What are capital allowances?

Most expenditure in a business is included in the calculation of profit (income - expenditure) that is used to calculate business income tax. However the purchase of assets has its own special category (asset) and does not form part of the profit calculation.

The government however offers a tax deduction on most, but not all assets purchased. The tax deduction offered is called a capital allowance and the extent of the deduction depends on a few factors including: what is being purchased, whether it is new or old, environmental impact and the amount purchased in the financial year.