capital allowances

a standardized method of giving relief for depreciation for tax purposes, only available for certain classes of capital expenditure. The most common qualifying categories of expenditure are on plant and machinery, industrial buildings and on agricultural buildings and works. Depreciation in the accounts is disallowed for tax purposes and is replaced by capital allowances on those assets which qualify. In order to encourage businesses to invest, there are sometimes generous rates of allowance in the period of acquisition (initial allowances or first-year allowances). Any remaining expenditure which has not been relieved is given by means of a writing down allowance at a specified percentage rate per annum. On a disposal, a comparison is made between the disposal value and the tax written down value so that an adjustment can be made to ensure that the total relief equals the reduction in value while the person owned the asset. If too little relief has been given, a balancing allowance is provided and where too much relief has been given, the excess is added to income and is called a balancing charge.

Collins Dictionary of Law © W.J. Stewart, 2006

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References in periodicals archive

The Chancellor also introduced a new capital allowance for businesses incurring qualifying expenditure on new structures and buildings on or after October 29 2018.

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"Capital allowances are generally perceived to fulfil an extremely useful function in providing tax reliefs for businesses which translate into jobs, profits and taxes.

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The Treasury offers enhanced capital allowances at certain sites within a number of designated enterprise across the UK where there is a strong focus on manufacturing.

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Ultimately, Nissan was given a special deal to circumvent the changes to capital allowances. The car plant that was then built became the most productive in Europe.

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Leaders of 14 trade bodies last year wrote to The Sunday Times urging the government to increase capital allowances.

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Examples of those that would not be allowable include those relating to capital items, such as accounting depreciation (replaced by capital allowances instead), and profit or loss on the disposal of non-current assets, though expenditure on repairs would be allowable.

What are allowable and disallowable expenses?

Following a review, the company concluded that up to 90% of optical businesses might be able to claim tax relief for capital allowances, which relate to money spent buying, refitting or refurbishing a practice.

Nine out of 10 practices could be due tax rebate

One of the financial incentives aimed at luring businesses to the new zones is enhanced capital allowances, which allow the costs of capital assets to be written off against a business's taxable profits.

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Yorkshire Bank conducted a survey which found that only five per cent of SMEs said they had taken advantage of entrepreneurial or research and development tax relief, capital allowances or government investment incentives aimed at improving environmental performance.

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Business Minister Edwina Hart said discussions are continuing between Cardiff and London on the viability of extending Enhanced Capital Allowances for Wales beyond Deeside.

Extend capital relief scheme

So far, the government plans to cut current capital allowances as part of its plan to reduce corporation tax.

U.K. BUDGET 2012: THE NEW MEASURES