Example Calculations

Capital Allowances Example 1

Company purchased £20,000 machinery on 1 April 2016 with a useful economic life of 4 years and has taxable profits for the year to 31 March 2017 of £100,000. The £20,000 will be eligible for the annual investment allowance:

Capital allowances pool  
Additions (machinery purchased 1 March) £20,000
Annual Investment Allowance (£20,000)
Balance carried forward £nil
Tax computation  
Taxable profits £100,000
Add: Depreciation £5,000*
Less: Capital allowances (£20,000)
Profits chargeable to Corporation Tax £85,000
Corporation Tax @ 20% £17,000

* Depreciation has been calculated by spreading the purchase price over the useful economic life (£20,000 / 4 = £5,000 per year).

Capital Allowances Example 2

Company purchased a car at cost for £25,000, with CO2 emissions above 130g/km on 1st April 2016. Depreciation is calculated at 25% on a straight line basis. Taxable profits for the year ended 31 March 2017 were £100,000.

Capital allowances special rate pool  
Additions  £25,000
Writing Down Allowance @ 8% (ii) (£2,000)
Balance carried forward £23,000
Tax computation  
Taxable profits £100,000
Add: Depreciation £6,250
Less: Capital allowances (£2,000)
Profits chargeable to Corporation Tax £104,250
Corporation Tax @ 20% £20,850

Notes:

i) For the financial year commencing 1st April 2017, the corporation tax rate falls to 19%.

ii) If you purchase a car with CO2 emissions of less than 75g/km, then you would receive a full 100% deduction of £25,000 for capital allowances. For cars with CO2 emissions over 75g/km up to 130g/km, the company benefits from an 18% capital allowances deduction of £4,500.

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