Capital Allowance in Manufacturing

Capital allowances are similar to tax deductibles and present an incredible opportunity for businesses to claim tax relief on specific capital expenditures linked to manufacturing activities. The UK Government has offered incentives to promote investments in assets like machinery, equipment, and other manufacturing process essentials that drive economic growth. 

How Can Manufacturers Utilise Capital Allowances?

Capital allowances don’t just magically appear. In fact, you have to claim them through a tax return within your accounting period. But don’t worry if you’ve missed out in the past. As long as you still own and use the asset in your trade, you can claim capital allowances anytime – there’s no time limit. But here’s a tip: consider capital allowances early on when buying a property or completing refurbishment projects. It might seem like a hassle at first, but the potential tax savings could really pay off in the end.

What Are Capital Allowances?

Eligibility for Capital Allowances in Manufacturing

There are various types of capital allowances available to manufacturers. One of the key benefits is the accelerated tax relief on machinery and equipment purchases, which are vital in industrial sectors. But it’s not just limited to these types of purchases. If your company is planning a factory or office refurFfbishment, or even an extension, capital allowances may be available for some of the expenditure.

The Structures and Buildings Allowance comes into play when expenditure doesn’t qualify for other allowances. Although it’s offered at a lower annual rate, it still brings benefits to manufacturers. Also, keep in mind that when you buy a building from a previous owner, you can only make a claim for integral features and fixtures that they claimed for. 

Another crucial aspect is the purchase or sale of premises. Capital allowances also play a vital role here. It’s important to negotiate between the buyer and seller to agree on the disposal value of qualifying capital expenditure. This negotiation helps ensure that you maximize the capital allowances you’re entitled to.

How Capital Allowances in Manufacturing Work

Manufacturers have several types of capital allowances they can explore. If you claim the Annual Investment Allowance (AIA), you can deduct the full cost of a qualifying item from their profits before tax. This allowance, now permanently capped at £1,000,000 per tax year, applies to most purchases, with the exception of cars and items used for other purposes before they were used for business. 

For items that don’t qualify for AIA, a Writing Down Allowance is available. This means you can deduct a percentage of the item’s value from your profits before tax, at either 6% or 18%, depending on the item you’ve purchased.

In specific cases where a company incurs capital expenditure on assets that would otherwise qualify for the main capital allowance pool, it is entitled to claim a first year allowance and take a 100% in year deduction in respect to the expenditure. This is often part of the government’s strategy to encourage spending in certain areas. For instance, brand new zero-emission vehicles qualify for first-year allowances, instead of being added to the special rate pool with other cars, which would be written down at 6% per year.

Lastly, Full Expensing and the 50% First Year Allowance on special rate items offer further opportunities for deduction. Similar to AIA, this allows a company to deduct 100% of the cost of brand new, qualifying items. Originally introduced as a temporary measure, this allowance was made permanent at the Autumn Statement in 2023. It also provides a 50% first year allowance for special rate pool items, which includes any cars that are not brand new and electric.

Our Approach to Manufacturing Capital Allowances

At Elect, we are guided by a simple philosophy: to assist you in making a claim for capital allowances without a hassle, safely and accurately. Here’s how we make it happen:

  • Attention to Detail. We thoroughly analyze your total capital expenditure incurred, leaving no stone unturned as we identify every qualifying expense, determining whether you’re eligible for capital allowances,.
  • Supporting Professionals. We extend our expertise to accountants and lawyers, ensuring they fulfill their obligations to their clients and streamlining the entire process.
  • Reducing Risks. The Finance Act of 2012 introduced significant changes to capital allowance claims, potentially making the process risky. But fret not, we have you covered. Our team stays updated with tax legislation and HMRC practices, mitigating your risk.
  • Harnessing Technology. We combine our meticulous approach with cutting-edge technology to create comprehensive and well-researched claims for capital allowances purposes. This guarantees a seamless process and timely tax refunds.
Super Deduction

Why Go With Elect in Claiming Capital Allowance Tax Return on Manufacturing Projects

When you choose Elect CA as your capital allowance tax relief specialist, you gain access to a realm of professionally managed and hassle-free tax relief solutions. Our dedicated capital allowance and tax professionals brings a wealth of knowledge to the table, ready to overcome any obstacles that may arise. We pride ourselves on providing personalized service to each and every client, ensuring compliance with HMRC rules. 

Our expertise extends beyond complex tax laws and includes property-related costs. By leveraging our advanced technology, including our custom-built app for Apple devices, we diligently identify potential areas for tax relief. In the unlikely event that HMRC questions any part of our report, rest assured that we will steadfastly support your claim. With Elect, you can sit back, relax, and take comfort in the fact that we have never lost a claim. 

Effect of Capital Allowance on Manufacturing Companies

Capital allowances can have a profound impact on manufacturing businesses. They offer significant financial relief, reducing the amount of tax a business has to pay. By claiming capital allowances, companies can effectively lower their taxable profits, leading to substantial savings. For manufacturers who often invest in costly machinery and equipment, these savings can make a real difference.

Moreover, capital allowances can incentivize manufacturers to invest in certain types of equipment or machinery. The government often uses these allowances as a tool to encourage businesses to make investments that have wider societal benefits. For example, granting allowances on energy-efficient machinery can lead manufacturers to invest in greener, more sustainable technologies.

Finally, capital allowances can affect cash flow and profitability. They can provide an immediate cash injection in the form of a reduced tax bill, improving cash flow. Meanwhile, they can also increase profitability in the longer term, as the cost of capital investments is effectively reduced. In summary, capital allowances can be a vital tool for manufacturers looking to invest, expand, and grow their business.


Can manufacturing property developers claim capital allowances?

Absolutely! Manufacturing property developers have the opportunity to claim capital allowances. This applies to investments made in constructing new commercial properties or renovating existing ones. It’s worth noting though, that these allowances must be claimed within a specific timeframe and are subject to particular rules and regulations. Seeking professional advice is always a wise move to ensure you’re claiming all the allowances you’re entitled to in a compliant manner.

Can capital allowances on manufacturing be carried back?

Yes, in certain situations, you can carry back capital allowances. This means that if you have more capital allowances than taxable profits in a year, you may be able to offset them against previous years’ profits. This could lead to a tax refund. However, it’s important to note that specific rules apply, so it’s advisable to consult with a professional to understand how this applies to your business.

Does all manufacturing capital expenditure qualify for capital allowances?

Not all manufacturing capital expenditure will qualify for capital allowances. It’s important to understand that capital allowances are only available for certain types of capital expenditures. These include buying, improving, or altering land and buildings, as well as buying or improving plant and machinery. However, expenses such as wages, rent, or raw materials, while crucial for manufacturing, do not qualify for capital allowances. To make sure you’re correctly identifying eligible expenses, it’s always wise to seek advice from a capital allowances specialist or a tax adviser.