Physical equipment such as office furniture, machinery and equipment are treated differently to everyday expenses by HMRC. This is because these are lasting assets that are likely to be used by your company for at least a year into the future. These then go onto your business balance sheet, rather than your profit-and-loss account.
Because of this, HMRC categorises these items as “corporate assets” and they are issued “corporate allowances” rather than put through as tax-deductible running costs. These costs can still be offset, but it’s a little more complicated.
As of March this year, the Annual Investment Allowance applies to spending on assets up to £500,000. This means that the full cost of the asset can be offset against profit for that year – so, although it’s called something different, the outcome is more or less the same, because the full costs are subtracted before the company pays its tax. If you spend over this figure, you can still claim back the first £500,000, but you can only offset the excess at 18% per year. At this point, things start to get a bit messy and complicated… but, if your SME has reached the stage where it is spending half a million pounds a year on new equipment, it would be wise to set aside some of that money to pay an accountant.