Capital Allowances

Annual Investment Allowance

Annual Investment Allowance was introduced for the year 2008/2009. It replaced the 50% first year allowance that was available on the cost of equipment. You can claim annual investment allowance on any purchase of equipment (but not motor vehicles) made on or after 6 April 2008 against your company’s taxable profits. From April 2010 the Annual Investment Allowance has increased to £500,000 from April 2014.

Annual Investment Allowance is calculated by adding the cost of your purchases within the same accounting period together. If the total is less than the relevant annual amount you can claim 100%. Example 1 shows how this works.

First Year Allowance

First Year Allowances are available for certain types of expenditure such as certain energy-saving plant or machinery and cars with low CO2 emissions. (Up to 75g/km).

 

Writing Down Allowance

You can then claim writing down allowances main rate of 18% of any remaining pool value in the following accounting period and a special rate of 8% on certain items. The remaining pool will be the cost of the assets less the annual investment allowance and any first year allowances that have been given. This is shown in example 3.

Small pools of less than £1,000

If the balance of the cost of claiming Annual Investment Allowance, together with a balance carried forward from any previous year, less the sale proceeds from any items you may have sold, is £1,000 or less at the end of a 12 month chargeable period, you may claim that whole amount as a Small Pools Allowance instead of the 20% writing-down allowance.

Items used partly for private purposes

Where you use an item of equipment for work and private purposes, the allowances you claim should be reduced by the amount of private use. This will affect the amount of Annual Investment Allowance and written down allowance you can claim.

Capital Allowances on cars

The rules for claiming capital allowances changed for cars that were purchased on or after 1 April 2009 for Corporation Tax purposes. Qualifying expenditure on cars must be allocated to one of two general plant & machinery pools. The appropriate pool depends on the car’s CO2 emissions shown on the car's V5 certificate.

Vehicles with CO2 emissions up to 130 g/km receive writing down allowances at the main rate of 18%. Vehicles with CO2 emissions over 130 g/km receive writing down allowances at the special rate of 8%.

Stopping using an item for business

If you stop using an item of equipment for your work during the year, you need to make various adjustments to the allowances you have claimed. These adjustments are from the date you stopped using the item for work or sold it.

There are two types of adjustment:

Balancing allowance - The balance of expenditure brought forward from the previous year (if any), minus the sale proceeds (or market value if you did not sell them) of the items(s) at the date of cessation, or when you stopped using them for your official duties.

Balancing charge - If the disposal value is greater than the value of the pool brought forward then a balancing charge may be due.

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