Business must invest in capital expenditure so as to be more productive.
It might either be just a computer to a factory or to special machinery in a factory.
The business owner usually always want to have tax relieve on these investments as soon as they would if they were revenue expenses.
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.
This items /asset 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 asset, 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.
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 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.
REASON FOR ADDING BACK DEPRECIATION TO THE PROFIT.
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 business claiming the same tax relief.
TAX RELIEF ON CAPITAL EXPENDITURE.
Business owners could claim a relief referred to as capital allowances.
There are different rates applied to different categories of the asset .
Some capital expenditure as specifically disallowed from capital allowance example for such is any building or anything that represent a building.
WHEN AND HOW TO CLAIM THIS TAX RELIEF.
A claim for the capital allowance will be made on the tax returns.
By claiming a capital allowance, you enjoy the at least some relief or all the tax relief you would enjoy if the asset was a revenue expenditure.
Ronzl accountant team of tax advisors can assist in identifying and submitting capital allowances claims relating to past, current or future expenditure. Tax claims can be maximised when you consult with Ronzl accounting firm in the UK before incurring any expenditure on commercial property
If you need more advice on how to claim tax relief on capital expenditure, kindly contact us.