Capital Allowances

Capital allowances can be claimed when you purchase assets to be used in the business. These can be deducted from your profits before you pay tax.

Annual Investment Allowance (AIA)

AIA is an allowance to enable UK companies, partnerships or self employed individuals to write off 100% of the cost of newly purchased assets such as machinery, business vans, tools, office equipment, computers, thus providing a welcome tax break for businesses and stimulating business investment in the economy. The allowance does not apply to cars.

The AIA applies to purchases made in the first year of ownership only.

Anything over the annual allowance figure is added to the relevant pools for writing down allowances.

Those who are VAT registered can recover the VAT on the asset purchased and it would be the net cost that will qualify for AIA. For those who are not VAT registered it will be the full price including VAT that qualifies for the AIA.

The current limit as of 1 January 2016 is £200,000.

It can become a little confusing because you will need to apportion the rate at which the allowance is given, and it depends on the the which month your trading year ends.

When deciding whether an item of expenditure falls before or after the cut off dates, dates above, the relevant date is the invoice date, rather than the date of ordering or date of payment.

If the amount goes over the allowance limit then it can be added to the either the Main Pool or the Special Pool for writing down allowances.

Writing Down Allowance

Writing down allowance can be used for business assets either when you have already claimed the full AIA limit, or with cars or on items you purchased before you started using it in your business used cars, gifts. The tax relief is given on part of the value of assets held in a pool.

Example

A self employed individual purchased a business car with a CO2 value of 110 g/km, which would fall in the 18% allowance. The value of the car is £27,000 and the claim would therefore be as follows:

Written down value start £27,000
Writing down allowance (18%) £4,860
Written down value to carry forward £22,140

The claim for writing down allowance would be £4,860 and would deduct that figure from their profits for tax purposes.

The remaining figure (£22,140 in the above example), would be carried forward to the main pool on next year's accounts where it can qualify for the relevant percentage allowance.

The accounting/bookkeeping system sold on our website has Capital Allowance Calculator included.

First Year Allowance

In addition to the Annual Investment Allowance, you can also claim First Year Allowance on certain energy and water efficient equipment eg.

Excel Accounting System for Driving Instructors | Capital Allowance Calculations