What are 'Capital Allowances'?

Capital Allowances refer to deductions that businesses can claim for certain capital expenditures incurred in the day-to-day operation of the business. These expenditures typically involve the purchase of assets that will benefit the business over a number of years, such as equipment, machinery, and buildings.

By allowing businesses to deduct the cost of these capital investments over time, capital allowances help minimize the taxable profit, thereby reducing the overall tax liability. This encourages investment in business infrastructure and assets, promoting growth and economic activity.

In contrast, deductions for marketing expenses, financing costs, and operational costs relate to different categories of expenditures that do not fall under the capital allowances framework. Marketing expenses are about promoting the business; financing costs involve interest and fees related to borrowed funds; operational costs pertain to the day-to-day expenses needed to run the business. Each of these categories involves distinct tax treatment and does not provide the same long-term benefits associated with capital allowances.