Wear & Tear

An annual wear and tear allowance of 12.5% of the cost, over 5 years. It can be claimed for capital expenditure incurred on plant and machinery. Wear and tear is calculated on the net cost of the asset to the trader, i.e. if any grants have been received in respect of the asset these should be deducted from the cost of the asset before calculating the capital allowance available.

In order for a trader to claim capital allowances on expenditure incurred on an asset:

• They must have incurred the expenditure for the purpose of the trade
• The asset must be in use at the end of the accounting period
• The asset must be used wholly and exclusively for the purpose of the trade

It is essential that all of these conditions are met.

Office equipment (items of a capital nature) such as computers, printers, copiers and fax machines can be included on your list of tax deductibles.

Machinery and cars can also be included although it should be noted that tax relief is spread over an 8 year period.

Meanwhile, there are specific rules regarding the capital allowances that can be claimed on motor vehicles. These rules relate only to passenger motor vehicles and not to other commercial vehicles, lorries etc. From 1 July 2008 the qualifying cost available for capital allowances purposes varies depending on the CO2 emissions level of the vehicle.

Capital allowance can also be claimed for industrial buildings. Generally, industrial buildings are written off on a straight line basis over a 25-year period (the tax life of the building), so that a trader may claim an Industrial Building Annual Allowance (IBAA) of 4% of the qualifying cost each year. IBAA can only be claimed where expenditure is incurred on the construction or acquisition of an industrial building, which is in use at the end of the accounting period.

There are certain circumstances where a trader may be able to claim a higher IBAA. Expenditure on private convalescent homes, private hospitals, qualifying sport clinics, qualifying residential units, private nursing homes and child care facilities all qualify for IBAA at 15% per annum.