Claiming Capital Allowances Update

Are claiming too little?

Are claiming too little?

There is a growing number of people who are working from home. Some of you will be self-employed while others will start working from home as the CEO of a Limited company or as an employee. One of the benefits of working from home is that you can take some of the costs of equipment, and offset it against your tax bill.

This can be a great way to maximise your income without needing to work more hours. However, there are rules which you must strictly adhere to.

Personal Capital Allowances

Unless your company reimburses you, you are entitled to claim a tax deduction for necessary expenses you incur while performing your duties. There are special rules if you have purchased equipment, like a new telephone, computer or printer. In this scenario, the tax deduction is given as a capital allowance and is allowed under one of two ways: writing down allowance (WDA) or annual investment allowance (AIA).

When you purchase a new or used piece of equipment, you can claim a capital allowance as an AIA. You can claim the full cost of the equipment, up to £200,000, if the cost was incurred during the tax year.

If it doesn’t qualify, you’ll have to claim the tax back as a WDA. This equates to 18% of the cost of the equipment during the year of purchase. The remaining balance is then brought forward, and you can take another 18% off the balance next year, etc. A WDA takes an extraordinary amount of time to claim back the whole cost of the equipment. For example, it takes twelve years just to claim 90% of the purchase.

However, you can shorten the claim period if you sell or scrap the equipment before the entire amount is claimed.

Considerations

There are certain considerations when you make a capital allowance, for example, the date of payment for the item. If you take advantage of a buy now, pay later scheme and the date of the payment is more than four months after the purchase; then the payment date is the one used for capital allowances. This could mean that you have to claim the allowance in the following year to the one you purchased the item in.

If on the other hand, the item is a hire purchase arrangement, then you can claim the tax back from the date that you began using the equipment.

You should ensure that you do not claim back any money that another company has paid towards your expenses, and finally, you should also reduce the capital allowance if there is any personal use. For example, if you bought a new computer and 20% of the time other members of the family use the computer for personal reasons; then the capital allowance you can claim is 80% of the purchase price.

Conclusion

Making sure you claim the right capital allowance is important. Get it wrong and you could face a stiff penalty from the HMRC. It can also increase your tax returns. If you need help with your capital allowance expenses, then contact the Ovenden Bookkeeping and Accountancy services team; we’ll be happy to speak to you about your situation.

Posted in Compliance at 2016-07-29 by Alan Ovenden

Tags: capital allowance, tax advice, tax returns