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Definition

A capital allowance enables a company to deduct a portion of any capital cost which they may have incurred during the tax year for the purchase of plant and machinery or the purchase of land for the purpose of manufacturing. This allowance is one of the least exploited by companies because it can be quite complex and often requires an expert specialist to establish exactly what can be claimed for. There is no approved list of items which can be claimed for. Rather it is necessary to satisfy a number of conditions for the expenditure to qualify. If a company has managed to make use of capital allowances then their tax liability for that year may be considerably lower than the normal 28% company tax - and this can distort their profitability ratios.

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