A question regarding capital allowances…

I was informed today that for capital purchases which included computers, it is possible to write off 100% of the purchase price against Corporation Tax. Is that true?

In other words, if my tax bill (rather than tax liability) was £2k and I bought a computer at £1k, it would reduce my tax bill by a grand? I was told that this was a 12 month scheme (which runs out tomorrow) to encourage investment.

Much more generous than normal if that is the case…

just asked the wife (accountant) and she says yes you write off 100% but unsure if it runs out tomorrow as she specialises in farming, building, etc side of things..

If I recall my tax training correctly and itvwas a while back. It won’t reduce your tax by 1k it will reduce your profits chargeable to tax by 1k. The tax saving is tax rate x1k.

Capital allowances are a tax allowable ‘cost’ not a credit against tax.

edit – sorry op misread your post. you are saying same as me.

Doesn’t run out tomorrow the allowance reduces from 100k per annum to 25k

Yes, last year our iPad and Mac mini were both bought though the company and offset against the tax. Previously our laptops/cameras/hard drives etc have been put through.

About to buy a four thirds camera that will be put through as well.

But it has to be relevant to your industry and the above is for us.

Digging further into this and all I keep seeing is that the spend (in this case on a computer) can be 100% offset against the taxable profits of the business, rather than my original assumption which was that the purchase price is effectively taken from the final tax bill.

If my taxable profits came to 5k, my Corp tax bill would be 1k (20%). My hope was that the 1k purchase price of the computer would reduce the tax bill to zero.

However, my fear is that I would only be allowed to take the 1k purchase price away from the 5k taxable profits i.e. leaving me with taxable profits of 4k and a bill of 800 quid.

SPending a grand on a computer would therefore save me 200 quid rather than the full grand? Ignoring VAT in all of this.

I’m hoping the former is correct but I guess its likely to be the latter?

buy 5, problem solved.

The latter is correct

Yeah – the latter. In normal accounting you charge depreciation, so if you buy a £1k laptop, you might account for £250 of that each year for four years, reducing your reported profit in each year by £250.

When calculating your taxable profits, you’re not allowed to charge depreciation, but instead get capital allowances, which in this case is 100% of the value in the first year.

Are you doing your own tax calculation? If so don’t forget losses carried forward, capital allowances other than AIA, disallowed expenses depreciation been one already mentioned, general and special rate pools as well personal use disallowed. Otherwise your best employing the services of a good accountant or HMRC will reject it if done wrong and create a lot more work/expense in dealing with their queries.

Note, if you don’t make a profit you can’t pay yourself any dividends.

you can pay dividends from previous years’ profits though right – even if the current year is shite?

cb – Member

you can pay dividends from previous years’ profits though right – even if the current year is shite?

You can but watch you personal tax allowance on this. AFAIK, you can take up to £31.5k divi p/a on basic rate tax (if paying yoruself minimum wage which you should be). More than that, you pay higher rate and the allowance is PA and lost if not taken in a particular tax year.

Hopefully the bean counters will jump in to ellaborate as I only found out about this a couple of weeks ago and might have missed some essential detail…..