The new financial year will see many of the proposed changes announced in the Autumn Budget enacted, impacting businesses across the country.
These changes will have business owners planning their tax strategy for 2025/26, and a key part of this should be considering capital allowances.
Capital allowances available to businesses
If you are planning on investing in plant and machinery or similar assets required for your business, the capital allowances regime provides an efficient way to reduce taxable profits.
Here are just a few of the capital allowances you may be able to take advantage of:
Annual Investment Allowance (AIA)
- Offers 100 per cent tax relief on qualifying capital expenditure.
- Available to companies, sole traders, and partnerships.
- The limit is £1 million per 12 month accounting period
Full Expensing Relief
- Available to companies investing in brand new, qualifying plant and machinery.
- Allows 100 per cent of the cost to be deducted against profits in the year of purchase.
- Applies to main rate assets only (machinery, equipment), not to long-life or special rate assets (although special rate assets can qualify for a 50% deduction under similar rules).
- This relief can be claimed in addition to the AIA and is not currently subject to any expenditure limits.
- Always use the £1m AIA first as disposal of assets on which full expensing allowances have been claimed in less beneficial than those on which AIA has been claimed.
First-Year Allowances (FYA)
- Allows 100 per cent relief on a very limited range of equipment including brand new electric cars, electric charging points and zero-emissions goods vehicles.
- This relief can be claimed in addition to the Annual Investment Allowance and is not currently subject to any expenditure limits.
- The relief must be claimed in the year of purchase.
Writing Down Allowances (WDA)
- Generally available when assets do not qualify for any other reliefs. The rate available is dependent on the type of asset purchased.
- General rate pool additions – most plant, machinery and fixtures are likely to fall into this category. An allowance of 18 per cent per year is available on a reducing balance basis.
- Special rate pool additions – integral features such as lighting and heating are likely to fall into this category. An allowance of six per cent per year is available.
In short, capital allowances can give your business a real financial boost, so it is important to ensure that you keep detailed records of your expenditure and seek advice on larger purchases to maximise qualifying expenditure and tax relief.
As usual with most tax reliefs, the devil is usually in the detail where capital allowances are concerned, so a bit of expert help now could save a lot of hassle later.
Speak to us today and make capital allowances work for your business in 2025/26.
