View the related Tax Guidance about Capital allowances
Capital allowances ― overview
Capital allowances ― overviewDefinition of capital allowancesIn the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the chargeable profits of a trade because it is an item of a capital nature. See the Capital vs revenue expenditure guidance note. Instead, relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits. Likewise, any charges are treated as taxable receipts. In addition to traders (self-employed individuals, partnerships or trading companies), capital allowances can also be claimed by for expenditure incurred by property businesses and certain other qualifying activities. See the Capital allowances ― general requirements guidance note.Summary of rates ― capital allowancesThe following table summarises the main capital allowances available, the rate of the allowance and if relevant any important dates or points to note, for further details including any relevant qualifying conditions or restrictions see the relevant guidance note as linked in the table.It was announced at the Autumn Statement 2023 that the initially temporary first-year allowances for expenditure on plant and machinery incurred by a company in the period from 1 April 2023 which was due to end on 31 March 2026 will be made permanent. For main rate expenditure (which would otherwise qualify for a writing-down allowance at the main rate) the FYA is 100%. For special rate expenditure, the FYA is 50%.
Research and development tax relief ― capital expenditure
Research and development tax relief ― capital expenditureThis guidance note provides information on the relief available for capital expenditure on research and development (R&D). The Research and development (R&D) relief - overview guidance note provides an overview of R&D reliefs for revenue expenditure. The guidance note Capital vs revenue expenditure provides information on whether expenditure is capital or revenue in nature.It is important to note that, although R&D tax relief for revenue expenditure is not available to unincorporated businesses or individual hobbyist inventors, only to companies, the RDAs for capital expenditure are available for companies and unincorporated businesses, provided they are carrying on a trade.See also Simon’s Taxes B3.7 for further details.Relief for capital expenditureWhat is qualifying expenditure for RDAs?R&D for these purposes is defined as activities that fall to be treated as such in accordance with GAAP and that satisfy the conditions set out in the guidelines issued by the Business, Energy and Industrial Strategy (BEIS) (formerly the Department of Trade and Industry). Essentially, R&D that qualifies for the tax relief for revenue expenditure will also be R&D for capital allowances purposes (see the Definition of research and development guidance note for further details). In addition, R&D for capital allowances purposes also includes oil and gas exploration and appraisal. Expenditure on R&D will qualify for RDAs where it is capital in nature, undertaken directly by the company or on its behalf and incurred in relation to an existing or future trade. Where R&D is carried out on behalf
Restriction on non-trading losses on change in ownership
Restriction on non-trading losses on change in ownershipThis guidance note provides details of the potential restriction that may arise in respect of certain losses on a change in ownership of a company with investment business. The restrictions are very similar to those which apply in respect of trading losses. See the Trading losses and anti-avoidance guidance note for more information.There are various conditions relating to the change in ownership of an investment company which, if met, will result in potential restrictions to the excess management expenses, qualifying charitable donations and non-trading losses that have arisen prior to the change. The purpose of this legislation is to ensure that companies are not ‘traded’ just so a tax advantage can be obtained, such as accessing a company’s tax losses. Please refer to the following guidance notes for general details about the utilisation of these types of losses:•Excess management expenses•Non-trading deficits on loan relationships•Losses on non-trade intangibles•Property business losses for companiesThe conditions which lead to the potential restrictions under the rules in CTA 2010, Pt 14, Ch 3 (CTA 2010, ss 677–691) are that there is a change in ownership (see below) of a company with an investment business and one of the following applies:A)after the change in ownership there is a significant increase in the amount of the company’s capital (discussed in more detail below)B)within the eight-year period beginning three years before the change in ownership there is a major change in the nature or
Allowable expenses for property businesses
Allowable expenses for property businessesThis guidance note applies to companies and individuals with commercial or residential properties and shows the contrasts in treatment between the corporate and individual tax regimes.General itemsMany of the principles applying to allowable expenses for property businesses are similar to those that apply for trading and the rules for individuals in a property business are generally the same as for companies with some exceptions which are highlighted in the detailed sections below. One notable difference in allowable property expenses between individuals and companies is the treatment of interest expenses. Details of the rules for income tax purposes are included in the Deduction of interest against property income ― income tax rules guidance note and the corporation tax rules are set out in the Taxation of loan relationships guidance note.Note that of the fixed rate deductions for expenses available for the self-employed carrying on trades, professions and vocations, only the fixed rate deductions for business mileage applies to those carrying on a property business. See ‘Travelling costs’ below. This is because the rules in ITTOIA 2005, ss 94H, 94I (deductions for the use of home for business purposes and premises used both as a home and business premises) are not included in the list of provisions that apply to profits of a property business by virtue of ITTOIA 2005, ss 272, 272ZA.The rule that expenditure must be ‘wholly and exclusively’ for the business applies. For more information, see the Wholly and exclusively guidance note. This guidance
Utilities, council tax and other bills in accommodation
Utilities, council tax and other bills in accommodationThe payment of an employee’s council tax or utility or other bills is usually linked to the provision of living accommodation to the employee.Whether or not the payment of council tax or utility bills is treated as a taxable benefit depends on whether the reason for the provision makes it an exempt benefit under specific legislation.Payments in respect of gas and electricity made by an employer in relation to employer-provided accommodation are always taxable. However, how and why the benefit is provided to the employee determines both the value of the benefit and reporting requirements.Council tax and utility bills ― exemptionsWhether or not the payment of council tax or utility bills on behalf of the employee constitutes a taxable benefit depends on why the amounts have been paid.If the payment of council tax does not fall into one of the exemptions below then the full amount is taxable. The section on ‘reporting requirements’ below sets out how it should be reported and taxed.Exemptions applicable to council tax or utility billsThe payment of council tax or utility bills (specifically council tax, water charges or sewerage charges) is not taxable if it is provided in connection with living accommodation which is exempt from tax either as job-related accommodation or due to a security threat; this is confirmed by HMRC guidance at EIM11332. Broadly, there are two exemptions:•job-related accommodation ― where either the accommodation is necessary for the proper performance of the duties, or
Interest in possession trusts ― income tax
Interest in possession trusts ― income taxIntroductionThis guidance note explains how to calculate the income tax liability on the income of an interest in possession trust. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to an interest in possession trust.Trustees together are treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential, when dealing with a trust for the first time, to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of two categories:•standard rate tax (bare trusts and all interests in possession), and•trust rate tax (discretionary and accumulation trusts)The nature of a discretionary interest and the income tax treatment is detailed in the Discretionary trusts ― income tax guidance note. Higher trust rates of tax apply to trustees’ accumulated or discretionary income.The income tax treatment of bare trusts is described in the Bare trusts ― income tax and CGT guidance note.An interest in possession is characterised by a beneficiary’s right to the income of a trust as it arises. The income belongs to the beneficiary, and the trustees have no authority to withhold it except to use it for legitimate expenses. The entitlement
Calculation of corporate capital gains
Calculation of corporate capital gainsThis guidance note sets out the details of the calculation of a corporate chargeable gain, allowable capital losses and the restrictions on their use. It also covers disposals involving foreign currency, the interaction with capital allowances and wasting assets. A number of helpful practical points are also set out at the end of the note. For a general overview of corporate capital gains, including the scope of the charge, see the Corporate capital gains ― overview guidance note.Calculation of gainsA separate computation will be required for each asset that is disposed of during a company’s accounting period.For a proforma for calculating gains and losses, see Proforma ― corporate capital gains computation.To calculate the gain, it will be necessary to determine the following:•date of disposal•disposal proceeds•acquisition costs•allowable expenditure•if the asset was acquired before 1 January 2018, indexation allowance up to 31 December 2017Each of these elements is explained in detail below.The other guidance notes in this section provide further details with regard to specific issues as they apply to companies.Disposal dateGenerally, the date of disposal will be the date of the contract or, if it is a conditional contract, the date that the condition is satisfied. It should be noted that the rule under TCGA 1992, s 28 (which fixes the date of disposal for an unconditional contract as the date of the contract) only applies if the contract is completed (ie if the disposal actually takes place) and so it
Off payroll working (IR35) for small clients ― calculating the deemed employment payment
Off payroll working (IR35) for small clients ― calculating the deemed employment paymentIntroduction - the deemed employment paymentThis guidance note covers the position where a contractor is working through an intermediary within the off-payroll working for small clients rules - see the Off-payroll working (IR35) ― small clients ― overview guidance note. Where these rules apply, there is a requirement for the intermediary to:•calculate the deemed employment payment (the term used for tax which is used throughout, although it is called the ‘attributable earnings’ in the NIC legislation)•calculate and pay over the tax and NIC due to HMRCThe diagram below shows the interaction of the deemed employment calculation with an intermediary structure:Tax and NIC on the deemed employment payment / attributable earningsSeparate legislation is in place for tax and NIC ― see the Off-payroll working (IR35) for small clients ― particular NIC points and tax planning guidance note for more on all of the points below.For tax, the calculation is known as the ‘deemed employment payment’ calculation, for NIC it is the ‘attributable earnings’ calculation. In most cases the calculations are identical. This note refers to both as the deemed employment payment throughout unless anything specifically only applies to NIC and not tax. Certain types of work are categorised by NIC regulations as being ‘employed earners’ and so where an individual is carrying out these types of work, NIC is applied under the off-payroll working for small clients rules even where the rules don’t apply for tax.
Calculating relevant IP profits ― new entrants and 1 July 2021 onwards
Calculating relevant IP profits ― new entrants and 1 July 2021 onwardsChanges to relevant IP profits calculationsNumerous modifications were made to the way in which the patent box calculations could be performed with effect for accounting periods beginning on or after 1 July 2016. The commentary in this guidance note applies to the calculation of relevant IP profits of a company:•that is a ‘new entrant’, ie its first patent box election, or its most recent election, takes effect on or after 1 July 2016, or•where the accounting period begins on or after 1 July 2021CTA 2010, s 357AAccounting periods which straddle these dates are split into two notional periods and profits and losses are apportioned between them on a just and reasonable basis. The calculation now requires streaming of profits by reference to each IP right, with relevant R&D expenditure directly linked and allocated to the patent or patented item. As a result, the amount of profit that can qualify for the lower effective rate of tax applicable under the patent box regime depends upon the proportion of development expenditure that has been incurred by the company. A greater level of detail is now needed as the calculations require the allocation of income and expenditure to each sub-stream, which must be supported with evidence. HMRC expects that companies must be able to demonstrate the methodology by which R&D expenditure is allocated to individual sub-streams, at least in the first such period of calculation. Any significant adjustments to
Statement of practice D12: full text
Statement of practice D12: full textNote: This is a verbatim copy of SP D12D12: PartnershipsThis statement of practice was originally issued by The Commissioners for HMRC on 17 January 1975 following discussions with the Law Society and the Allied Accountancy Bodies on the Capital Gains Tax treatment of partnerships. This statement sets out a number of points of general practice which have been agreed in respect of partnerships to which TCGA 1992, s 59 applies.The enactment of the Limited Liability Partnerships Act 2000, has created, from April 2001, the concept of limited liability partnerships (as bodies corporate) in UK law. In conjunction with this, new Capital Gains Tax provisions dealing with such partnerships have been introduced through TCGA 1992, s 59A. TCGA 1992, s 59A(1) mirrors TCGA 1992, s 59 in treating any dealings in chargeable assets by a limited liability partnership as dealings by the individual members, as partners, for Capital Gains Tax purposes. Each member of a limited liability partnership to which TCGA 1992, s 59A(1) applies has therefore to be regarded, like a partner in any other (non-corporate) partnership, as owning a fractional share of each of the partnership assets and not an interest in the partnership itself.This statement of practice has therefore been extended to limited liability partnerships which meet the requirements of TCGA 1992, s 59A(1), such that capital gains of a partnership fall to be charged on its members as partners. Accordingly, in the text of the statement of practice, all references to
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