What are capital allowances?

In practice, in the UK

Every business that buys equipment, machinery or certain other qualifying assets deducts accounting depreciation in its statutory accounts but has to add that depreciation back when calculating taxable profit, replacing it instead with capital allowances calculated under entirely separate rules. Different pools apply to different categories of asset, and some expenditure qualifies for accelerated relief in the period it is incurred rather than being spread over several periods, which makes the timing of a purchase, not only its amount, relevant to tax planning. Not every category of asset qualifies: some, such as most buildings, sit outside the capital allowances regime altogether or qualify for a narrower relief than plant and machinery does.

In Odoo

Odoo’s own fixed asset module handles accounting depreciation for the statutory accounts, but it does not calculate capital allowances, since the pools and timing rules involved are a tax computation rather than an accounting one. Keeping a clean fixed asset register inside Odoo — additions, disposals and dates all captured accurately — is still the foundation the capital allowances calculation is built from, even though the calculation itself happens elsewhere.

Common mistakes

• Assuming accounting depreciation is deductible for Corporation Tax purposes.
• Treating all capital expenditure as equally eligible, when some categories qualify for accelerated relief and others do not qualify at all.
• Keeping an incomplete fixed asset register, so the capital allowances computation has to be rebuilt from invoices each time.