Which option best describes the purpose of Capital Allowances?

The purpose of Capital Allowances is to provide tax relief on specific capital investments. This means that businesses can claim a deduction on their taxable profits for the cost of certain capital assets, such as machinery, equipment, and buildings. By allowing these deductions, Capital Allowances alleviate the tax burden on businesses, encouraging them to invest in growth and modernization.

When a company purchases a capital asset, it does not directly impact its profits but rather affects its tax liability. Capital Allowances enable businesses to recover some of the costs associated with these investments over time, thus providing financial relief. This mechanism is essential for promoting reinvestment in the economy, as it incentivizes businesses to upgrade their equipment and facilities.

In contrast, other options do not correctly capture the essence of Capital Allowances. While increasing company profits, lowering taxable profit thresholds, or minimizing employee wages might have broader implications for a business's financial health, they do not accurately reflect the specific role that Capital Allowances play in facilitating tax relief on capital expenditures.