Our services
Years of Experience, Unmatched Expertise.
At Crossfire Tax, we believe in building lasting relationships with our clients. We are genuinely interested in helping you save money on your taxes and achieve your financial goals. Whether you're a small business owner or a property investor, we have the expertise you need.
What are Capital Allowances?
Capital allowances are tax deductions that reduce the amount of income tax or corporation tax to be paid to HMRC. They are intended to incentivise investment in assets that help businesses grow and improve cash flow by claiming tax relief on certain types of capital expenditure, such as plant and machinery, integral features of buildings, etc.
Who can claim Capital Allowances?
Capital allowances are available to individuals, partnerships, UK companies and overseas companies that own or occupy properties and subject to UK income tax or corporation tax.
If you have incurred capital expenditure to buy, build or refurbish commercial property or qualifying residential properties and you pay income or corporation tax then it is likely that you will be able to benefit from capital allowances.
What you can claim capital
allowances on?
Not all capital expenditure qualifies for capital allowances. Common types of assets for which capital allowances can be claimed include:
​
Plant and Machinery: This includes items such as machinery, equipment, fitted kitchens, bathroom sanitary fittings, fire alarm and CCTV systems used for business purposes.
​
Integral Features of Buildings: Certain features integral to buildings, such as electrical systems, heating, ventilation, air conditioning (HVAC) systems, water installations and lifts or escalators.
​
Capitalised revenue expenditure: These are costs for repairing or maintaining a capital asset, which also includes replacement of assets on a like for like basis.
Structures and Buildings Allowances (SBAs): Allowances are also available on expenditure incurred on structures and buildings at a much slower rate, such as construction of new ceilings and floors. It is important to segregate expenditure relating to structures and buildings from expenditure on plant and machinery (as above) which attracts the higher rates of annual relief.
What properties can you claim capital allowances on?
Capital allowances are available on virtually all types of commercial property expenditure, including second hand acquisitions, new build and refurbishment projects.
​
If you let residential property, you can only claim for items to be used in residential property if either:
​
-
You run a furnished holiday lettings business (FHLs) such as Airbnb and serviced apartments (will be abolished from April 2025), or
-
Plant and machinery used in the common parts of a residential building, for example a lift in the hallway of a block of flats.
Is there a time limit to claim capital allowances?
There is no time limit on claiming capital allowances on historical expenditure, as long as you still own the assets and they are still used in the business.
​
We advise that capital allowances should be considered at early stages when you acquire a property or refurbish existing properties to maximise tax savings potential.
Full expensing and Annual investment allowances allow businesses to claim 100% tax relief on qualifying plant and machinery in the first year the expenditure incurred. This offers significant timing benefits and generate cash flow benefits for businesses.
How do capital allowances work?
Capital allowances (CA) are not given automatically. Many businesses miss out this generous tax relief.
​
A proportion of the purchase price or refurbishment costs will qualify for capital allowances.
Examples are electrical, water, heating ventilation and air-conditioning and also fixtures, fittings and equipment. Typically, 10%-20% of the purchase price of an office may qualify for capital allowances and between 60%-80% of refurbishments. Allowances will be lower if there were previous capital allowances claimed.
​
A simple example is set out below where £200,000 of allowances are available in a year:
​
No CA With CA
Rental income £600,000 £600,000
Interest paid (£400,000) (£400,000)
Capital allowance £0 (£200,000)
​
Taxable income £200,000 £0
Corporation tax payable £50,000 £0
(25%)
​
​
What does the process of claiming capital allowances look like?
-
Initial call/meeting to understand the scope of work
-
Collect documentation from you and establish your entitlement to claim capital allowances
-
Visit the property to identify plant and machinery where information is insufficient
-
Prepare fully detailed capital allowance analysis and reconciliation to accounts
-
The final report is ready for you/your accountant to submit with your annual tax return
Common misconceptions about capital allowances
01
My accountant would have claimed capital allowances, there is nothing left to claim.
It is not a reasonable expectation for accountants to claim capital allowances. While accountants play a crucial role in managing financial records, preparing tax returns, and providing general tax advice, claiming capital allowances often requires a deeper understanding of tax law, land valuation knowledge and specialised quantity surveying skills in identifying and quantifying eligible assets. Therefore, some accountants may choose to collaborate with or refer their clients to specialists in capital allowances to ensure that all eligible allowances are claimed and maximized appropriately.
02
Capital allowances vs. Value Added Tax (VAT)
Capital allowances reduce a business's taxable income, thereby reducing their annual tax liability, whereas VAT is collected by businesses on behalf of the government and remitted to tax authorities.
​
Some clients are confused between the two types of taxation when carrying out a refurbishment. If you are VAT registered, the amount of VAT paid on the refurbishment works will be claimed back by your accountant when your VAT return is submitted. In other words, it doesn’t affect the amount of tax you pay. This is straightforward and part of VAT compliance.
However capital allowances are not given automatically and requires specialist skills to identify tax savings. Claiming capital allowances will reduce your taxable income, therefore reducing your annual tax liability.
03
Capital Allowances vs. Capital Gains Tax
Capital allowances and capital gains tax are two distinct concepts within the realm of taxation, each serving different purposes and applied to different aspects of financial transactions.
Capital allowances are claimed by businesses on their taxable profits, reducing their annual tax liability, while capital gains tax is paid by individuals or entities when they realise a gain from the sale of an asset.
​
Capital allowances are aimed at incentivising investment in assets and promoting business growth, while capital gains tax is primarily concerned with taxing the profits generated from the sale of capital assets.
​
People often wonder if claiming capital allowances will increase their capital gains tax when the property is later sold. The answer is no. Section 41(1) TCGA 1992 clearly specified that it is not necessary to deduct any capital allowances from the cost of an asset for capital gains purposes, so it is not possible for a capital allowances claim to create or increase a chargeable gain.