Capital Allowances and Integral Features in Business Asset Repairs

Capital Allowances: Bridging the Gap between Business Assets and Tax Relief

When businesses invest in capital equipment, from vehicles and computer systems to machinery, the rules governing these purchases differ from everyday business expenses. This distinction is vital in understanding how to calculate taxable profits accurately.

What Are Capital Allowances?

‘Capital allowances’ are synonymous with tax relief avenues available to businesses for specific capital expenditures. Essentially, these allowances help companies to secure a tax reduction based on their investments in long-term assets. However, it’s crucial to note that even if an asset has received capital allowances, it doesn’t prevent a company from getting a revenue deduction if a repair is needed for that asset.

The Significance of ‘Integral Features’

Delving deeper into capital allowances, a particular category of assets is known as ‘integral features’. These are core components that play a pivotal role in the functionality and value of a building or structure. They include:

• Electrical systems, including those for lighting
• Water systems, both hot and cold (excluding kitchen and toilet facilities)
• Systems for space and water heating
• Air conditioning and cooling systems
• Lifts, escalators, and moving walkways
• External solar shading

There’s a notable rule to remember when repairing or replacing these features. If the expenditure on an integral feature surpasses 50% of its replacement cost, the entire expenditure is considered capital expenditure for capital allowances.

By understanding the intricacies of capital allowances and the importance of integral features, businesses can navigate the financial landscape more efficiently, ensuring they maximise their benefits while staying compliant with taxation norms.