Finance
Capital allowances in the care business
Andy White of Orchard Capital Allowances explains the benefits of capital allowances when incurring property expenditure in a care business
Within this article I explain the benefits of capital allowances when incurring property expenditure in a care business. Please note that this relates to businesses who pay corporation or income tax and does not apply to organisations not within the charge to tax such as not for profit providers, charities and local authorities.
Capital allowances generally Capital allowances were originally designed to encourage asset investment and provide a tax relief for asset depreciation. They are available when you incur capital expenditure, being expenditure on creating an asset of endurable worth. This can relate to a purchase (see later), a new development, an extension, or the improvement of an existing asset. A lot of property expenditure falls into these categories and that expenditure will qualify for tax allowances within various claimable categories. These categories are generally meant to provide tax relief over a number of years in relation to the expected useful life of the asset. The basic categories are: General plant & machinery (also known as
main pool plant and machinery) – generally allowable at 18 per cent per annum on a reducing balance basis. Qualifying items will be those that can be defined as plant and machinery with reference to the legislation (the Capital Allowances Act 2001), case law and practice, but do not fall into any of the category of integral features (see below). Generally, in this area, items such as sanitary installations, furniture, fittings and equipment, fire alarm and call alarm systems, hoists, security equipment, and firefighting installations will qualify (to name but a few). Integral features (also known as special
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rate pool plant and machinery) – generally allowable at six per cent per annum on a reducing balance basis. These are defined items within the capital allowances legislation which include electrical systems and lighting, hot and cold water systems, heating ventilation and air conditioning, lifts and escalators, external solar shading, photovoltaic installations, and thermal insulation when working on existing buildings. Structure & building allowances –
allowable at three per cent per annum on a straight line basis. This tends to be all other items of expenditure on the property which do not qualify within other claimable or deductible categories.
Additional incentives
That is not the full story, as there are additional incentives within the capital allowances regime that muddy the waters and provide acceleration of the benefits in some circumstances. In recent times the incentives have been introduced to encourage more investment (particularly following the pandemic) and changed
Capital allowances are available when you incur capital expenditure
on a regular basis, which does not promote stability. This should become more settled with the recent Autumn Statement announcements, but a change of government could, once again, provide further uncertainty. The additional incentives include:
n A residual 100 per cent allowance for new car charging points left over from an earlier incentive for wider energy saving installations.
n A £1m Annual Investment Allowance (AIA) which can be used against any year’s general plant and machinery or integral features to allow you to claim up to this amount in year one of any expenditure.
n There was a regime of Super Deductions (SD) for expenditure from 1 April 2021 to 31 March 2023 which provided a 130 per cent first year allowance claim for new items of general plant and machinery and a 50 per cent First Year Allowance claim for new integral features.
n When this lapsed in March 2023, a new regime of Full Expensing (FE) was introduced, providing a 100 per cent first year allowance for new items of general plant and machinery and a 50 per cent first year allowance on new integral features, allowing you to claim 50 per cent of this element in year one. This regime was meant to end in March 2026,
www.thecarehomeenvironment.com May 2024
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