Capital Allowance

In merry old England and the rest of the United Kingdom, a capital allowance is basically a tax-deductible expense. A business owner can claim the value of a capital expenditure...like for equipment, machinery, any type of vehicle, research and development, patents and renovations to a building used for business.

Just like depreciation, the business owner can write off the cost of the asset over a period of time and subtract the amount from the company's profits. There is no approved list of what is deductible and what isn't, but all are regulated by Her Majesty's Revenue and Customs. Capital allowances available to businesses include an Annual Investment Allowance (allows a deduction of the full value of most items up to the limit of 200,000 pounds) and a Writing Down Allowance (can deduct a percentage of the value of an item). Her Majesty hopes to encourage investment by businesses by offering these tax deductions.