How to claim capital allowances

How to claim capital allowances

Writing down allowances

When you buy business assets you can usually deduct the full value from your profits before tax using annual investment allowance (AIA).

Use ‘writing down allowances’ instead if:

  • you’ve already claimed AIA on items worth a total of more than the AIA amount.
  • the item does not qualify for AIA (for example, cars, gifts or things you owned before you used them in your business)

Writing down allowances lets you deduct a percentage of the value of an item from your profits each year.

The percentage you deduct depends on the item. For business cars the rate depends on their CO2 emissions.

Work out the value of your item

In most cases, the value is what you paid for the item. Use the market value (the amount you’d expect to sell it for) instead if:

  • you owned it before you started using it in your business
  • it was a gift

How to claim

If you are unsure on how to claim, the best place to start is by grouping 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.

Rates and pools

If you’re claiming writing down allowance, group items into pools depending on which rate they qualify for.

The 3 types of pool are the:

  • main pool with a rate of 18%
  • special rate pool with a rate of 6%
  • single asset pools with a rate of 18% or 6% depending on the item

Main rate pool

Add the value of all ‘plant and machinery’ you’ve brought to the main rate pool, unless they’re in:

  • the special rate pool
  • a single asset pool (for example, because you have chosen to treat them as ‘short life’ assets or you’ve used them outside your business)

Special rate pool

You can claim a lower rate of 6% on:

  • parts of a building considered integral – known as ‘integral features’
  • items with a long life
  • thermal insulation of buildings
  • cars with CO2 emissions over a certain threshold

Single asset pools

You might need to create one or more separate pools for single assets that:

  • have a short life (for assets you are not going to keep for a long time)
  • you use outside your business if you’re a sole trader or a partner

Short life assets

It’s up to you to decide whether you want to treat something as a short life asset. You cannot include:

  • cars
  • items you also use outside your business
  • special rate items

Large numbers of very similar items can be pooled together (for example, crockery in a restaurant).

The pool ends when you sell the asset. This means you can claim the capital allowances over a shorter period.

Move the balance into your main pool in your next accounting period or tax year if you’re still using the item after 8 years.

Work out your allowance

Work out what you can claim separately for each pool.

  1. Take your closing balance from your last accounting period.
  2. Add the value of anything you’ve bought or been given in the current period that qualifies for this pool. Only include VAT if you’re not VAT registered.
  3. Deduct the value of anything you sold that originally qualified for this pool.
  4. Work out how much you can claim using the correct rate
  5. Deduct the amount you can claim from the pool to get the closing balance. This is known as the ‘tax written down value’.

If you have £1,000 or less in your pool

You can claim the full amount if the balance in your main or special rate pool is £1,000 or less before you work out your allowance. This is called a small pools allowance. It does not apply to single asset pools. You can either claim a small pools allowance or writing down allowances – you cannot claim both. This amount is adjusted if your accounting period is more or less than 12 months.

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