How do capital assets affect your small business?

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Capital assets, also known as fixed assets, are the items you are likely to use to run your company. These items are likely to last for longer than a year and are separate to the everyday items used in the general running of your business, like stationery and utilities.

You may include items like computers, plant and machinery, or furniture as capital assets. The expenditure for them is calculated in a different manner to general expenses incurred in the business, and although you can claim tax relief for them, it is not deducted from the gross profits in the same way as business expenses.

Claiming for capital expenditure

The full cost of your capital assets may be claimed using Annual Investment Allowance. If the company has a turnover of £82,000 or below, you may also use the ‘cash basis’ system to account for income and expenditure.

Which items can you claim for?

You can claim for some integral features of the company premises, some fixtures (like the bathroom facilities or a fitted kitchen), any alterations you need to make to a building before you can install plant and machinery, company vehicles, and other items that are bought and kept for long-term use by the business.

There are some exclusions, which include items being leased by the company or form part of the building (like doors and gates), and those used solely for entertainment purposes.

Annual Investment Allowance

The amount of Annual Investment Allowance you can claim has changed a number of times since 2008. From 1st January 2016, the amount you can claim has been reduced from £500,000 to £200,000. If you are claiming the full value of the capital asset, you must claim using the self-assessment tax return for the period you are claiming for. If you have a limited company, you must claim using the Company Tax Return for that specific period. For those businesses within the self assessment system, the period 6th April 2014 to 31st December 2015 has an annual investment allowance of £500,000, which you can include when completing the 2015-16 tax return, although only the expenditure from 6th April 2015.

Claiming for capital assets using the Annual Investment Allowance will reduce your tax bill by a significant amount, which could mean that you are able to make extra investments in the business during a specific period. As dealing with capital assets is complex, you may want to call us and arrange a suitable time for an informal chat.