Fixed Asset or Expense
If you have purchased an item that will be used for more than one accounting year, then it should be capitalised, and the value depreciated over its useful life in the accounts. Fixed assets include property, cars, furniture and computer equipment.
However, while a box of paper-clips might last for years, capitalising these would not be sensible. There is no minimum value from HMRC as to what capital is, but we would typically capitalise an item that lasts more than one year if it cost more than £500. If you have spent less than this, you can still opt to capitalise it, particularly if you feel it will be used for over a year.
The Annual Investment allowance will cover most expenditure on allowable fixed assets. This is set a £1 million for 2022/23, and you receive the same tax relief that you would if it had been treated as an expense. Second-hand assets, except for cars, will also qualify for AIA.
Capital allowances are not allowed on land and property.
Super-deduction
The government introduced a super-deduction from 1 April 2021 to 31 March 2023, which provides a 130% enhancement to the fixed asset cost. So an asset of £1,000 would ordinarily provide £190 of corporation tax relief. Under the super deduction the same asset would be boosted to £1,300 x 19% = £247 of corporation tax relief.
Lower rates of relief
Unfortunately, not all fixed assets qualify for full tax relief in the first year. The most common fixed asset which is not given full relief is cars, which, depending on their CO2 emissions, will often only provide corporation tax relief at either 18% or 6% per year. Brand new, fully electric cars currently qualify for full relief in the year of purchase.
Most other assets not qualifying for the AIA are connected with buildings and classified as ‘integral features’. These include thermal insulation, heating systems, lifts, solar panels and air conditioning systems.
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