Property capital allowance is the expenditure amount likely to be claimed against the taxable profit for an asset under the Acts that regulate it. Property that has been purchased to be used in a given business are the ones that can claim for property capital allowance. Partial or full claim can be done on the property depending on the classification of the given property. The total amount of the allowance to be claimed in a given taxation period should be calculated by the business on the assets they have to ensure proper capital allowance. The amount determined should then be submitted when the business is filling information during tax returns so that it can be forwarded to the responsible bodies to act on the claim.
Various types of property that capital allowance is allowed includes machinery, equipment, vehicles such as vans, trucks and cars. The cost incurred during research and development, renovations of the premises for doing business as well as patents also allows a person to claim for capital allowance. One is not required to claim for capital allowance from some asset including those items that have been leased, structures, buildings, land as well as other items used for purposes of entertainment such as music systems and boats. Before payment of taxes, a business can deduct part or all the value of the asset to compensate for the property capital allowance.
Annual investment allowance, the writing down allowance and the first-year allowance are some of the various types of capital allowance. In the annual investment allowance, the business is required to deduct the full value of the given item that is used entirely for the purposes of the business which can be as high as the limit of the capital allowance. During the same year that the item was acquired, annual investment allowance can be deducted from the tax in the same taxation period. When a business can deduct a given amount of the total value of the property from their profits each year, it is known as writing down allowance. In a situation where capital allowance deduction is only made during the year when the item was purchased, it is referred to as first-year allowance or enhanced capital allowance. Most items that can be claimed for the first-year allowance are those properties that are water or energy efficient such as cars whose carbon emission is low and water and energy saving devices.
Capital allowance claim reduces the amount of tax charged to a business through the assets they purchase for use in the business. The cash that is retained by the business can be reinvested leading to enhanced growth of the business.