Student conundrum: Confused about capital allowances for integral features
A student contacted us with this question: “I am confused about the rate of allowances to apply to integral features, as I have seen both 8% and 100% used. What is the rule?”
Capital allowances are important to traders and important to students, as they can appear in your TC Principles of Tax exam or your TPS Taxation exam.
Integral features are assets which are found on a defined list of items forming part of a building, such as electrical systems, lifts and air cooling systems. When a trader (individual or company) purchases an integral feature this should be placed into the special rate pool for capital allowances.
Items in the special rate pool are eligible for an allowance of 8% per annum, meaning that the tax relief will take longer to claim than on an asset in the general pool (with allowances of 18%).
The reason that you will have seen an allowance of 100% being given is that the Annual Investment Allowance (AIA) of 100% can be used on whichever assets the trader chooses, with the exception of cars.
The trader will, therefore, choose to use this against the assets which will gain the most benefit from the use of this rate. Items in the special rate pool should be targeted with the AIA given that they would otherwise only qualify for an 8% allowance.