Capital Allowances for Plant and Machinery: Essential Guide for Maximum Savings

Have you recently invested in new equipment for your construction business? Maybe you just bought a fleet of diggers or high-powered scaffolding. If you did, you might be sitting on hidden savings that could significantly lower your tax bill.

Let’s talk about capital allowances. These are tax reliefs available for businesses that buy, lease, or improve plant and machinery. If you’re not taking advantage of them, you’re possibly missing out on thousands of pounds.

What are Capital Allowances?

In simple terms, capital allowances let you write off the cost of certain equipment over time. This means you can reduce your taxable profits, thus lowering your tax bill. Sounds good, right? Whether you’re a contractor or a plant hire company, understanding capital allowances can make a real difference to your bottom line.

Who Qualifies?

If you own a construction-related business, you likely qualify. This includes:

Contractors and subcontractors
Housebuilders and property developers
Plant hire companies
Specialist tradespeople
Even architects and engineers, if they own their equipment

So, if you run a plant hire company and just purchased new equipment worth £100,000, you can potentially claim back thousands in tax relief!

Examples of What Qualifies

When it comes to capital allowances, not all items are created equal. You can claim on:

Plant and machinery (like excavators, cranes, or generators)
Tools and equipment (hand tools, scaffolding)
Vehicles like vans or trucks used for business purposes

For instance, if you’re a sole trader plasterer earning £60k a year and you buy a new plastering machine for £5,000, you can write off a significant portion of that cost against your profits. This can greatly reduce your taxable income, which means more money in your pocket.

Types of Capital Allowances

There are a few different types of capital allowances to be aware of:

Annual Investment Allowance (AIA): Claim up to £1 million in one go. Most plant, machinery, and equipment qualify, meaning you could write off the full cost in the same tax year.
Writing Down Allowance (WDA): If you exceed the AIA limit, you can still claim 18% or 6% of the remaining balance each year.
Special Rate Assets: Some items, like thermal insulation, are eligible for different rates.

Why Bother?

Every penny counts in construction. By maximizing your capital allowances, you reduce taxable profits. This translates to lower corporation tax or income tax bills. Plus, with the current CIS scheme or VAT reverse charge rules, keeping track of expenses and deductions has never been more essential.

Take Action Today

Don’t let valuable savings slip through your fingers. Start by gathering your receipts and documentation for recent purchases. Consider speaking with your accountant to explore your options. The sooner you take action, the sooner you can benefit from your investments.

Not sure how this affects you? Book a free 20-minute call with us.

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