"capital allowances" - how long do you get to hold over receipts and how they work...?

(10 Posts)
tonyf Wed 17-Apr-13 15:20:34

my memory's a bit fuzzy, but i seem to remember that if you buy things like computer equipment (and things which aren't utterly disposable like paper) - that they would be considered "capital allowances"...

and also that if you haven't basically made much money, that it was okay to keep the receipts of these for a number of years (can't remember how many years it is/was though - anybody know?) and these type of expenses could be used to reduce my tax bill in a future year.

anybody know more about this? or could redirect to me the right hmrc page? or know how many years that you can hold over these type of expenses for?

am self-employed

thankyou

MrAnchovy Wed 17-Apr-13 16:51:55

HMRC guidance is not very useful for tax planning like this, so here are the main points:

1. Things like computer equipment (and things which aren't utterly disposable like paper) are indeed not "allowable expenses" that reduce your profit in the year they are incurred.

2. Instead, you can claim Capital Allowances on eligible items. This are defined as Plant and Machinery which covers most tangible assets except land and buildings (including anything fixed to buildings).

3. Special rules apply for private cars and certain other assets, but for general things like computers any amount not claimed as Annual Investment Allowance goes into a General Pool and you can claim Writing Down Allowance on the balance of this pool at the rate applicable in a future year (currently 18%), or Small Pools Allowance for the whole balance if this is no more than £1,000. Note that you can only claim Annual Investment Allowance in the year you purchase an item, so this is not he same as just "holding over" recognition of an expense, which is not allowed.

4. You don't have to claim capital allowances in any particular year and if you don't then the pool balances carry forward indefinitely, or until you stop trading.

HMRC's guidance is here, which should help with the details.

tonyf Sat 20-Apr-13 23:18:16

"You don't have to claim capital allowances in any particular year and if you don't then the pool balances carry forward indefinitely, or until you stop trading." - this sounds good! I think a friend (who perhaps who had as little understanding of this myself had previously suggested I could hold on to receipts for computers and similar things for up to 6 years).

Some of what has been said in point 3, I don't understand. Just the language is a bit over-my-head. Still appreciate you replying very much anyway. It's a bit accountancy-ese for me. I guess for me to understand such things it would need to be in more idiot proof terms.

tonyf Thu 25-Apr-13 13:43:37

help still much appreciated with this. thank you

tonyf Sat 04-May-13 13:21:16

how long does this business go on for? can you hold on to receipts for 10 years or more to use them in claiming capital allowances? are there time limits?

tonyf Sun 05-May-13 16:08:31

I think I almost understand this now. Essentially if you don't claim an allowance for something like a computer in the year it was purchased (as Annual Investment Allowance) - because you didn't do so because it wasn't worth doing so because you didnt earn enough money - you can claim up to 18% of its value in a subsequent year when it may be worth doing so if you've earned enough money for it to be worth doing so. And say you claimed 18% in 2008-2009 of a £700 computer, you could then if you wanted claim 18% of 82% of £700 in 2009-2010.

And the years don't have to be consecutive, I believe?

Not sure how far you can go back in time, though? To when you started trading? Or before?

What if buy a tool and it breaks for example, but you haven't earned enough for it to be worth claiming for AIA, but you've kept the receipt for it - can it still be used later as WDA?

And how does "Small Pools Allowance" work?

Kewcumber Thu 09-May-13 17:23:14

You should claim the AIA in the year you buy the asset as the relief is currnetly 100% ie in effect its treated as an expense (unless you subsequently sell it) who knows what the treatment will be in future years. And it would be hideously complicated trying to keep track of unclaimed assets or expensive to do (if you use an accountant).

If claiming the tax relief makes you lose money then

a) you don;t have to pay corporation tax this year
b) you may be able to claim you losses back 12 months if you made a profit last year and get an immediate refund of some of last years corporation tax
c) if you didn't make a profit last year or this year then why are you in business! then you carry your losses forward and get automatic tax relief on the first year you do make tax and any subsequent year until you use up all your losses.

Kewcumber Thu 09-May-13 17:28:59

if you choose to defer claiming capital allowances then you cannot subsequently claim them if you no longer own the asset. So if in ten years time you have scrapped the assets or sold it or given it away then you cannot claim for it.

MrAnchovy Thu 09-May-13 23:19:08

Oh dear, this is getting further and further away from being accurate. Dealing correctly with capital allowances, let alone dealing optimally with capital allowances is way way beyond the scope of what can be discussed here.

"if you choose to defer claiming capital allowances then you cannot subsequently claim them if you no longer own the asset. So if in ten years time you have scrapped the assets or sold it or given it away then you cannot claim for it."

This is not true. The cost of the asset (less any disposal proceeds) will remain as part of the General Pool on which Writing Down Allowances may be claimed.

"You should claim the AIA in the year you buy the asset as the relief is currnetly 100% ie in effect its treated as an expense (unless you subsequently sell it) who knows what the treatment will be in future years."

But for a self employed person with income below the Class 4 NI threshold there is no point in claiming AIA.

"And it would be hideously complicated trying to keep track of unclaimed assets or expensive to do (if you use an accountant)."

No it isn't - as part of each year's tax computation you deal with each asset purchase, either claiming AIA (or FYA if available) or adding to the General Pool, Special Pool or treating otherwise as appropriate.

"If claiming the tax relief makes you lose money then

a) you don;t have to pay corporation tax this year"
b) you may be able to claim you losses back 12 months if you made a profit last year and get an immediate refund of some of last years corporation tax
c) if you didn't make a profit last year or this year then why are you in business! then you carry your losses forward and get automatic tax relief on the first year you do make tax and any subsequent year until you use up all your losses."

The OP is a sole trader. Claiming the tax relief wouldn't make him lose money, it would simply reduce his profits within the nil rate income tax/Class 4 NI band.

Kewcumber Fri 10-May-13 00:16:36

"The OP is a sole trader" important point that I totally missed!

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