×

01254 589799

Capital Allowances for Asset Investment
Capital Allowances for Asset Investment

 

Did you know that investing in assets is a tax efficient way of improving your business?

You can claim capital allowances when you purchase assets that you use for the function of your business, e.g. machinery.

 

 

Annual Investment Allowance

 

When investing in assets, you can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax (if you sell these assets after claiming AIA, however, you may need to pay tax).

You can claim AIA on most plant and machinery up to the AIA amount.

The AIA amount has increased to £1 million between 1 January 2019 and 31 December 2020.

It is important to note that the AIA amount is subject to regular change, so you must adjust the amount you claim, depending on the period you are claiming for. See the table below for specific figures:

 

AIA

Sole traders/partners

Limited companies

1 million

1 January 2019 - 31 December 2020

1 January 2019 - 31 December 2020

£200,000

1 January 2016 - 31 December 2018

1 January 2016 - 31 December 2018

£500,000

6 April 2014 - 31 December 2015

1 April 2014 - 31 December 2015

£250,000

1 January 2013 - 5 April 2014

1 January 2013 - 31 March 2014

£25,000

6 April 2012 - 31 December 2012

1 April 2012 - 31 December 2012

£100,000

6 April 2010 - 5 April 2012

1 April 2010 - 31 March 2012

£50,000

6 April 2008 - 5 April 2010

1 April 2008 - 31 March 2010

 

You get a new allowance for each accounting period, so you must adjust your AIA amount if you’re your individual period is more or less than 12 months.

For example, if your accounting period is 9 months the AIA will be 9/12 x £200,000 = £150,000. You would also need to take into account changes to AIA over that time.

 

 

Writing Down Allowances

 

There are several kinds of assets for which you cannot claim AIA. These include: cars, items you owned for another reason before you started using them in your business; and items given to you or your business.

For such assets, you can claim writing down allowances instead. Writing down allowances is when you deduct a percentage of the value of an item from your profits each year.

You can also claim this type of capital allowance if a single item takes you above the AIA amount- simply claim a writing down allowance for the difference! This allows you to split the value between two types of allowance.

 

 

Working out WDA

 

When working out writing down allowances, you must group the things you’ve bought into ‘pools’, based on the percentage rate they qualify for.

When you know the rate for your items, work out how much you can claim and deduct it from your profits before tax on your tax return.

The amount left in each pool becomes the starting balance for the next accounting period.

 

 

First Year Allowances

 

If you buy an asset that qualifies for first year allowances you can deduct the full cost from your profits before tax.

You can claim first year allowances in addition to annual investment allowance - they do not count towards your AIA limit.

You can claim ‘enhanced capital allowances’ (a type of first year allowance) for the various types of energy and water efficient equipment.

Simply claim in your tax return!If you do not claim all the first year allowances you’re entitled to, you can claim part of the cost in the next accounting period using writing down allowances,

 

 

Contact Gow & Partners

 

Capital allowances can be complex, so why not get some expert advice? Do not hesitate to contact our dedicated team of accountants on 01254 589799, or drop us an email at info@gowandpartners.co.uk.