Plant & Machinery is an asset that is eligible for capital allowances, In Yarmouth v France (1887), Plant is defined as
It must be apparatus
It must be used by the claimant in carrying on his business
It must be kept for permanent use in the business
The courts use a simple definition to avoid confusion:
“Is the item simply part of the setting or premises in which the trade is carried on, or is it something with which the trade is carried on?”
If it is a part of the background or grounds, then it is not considered plant and will not be eligible for a Capital Allowance.
If the item in question is something with which the trade is carried on then it amounts to plant.
Items eligible for CA’s are ‘pooled’ rather than every item being dealt with on a separate basis. There are two main pools: The Main pool & The Special rate pool (SRP)
The main pool is used for plant and machinery such as vans. It can also be used for assets such as cars.
But items such as long-life assets are put in a separate pool (Special Rate pool)
There is an allowance called the small pools allowance in which you can write off the amount in the main & SRP if the pool contains less than £1000 before the written down allowance (WDA) is calculated. This would be claimed rather than claiming a WDA
*Taxpayers can decide how to allocate the AIA: it is tax efficient to allocate to the SRP in priority to the main pool*
When a business buys an item that qualifies for AIA they can deduct 100% of the cost of the asset as long as the costs do not exceed the AIAs maximum allowance. However, if an asset is purchased and is entitled to first year allowance you can deduct the amount from profit before tax. This can be claimed in addition with the £200,000 (AIA).
(WDA) is another capital allowance.
An example would be Aldi the food retailer, as part of their graduate scheme they offer graduates an Audi A4 as part of their remuneration package. So in this case Aldi would be able to claim a WDA.
*Assets acquired by hire purchase are treated in the same way as an asset purchased outright*
This gives an opportunity for tax saving as businesses can hire rather than buy outright
As purchasing equipment in a business is not a revenue tax deductible expense, tax relief is obtainable in the form of capital allowances. Capital allowances are a way of saving funds that can be utilised by UK businesses. These rules were first outlined in the Capital allowances Act 2001.
The Capital Allowances Act 2001 is an Act created by the Parliament of the United Kingdom that explains what qualifies as capital allowances and how they should be deducted from taxable income.