Tax Capital Allowances – Research and Development
Research and Development Costs
Businesses of all sizes can claim 100% allowance (less a charge if the item has a disposal value within the chargeable time) on the cost of research and development. The advantage for new businesses is that this applies even if you have not yet started trading, which significantly helps to reduce start-up costs.
However, only certain types of R+D are covered (such as prototype products), mostly within the areas of technology or science. Make sure you check fully whether your projects are applicable before starting.
Northern Ireland
If you have purchased any plant or machinery for use primarily in Northern Ireland between 12th May 1998 and 11th May 2002, you can claim 100% First Year Allowance.
Loans
Small or medium sized businesses may be able to borrow between £5,000 and £50,000 at 0% interest from government agencies to help fund the purchase of certain types of energy saving equipment.
Calculating/Deducting First Year Tax Allowances
Tax allowances can be shown either on your Self Assessment or Corporation Tax Rates returns. For example: 1. If you buy a piece of equipment for £100,000 2. The tax allowance is 40% 3. 40% of £100,000 is £40,000 4. You can then deduct £40,000 from your profit before calculating tax. As each piece of equipment may have differing allowances, they each should be calculated separately.
Summary
There are many different forms of First Year Capital Allowance; they can help reduce the tax burden for your business significantly, as well as (in some cases) helping the environment.
It is crucial however, to make sure that your purchases qualify, and that someone with good accounting experience ensures the items are correctly shown on your tax returns. Otherwise, you could be liable for fines for paying an incorrect amount of tax.
Note: Allowances vary after the first year, and you should always check the appropriate method for each relevant item to ensure accurate tax calculation.
Further Information
If you are unsure of how to work out or deduct capital allowances, the Inland Revenue has a tax helpline available on 08457 143 143.
- Self Assessment
- Corporation Tax Rates
- Company Accounts Deadlines
- Grants for Businesses
- Government Information on Capital Allowances
- Information on Enhanced Capital Allowances
Article Index:
- First Year Tax Capital Allowances
- Tax Capital Allowances
- Related Articles
