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August 21. 2018

Capital Allowances and in particular the Annual Investment Allowance

Capital Allowances are available on the tangible assets held by the business. This is mainly Plant and Machinery, such as cars, dual controls, computers, laptops, printers and sat navs, tractors, vans, ovens etc. Depending on the type of asset you acquire, you can claim Capital Allowances at either 18% or 8% each year based on the original cost of the asset.

In the first year though there is currently a special allowance available called the Annual Investment Allowance (AIA) which states that you can claim up to 100% of the cost of an specific assets in the year you buy them.

Annual Investment Allowance gives 100% writing down allowances on the first £200,000 of investment in plant and machinery in each year. 

If you do not need the whole of the allowance to reduce your tax liability, in the year you buy the asset, any unused balance will be carried forward to subsequent years where you will be entitled to capital allowances on the remaining amount carried forward each year. 

When the asset is sold or taken out of the business a balancing adjustment may be needed, this can result in either a balancing allowance or balancing charge.

Example

You can claim up to 100% of the cost of a car with dual controls, (please note that AIA’s are not normally available on cars), against your profits for the year. In subsequent years you claim 18% on any remaining amount which has not been claimed in the first year.

e.g. You buy a car with dual controls for £18,000 in 2017/18 and claim AIA’s of £12,500. In 2018/19 you can claim Capital Allowances at 18% on the remaining £5,500 giving tax relief on £990.

Don't worry we will calculate this for you. 

It is important to be aware of AIA as it will affect the allowances you have in subsequent years and advice should be sought before making a purchase on which you intend to claim AIA’s or disposing of an assets on which AIA’s have been claimed.

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