Tax tip: 26 October 2023

Capital allowances are an invaluable source of tax relief for businesses. Currently there is the annual investment allowance (AIA) which gives a 100% deduction on money spent on qualifying plant and machinery.

This broadly means assets used in the business that perform a function for the business (and are not part of the building in which the business is run – apart from certain assets known as ‘integral features’). Certain assets do not qualify for example cars do not benefit from the relief.

The maximum spend on which 100% relief is given is £1m in a 12-month period. For small businesses this means that all of its plant and machinery is likely to receive the 100% deduction.

Deduction given against profits

The deduction is against the trading profits of a business so spending £50 000 on qualifying plant and machinery for a sole trader...