Capital Allowances: 100% tax relief on your next refrigerated van
Did you know you could claim capital allowances on the refrigerated van you use in your business?
In most cases, you can deduct the full cost of your refrigerated van from your profits before tax using annual investment allowance.
Capital allowances are a core part of the UK’s tax system, with substantial amounts of money at stake. Capital allowances are of relevance to the great majority of businesses operating in the UK, from the largest conglomerate to the smallest business consisting of an individual with a refrigerated van, a computer or even just a table.
The most familiar allowances are those available for capital expenditure on plant and machinery. For many businesses, however, this expenditure will determine only part of their overall capital allowance claims.
Annual investment allowance
A business is entitled to an annual investment allowance (AIA) on the first £1,000,000 of qualifying expenditure on plant and a machinery. The AIA allows for 100% tax relief in the year of purchase and applies to equipment, machinery and work refrigerated vans.
If you choose not to use your AIA in the year that you buy the asset, then you won’t be able to claim 100% next year, just the standard writing down allowance rate. It is generally worth claiming your AIA every time, even if you are making a loss because otherwise you will lose it.
Businesses may claim the allowance on both general and special rate plant and machinery. It is effectively a 100% allowance that applies to most qualifying expenditure up to the annual cap, with expenditure on cars being the most important exception. Commercial vehicles, such as refrigerated vans, should qualify for the annual investment allowance.
Writing down allowance
For items which do not qualify for AIA, or if you’ve already claimed on items worth more than the AIA limit, then you can instead use the writing down allowance (WDA). This allowance works by deducting a percentage of the value of the items from your profits each year.
The rate of WDAs for most cars and for anything you did not claim AIA on is either 18% or 8% and is applied on a reducing balance basis each year, until the asset is used up. For capital allowances the percentage is based on the remaining value of the asset in each pool, not the initial cost.
First year allowance
First year allowances (FYA) of up to 100% are available on certain expenditure such environmentally friendly technology is being abolished from 1 April 2020.
In addition, a first year tax credit is available where a company has incurred a loss attributable to enhanced capital allowances for expenditure on environmentally friendly plant and machinery. The loss is surrendered in exchange for a cash payment instead of being carried forward and set against future profits.
Until 31 March 2021, a business that purchases a refrigerated van with zero CO₂ emissions is eligible for a 100% first year allowance provided the business does not claim the government’s Plug-In van Grant. Any other refrigerated van should be treated as plant and machinery and allocated to the main pool, where it will be eligible for WDAs at 18%, unless an AIA is claimed.
It is important to note that for a business to be able to claim capital allowances on a particular asset they must buy the asset outright by using a bank loan or by using an HP agreement. A business cannot claim capital allowances on an asset if acquiring or using the asset under a Lease Agreement or a Rental Agreement.
Capital allowances can be great for a business because they give more flexibility. Whereas depreciation must be put in whether you want it or not, you can actually choose whether to use some of your capital allowances or whether to save them for the future. This means if you have made a loss with your business one year, you can save up your capital allowances until you are making a profit. You can then use them to reduce the amount of profit and pay less tax.
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