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Ordinarily the Tax code does not permit expenditure on a capital asset to be offset against income for the purposes of calculating Tax due. However, over the years various governments have sought to relax this principal in various ways as a means of encouraging business investment.
Consequently, it is possible to claim tax allowances against expenditure on Plant & Machinery, Fixtures & Fittings as well as other associated costs. This is fed into the tax calculation by way of a series of annual writing down allowances claimed over the life of the asset at a rate determined by the type and nature of the expenditure.
How BWA can help with Capital Allowances?
The legislation governing Capital Allowance entitlement is extremely complex. The meaning of Plant & Machinery and its valuation is also legally imprecise as it has never been defined in the Statutes. A certain amount of case law exists regarding the definition of Plant & Machinery under various Acts which cover the subject. However, these in themselves are obscure and have consequently given rise to a variety of interpretations which are far removed from the ‘layman’s’ understanding of the term.
From 2008 a new classification of Capital Expenditure ‘Integral Feature’ was introduced which qualifies certain expenditure which may have been previously excluded from Capital Allowances. This expenditure is required to be allocated to the ‘special pool’ and for which writing down allowances are available at a reduced rate.
In addition, expenditure on repairs that are not improvements can be deducted in their entirety in the year the cost is incurred. In effect this provides a 100% reduction in the first year.
Tax regulations have also been used to encourage investment in certain types of environmentally friendly plant & machinery by providing tax recovery over an accelerated period.
Analysis of capital expenditure can therefore be particularly time consuming and consequently expensive exercise.
Why Utilise BWA?