1. An Introduction to Capital Allowances

These talks are brought to you by Claritax books and sponsored by Six Forward Capital Allowances – independent property tax consultants working with accountants to enhance capital allowances for their clients.

This brand-new series of talks is given by Ray Chidell, a leading UK authority on Capital Allowances. Ray originally qualified as a tax inspector, working in the tax profession for 14 years before becoming a Capital Allowances Consultant in 2003.  He has also in recent years, worked as a publisher of tax books.

The aim of this series of talks, is to cover the full range of capital allowance issues, with a particular focus on plant and machinery allowances. The talks will cover fixtures in properties including integral features, look at capital allowances for cars and what constitutes qualifying expenditure, the definition of plant and machinery, annual investment allowances and much more. By the end of the series we will have covered everything an accountant in practice needs to know about plant and machinery allowances, as well as touching on some of the other allowances to a lesser extent.

What Are Capital Allowances?

Capital Allowances are given for Capital Expenditure, so what is it exactly that constitutes Capital Expenditure? There is no positive statutory definition of Capital Expenditure in the Capital Allowances act, the act does tell us, that certain amounts are excluded if they’re deductible in calculating tax profits. This however, only takes us so far, we therefore need to rely on accounting principles but also very much on case law. There have been dozens of cases which have touched on the distinction between capital and revenue expenditure, but one or two inevitably emerge as the key cases to which others often refer back.

Lord Cave in the Helsby Cables Case said that when an expenditure is made “not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.”

Lord Cave brings out two tests in this statement, the first one is that expenditure is incurred once and for all, therefore a one-off expenditure, this is actually of lesser importance in practice in defining what is capital in nature. The key part however, is where Lord Cave states that capital expenditure brings into existence an asset or advantage for the enduring benefit of the trade and that has been repeated in subsequent case law and is the corner stone of the definition that we are looking for.

But, not all Capital Expenditure qualifies for Capital Allowances, so to be capital is a condition but it’s not sufficient in itself. In fact, the Capital Allowances Act contains a whole series of different regimes for different types of capital expenditure.

Part Two of the Act deals with plant and machinery allowances, which is what we will be most concerned with –  we will also pick up on Part One which deals with the introductory sections,  and on two parts at the end of the Act which deal with more general matters.

The next talk will be starting to talk about plant and machinery allowances and what constitutes qualifying activities and qualifying expenditure. Please feel free to get in touch by email or by phone.

We really welcome any feedback and would like to adapt to the ideas that you share with us, as we film further talks going forward.

In addition viewers may be interested in two books available from Claritax books. These titles will be made reference to at various stages over the course of the talks.