Starting up and then running a business is expensive. If you have any ties in the business world, you’re probably well aware of this fact. A lot of people underestimate just how expensive it can get. Startup fees, buying office space, getting equipment, recruiting people… It all takes a pretty heavy toll on the wallet!
But you’ve not just got those upfront costs to consider. You’ve also got to think about the taxes that come with starting a business. And those taxes aren’t particularly friendly to your wallet, either. But it’s not as if you’re doomed to pay ridiculously high tax for everything. Tax services aren’t always as heartless as people make them out to be. There are actually a number of tax breaks you can get when you’re running a business!
One of the most important things you need to look into as a business is capital allowance. The potential of capital allowance is absolutely amazing. But a lot of businesses simply aren’t using it to their full advantage.
Are you one of those business owners who hasn’t heard much about this? Then this article is for you.
What capital allowance is
The simplest, briefest way to put it is this. Capital allowance is the money that a UK business can deduct from the government tax on its profits. This tax will usually take the form of corporate tax or income tax. This can see you getting taxed at least 20% of the profits that you make. This might not seem like a lot to a big business. Certainly, companies like McDonald’s or Amazon aren’t going to cry over such a tax when they’re raking in billions of dollars a year. But for smaller businesses, that amount can be tremendous. It can have a serious effect on the growth of your business.
When you buy particular assets or use in your business, you can claim capital allowance of them. Most of the time, you’ll be able to deduct some of the value of the item. Sometimes, you’ll be able to deduct from 100% of the entirety of the value. The amount your business earns a year often determines how big a break you can get.
What you can claim capital allowance for
So what exactly are we talking about when we talk about ‘assets’? This can be a pretty vague term. A lot of people think about cars, property, and stocks when they think about assets. But that sort of stuff doesn’t really apply so much here. For example, it’s very rare that a business would be able to claim capital allowance for buying property for their business.
It depends a lot on the actual industry in which you’re working. Let’s say you’ve got a research or an industrial business. Research and development, as well as machinery and other equipment? These can usually work with capital allowance. Patents, too. Such assets can apply to other businesses, of course, and capital allowance can be claimed there. If you need to renovate or convert a building, the costs there can also be deducted when it comes to tax. Business vehicles, if you can provide a good enough justification for them, can also have capital allowance claimed on them.
Working it out
This article may have given you a clearer picture of capital allowance so far. But I’ll admit that the process of actually working it all out is still a little vague. Unfortunately, this can be a rather complex process whatever industry you’re in.
It requires very strict record-keeping when it comes to purchases, of course. Beyond that, your case is probably going to be very different from the case of another business. An accountant or a financial controller will typically have the skills needed to work out these deductions. However, you might be better off working with different professionals. You could look into a company who provide CCH and VAT consultancy. The right one can give you a thorough capital allowance review.
The different types
I’m sure you don’t need things to get more complex. But capital allowance isn’t the only term you need to concern yourself with. Capital allowance itself actually breaks into several types of deductions! Thankfully, this can actually makes things a little easier to digest.
The most basic form is annual investment allowance. This is as simple as an annual review and deduction of the assets you’ve purchased within a given year. There is also the first year allowance. This allows you to get larger deductions during the first year of your business. This is why it’s important for businesses to know about this stuff as soon as possible. A lot of business owners only look into it a few years into business. By that point, they’ve missed out of the first year allowance opportunities!