What Are Capital Allowances?

As a business in the UK your company could be entitled to claim for capital allowances helping make financial decisions more viable and cost effective whilst helping to reduce the corporation and income tax. Capital allowances (also referred to tax allowances) can be claimed on certain purchases or investments including plant and machinery, certain building types (which includes conversions of commercial property to flats for a rental income). If these apply to your business it means you can reduce your tax bill by deducting a proportion of these costs from your taxable profits. Depending on what you are claiming for depends on the amount of allowance available.

When the government announces changes to the budget as they do, it is important to check what implications this may have on claims now and future ones.

Capital Allowances on Buildings and flat conversions

There are different areas which can provide tax relief and capital allowances with regard to buildings.
• Renovating existing flats/apartments and/or converting space above shops and commercial (qualifying) to create flats for rent.
• Converting or renovating unused qualifying business premises in disadvantaged areas.
• Constructing (or buying unused) certain commercial, industrial or agricultural buildings

Flats:
• converting underused or vacant space above commercial premises into qualifying flats
• renovating an existing flat above commercial premises into a qualifying flat

In the budget from the new coalition Government there were some changes to capital allowances however until 10 April 2012, you can claim an initial allowance of 100 per cent of the cost of:

• converting a qualifying building into business premises
• renovating a qualifying building that is, or will be, qualifying business premises
• repairs to a qualifying business premises

The building must:
• be in a disadvantaged area
• have been used formerly for business purposes
• have been unused for one year or more

The government has decided to promote business growth and investment at such an important time for the future of the country. This will enable the country to grow investment wise with businesses benefiting from financial gains in capital allowance and tax relief.