To reclaim the correct and full amount of tax back from HRMC it is important to understand the details of what is allowed under capital allowances.
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Plant and machinery CAs are not available on any furniture and equipment supplied with accommodation let furnished. Instead a “wear and tear allowance” or “renewals allowance” may be available.
The position is different for furnished holiday accommodation.
Allowances for capital expenditure on a rental business can be complex and in arriving at the profit or loss of a rental business for tax purposes deductions cannot be made for capital expenditure.
This means the following cannot be deducted in working out rental business profits:
(a) the cost of buying, altering, building, installing or improving fixed assets used in the rental business; or
(b) the depreciation of any capital asset (land, leases and other interests in land, buildings, plant, machinery, etc); or
(c) any loss which arises on the sale of any capital asset.
Special Tax Allowances.
But a taxpayer may be able to claim special tax allowances to take account of the depreciation of some capital assets (but not land) used for rental business purposes. There are three main categories of allowance. These are:
(a) capital allowances;
(b) wear and tear allowance (no longer available as replaced by (c) below since 6 April 2016), and
(c) renewals allowance.
An allowance may also be due for the cost of installing loft, cavity wall or solid wall insulation and draught proofing and insulation for hot water systems, in a residential property which is let.
Capital Allowances Changes from 2008
(a) Integral Fixtures. The WDAs in respect of plant (a fixture) within a building have been reduced to 10%.
(b) Increase in threshold.
The AIA threshold was increased to £100,000 from 1 April 2010 (for a company) and 6 April 2010 (for an individual) for expenditure incurred on or after those dates and are reduced to £25,000 from 1 April 2012 and 6 April 2012 for expenditure incurred on or after those dates.
(c) First Year Allowance. For the year 2009-10 only, the allowance was 40% for expenditure, excluding cars, in excess of £50,000 (that otherwise would have qualified for 20% WDA).
(d) General Plant and Machinery. From April 2008, the WDA main rate was reduced from 25% to 20%.
Rates of WDA for the Main Pool and the Special Rate Pool. The rates are reduced to 18% and 8% respectively for chargeable periods ending on or after 1 April 2012 for businesses within the charge to corporation tax and 6 April 2012 for businesses within the charge to income tax.
Plant and Machinery Capital Allowance Rates
The allowance is a 25% reducing balance writing-down allowance.
CAs are available for certain expenditure on plant and machinery, industrial buildings and structures, agricultural buildings and works, hotels and enterprise zones.
P & M do not generally include assets in residential accommodation. P & M cover assets like vehicles, tools, ladders, computers, business furniture, furnishing and fittings, lifts, central heating and air-conditioning which belong to the taxpayer and are employed or let in a rental business. If an item is used to carry on a business but is not part of the premises and is not stock-in-trade then it is plant.