Your business pays tax on its profit, which is its income
less its day-to-day running costs – but not all these running costs are
‘allowable for tax’. If a cost is not allowable for tax, it has to be added
back to the profit before tax is worked out.
Because the cost of depreciation isn’t allowable for tax,
capital allowances compensate for this by letting the business deduct the
capital allowance from its profit before working out the tax.
What is capital allowance?
Firms pay tax on their profits, which is seen as income on a
day-to-day running costs however not all running are allowable for tax. Reasoning
being it has to be added back to the profit in advanced so the tax can be
Research and development is a beneficial tool for enhancing and
strengthen business. Research and development allows the firm to research your market
as well as the customers’ needs in order to develop a new and enhance products also
services in order to fit the needs.
Research allowance are available for capital
Special pool rate
When firms are claiming writing down allowances, group items
are placed into special pools based on the
rate they qualify for. This includes 3 types of pool which are: main
pool with a rate of 18% special rate pool with a rate of 8%
Annual Investment Allowance
The AIA gives an immediate 100% tax write-off for,
currently, up to £200,000 of investment in plant and machinery in each year. It
accelerates the relief that would otherwise be available, compared to
conventional plant and machinery writing-down allowances. Which include cars
A “special rate” pool involves expenditure in relations to a
thermal insulation of a building; expenditure on long-life assets (life = 25
years or more); integral features and cars with CO2 emissions of no more than
When businesses purchase assets they are allowed to deduct
the full value from the profits before the tax annual investment allowance is
used. Written down can be claimed based on the balance towards the pool. 18%
main pool 8% special rate pool
The enhance capital allowance scheme allows the firm to
invest in machinery also energy saving plant which may be considered to be
The ECA scheme means that a business can invest in
energy-saving plant or machinery that might otherwise be too expensive. Firms
are set 100% in the first year allowances in relations to the cost of the assets
against taxable profits in the first tax year.