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HM Revenue and Customs do not allow accounting depreciation as a tax deduction. Instead assets purchased and used in a taxpayer’s business are eligible for Plant and machinery allowances at either 8% or 18%.
The relief also applies to fixtures installed within a commercial property. However, where the expenditure is deemed to be on the buildings themselves (including certain assets incorporated into the building), structures or land, such expenditure does not qualify for Plant and Machinery allowances.
In order to qualify for plant and machinery allowances the taxpayer must:
- Actually, incur capital expenditure on the provision of plant or machinery.
- Use assets as a capital asset (not stock in trade) to generate taxable income or gains form the following activities.
A property business (UK or overseas)
A furnished holiday lettings business (UK or within the European Economic Area)
A profession or vocation
An employment or office
Special leasing of plant and machinery
Managing the investments of a company with investment business
A concern in mines or transport undertaking
- Own the asset, or be deemed to be the owner of the asset, for which the taxpayer is claiming plant and machinery Allowances
- Where the item is a fixture in a commercial property, there is an additional requirement that the claimant holds the “relevant interest in the land which includes the freehold/heritable title or the leasehold interest in the property.
What relief is available?
The level of qualifying expenditure found within a commercial property will vary depending on the type of building. For example, a hotel will usually contain a higher level of plant and machinery than an out of town retail warehouse.
In addition, different rate of relief available for an asset will depend on the class of asset. Writing down allowance of 8% is given for assets that you would normally expect to be included within a building. This includes assets which in 2008 were classifies by HM Revenue and Customs as being “integral Features” which include:
- Electrical systems
- Lighting systems
- Heating and cooling systems
- Mechanical ventilation
- External Solar Shading
Writing down allowance of 18% is commonly given for assets that you would typically add to a building including:
- Fire and security alarms
- Sanitary ware
- Door closers