Capital Allowances

Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.
You can claim capital allowances on:
equipment
machinery
business vehicles, for example vans, lorries or business cars
These are known as ‘plant and machinery
If you’re a sole trader or partnership and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.

Types of capital allowances for plant and machinery
The capital allowances (also known as plant and machinery allowances) are:

Annual investment allowance (AIA) – you can claim up to £1 million on certain plant and machinery
100% first year allowances – you can claim the full amount for certain plant and machinery in the year that it was bought
The super-deduction or 50% special rate first year allowance – you can claim these for certain plant and machinery you buy from 1 April 2021 up to and including 31 March 2023
Writing down allowances – you can claim these if your plant and machinery does not qualify for AIA or you’ve already claimed the maximum amount
If an item qualifies for more than one capital allowance, you can choose which one to use.

Work out the value of your item
In most cases, the value is what you paid for the item. Use the market value (the amount you’d expect to sell it for) instead if:
You owned it before you started using it in your business
It was a gift

When to use writing down allowances
‘Writing down allowances’ are one type of capital allowance. They let you deduct a percentage of the value of certain items from your profits each year.
You might be able to claim more tax relief if you can use one of the other capital allowances, for example:
annual investment allowance (AIA)
100% first year allowances
Temporary first year allowances
The percentage you deduct depends on the item. For business cars the rate depends on their CO2 emissions.

Simplified Expenses for Self Employed

Simplified expenses can be used for sole traders or partnerships that have no companies as partners. They are a way of calculating some of your business expenses using flat rates instead of actual business costs. You can decide if actual costs or simplified expenses suits your business.

Types of simplified expenses

You can use flat rates for

  • business costs for some vehicles
  • working from home
  • living in your business premises

Vehicles

Calculate your vehicle expense using a flat rate for mileage. You can use this for cars (except those designed for commercial use, eg taxi’s, driving instructor cars), goods vehicles (for eg vans) and motor cycles.

The flat rate per mile for cars and goods vehicles is 45p for the first 10,000 miles and 25p for every mile over 10,000. For motor cycles the rate is 24p per mile.

Working from home

Calculate the allowable expense based on the number of hours you work from home each month. This does not include telephone and internet costs. You can claim the business proportion of these costs from the actual costs.

  • For 25 to 50 hours per month the rate is £10 per month
  • For 51 to 100 hours per month the rate is £18 per month
  • For 101 and more hours the rate is £26 per month.

Living at your business premises

Some businesses use their business premise as their main home, for example guest houses, bed and breakfast or a small care home. You can use simplified expenses instead of working out the split between what is business cost and private cost use of the premises. You first work out the total expenses for the premises. Then use flat rates to subtract an amount for your personal use based on the number of people living on the premises.

  • 1 person – deduct £350 per month
  • 2 people – deduct £500 per month
  • 3 people+ – deduct £650 per month

For example you and your partner run and live in a guest house and the total business expenses for the year are £15,000. Flat rate = £500 x 12 = £6000. Your claim for business expenses is £15,000 – £6,000 = £9,000.

Self employed business expenses

If you are self employed your business will have various expenses and running costs which you can deduct to work out your taxable profits. Allowable expenses does not include money taken from the business to pay for private purchases

Typical expenses include the following

  • Office costs for example stationary and phone bills
  • Travel costs which includes, fuel, bus and train fares
  • Staff costs which includes salaries and sub contractor costs
  • Stock purchases and raw materials which you buy to sell on
  • Financial costs, loans to finance the business, insurance
  • Premises costs for example rent, heat, electricity, rates
  • Advertising and marketing costs, website costs

If you work from home you may be able to claim a proportion of the costs for things like heating, electric, rates, rent or mortgage interest, internet and phone use. You need to find a reasonable method to divide your costs for example by the number of rooms you use for business or the amount of time you spend working from home.

Foe example you have 4 rooms in your house one of which you use as an office. If your electricity bill is £600 for the year you can claim £150 as an allowable expense for your business electricity costs.

Simplified expenses

You can avoid complex calculations for working out business expenses by using simplified expenses. They are flat rates that can be used for vehicles, working from home and living on your business premises.