Getting to grips with capital allowances

For business purposes, business expenditure is either treated as revenue expenditure or capital expenditure. This is the first big divide. It involves asking if the expenditure provides enduring value to the business (capital); if it should be considered as a repair (revenue) or improvement (capital); and whether only part of the asset is being replaced (likely to be revenue) or the entirety (capital). Technically, revenue expenditure can be deducted from income in the year it’s incurred, which accelerates tax relief: but capital expenditure works on different rules. Capital allowances thus provide a way to get tax relief for the purchase of capital equipment. The allowances are treated as a deduction when calculating taxable profits. You can read the full briefing by clicking here.

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