Capital allowance replaced the "wear and tear" allowance that was allowed originally. The term "wear and tear" probably expresses the idea behind the allowance better. What capital allowance does is to allow you to write off the cost of long-life assets over their useful lives.
For non-accountants, the distinction between ordinary expenses (such as raw material purchases) and expenditure on long-life assets (such as plant and machinery) might appear a little confusing. Both are business expenses and yet one of them is allowed to be deducted from current year's income while the other is not.
The reason for the different treatment is that while the raw material is typically consumed in the year of purchase, the asset is used over a number of years. Hence, the cost of the latter is spread over these years of useful life. Each year, you can deduct a percentage of the value of the asset so that the full value (minus any scrap value at the end of the period) is written off by the time the asset needs to be replaced.
It is this yearly percentage that we call capital allowance (or wear and tear allowance). In most countries, this write-off is called depreciation while in UK it is called capital allowance.
Capital allowance as outlined above is comparatively easy to understand and even to compute. However, the computation becomes extremely complicated when the asset is a building. A building as such is considered to be an asset with an "indefinite" life and no capital allowance is allowed on buildings.
However, certain fixtures of the building such as air conditioners, lifts and many others are considered "plant and machinery" and capital allowances can be claimed on these. The problem is that it is difficult to value these fixtures separately when you purchase a building with all the fixtures included. Tax authorities do not take kindly to any over-valuation of the fixtures while under-valuation means that you will get tax reductions less than what you are entitled to.
For claiming capital allowances on property, you need more than accounting and taxation expertise. You also need valuation expertise to ensure that the fixtures of the building are valued correctly. Portal Tax Claims LLP works with your accountants and tax consultants to ensure that you get the full benefits you are entitled to.
![[Valid RSS feed]](http://www.greatarticlesite.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
