businesses claim the same tax relief.

Tax relief on capital expenditure in the business.

Business owners could claim a relief referred to as capital allowances.

There are different rates applied to different categories of the asset.

When an asset is bought, the normal accounting procedure is for the asset to be depreciated over a period and this depreciated amount will be deducted as an expense to reduce the profit that is taxable

Some capital expenditure is specifically disallowed from capital allowance example for such is any building or anything that represents a building.

Method for claiming allowance on capital expenditure.

A claim for the capital allowance will be made on the tax returns.

By claiming a capital allowance, you enjoy at least some relief or all the tax relief you would enjoy if the asset was a revenue expenditure.

Ronzl’s accountant team of tax advisors can assist in identifying and submitting capital allowances claims relating to past, current or future expenditures.

Tax claims can be maximised when you consult with Ronzl accounting firm in the UK  before incurring any expenditure on commercial property

Thanks for reading this blog post, we hope you have learnt something from this, if you have been affected and you would need more advice in your business on how to claim tax relief on capital expenditure, kindly contact us.