Work out your writing down allowances
Printable version
1. When to use writing down allowances
‘Writing down allowances’ are one type of capital allowance. They let you deduct a percentage of the value of certain items from your profits each year.
You might be able to claim more tax relief if you can use one of the other capital allowances, for example:
The percentage you deduct depends on the item. For business cars the rate depends on their CO2 emissions.
2. Rates and pools
To claim writing down allowances, group items into pools depending on which rate they qualify for. You must work out how much you can claim separately for each pool.
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
You can claim 18% tax relief on all ‘plant and machinery’ you buy, unless the items need to go into:
- 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 only claim 6% tax relief on:
- parts of a building considered integral - known as ‘integral features’
- items with a long life
- solar panels
- thermal insulation you’ve added to a building
- cars with CO2 emissions over a certain threshold - check the threshold for your car, which depends on the car and when you bought it
Integral features
Integral features are:
- lifts, escalators and moving walkways
- space and water heating systems
- air-conditioning and air cooling systems
- hot and cold water systems (but not toilet and kitchen facilities)
- electrical systems, including lighting systems
- external solar shading
Buildings
You cannot claim the full 6% rate on buildings themselves. You may be able to claim an allowance of 3% on money you spend on buying, constructing or renovating some non-residential buildings.
Items with a long life
These are items with a useful life of at least 25 years from when they were new.
If the value of all long-life items you buy in an accounting period is more than £100,000, put the costs in the special rate pool.
If the value totals £100,000 or less, put the costs in the main rate pool unless there’s another factor that would qualify it as special rate - for example, it’s an integral feature.
This £100,000 limit is adjusted if your accounting period is more or less than 12 months.
For example, if your accounting period is 9 months the limit will be 9/12 x £100,000 = £75,000.
If you’re in a partnership where one or more of the members is a limited company (not an individual), put all costs of long-life items in the special rate pool.
Single asset pools
You might need to create one or more separate pools for single assets that:
- have a short life (for assets you’re not going to keep for a long time)
- you use outside your business if you’re a sole trader or in a partnership
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.
Let HMRC know
Let HM Revenue and Customs (HMRC) know on your tax return if you’re a limited company and you decide to create a short life asset pool. You must do this within 2 years of the end of the tax year when you bought the item.
Let HMRC know in writing if you’re a sole trader or in a partnership - include how much the item cost and when you acquired it. The deadline is the online filing deadline (31 January) for the tax year after the one you bought the item in.
Things you also use outside your business
If you use an item outside your business and you’re a sole trader or in a partnership, put it in a separate pool.
Work out your capital allowances at the main rate (18%) or the special rate (6%) depending on what the item is.
Reduce the amount of capital allowances you can claim by the amount you use the asset outside your business.
For example, you buy a laptop and use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.
If your accounting period is more or less than 12 months
You need to adjust the amount of writing down allowances you can claim if your accounting period is more or less than 12 months.
Items you’ve claimed AIA or first year allowances on
Record any items you’ve claimed annual investment allowance (AIA) or first year allowances on in the pool they qualify for. If you claim the full cost of an item you’ll need to write down their value as zero. This will help you to work out whether you owe tax if you sell the asset.
3. Work out what you can claim
What you can claim under writing down allowances depends on what ‘pool’ you put an asset in. Each pool has a different rate.
Work out your allowance
Work out what you can claim separately for each pool.
-
Take your closing balance from your last accounting period.
-
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.
-
Deduct the value of anything you sold or ‘disposed of’ that originally qualified for this pool.
-
Work out how much you can claim using the correct rate for that pool.
-
Deduct the amount you can claim from the pool to get the closing balance. This is known as the ‘tax written down value’.
-
Use the amount left in each pool as the opening balance for the next accounting period.
Example
The opening balance in your main pool is £9,000. You buy a machine worth £1,200. The total for this pool is then £10,200 (£9,000 plus £1,200).
You sell a desk for £200. The total for this pool is then £10,000 (£10,200 minus £200).
Apply the rate for the main pool (18%). The amount you can claim for this pool in this period is £1,800 (18% of £10,000).
The rest (£8,200) is your closing balance or tax written down value. This is carried over and becomes your opening balance in this pool for your next accounting period.
Items you use outside your business
For items that are in a single asset pool because you’ve used them outside your business, reduce the amount you can claim by the amount you use them privately.
You still deduct the full amount from your pool to get the closing balance.
Example
You have a single asset pool for a car that qualifies for the main rate (18%). The opening balance is £10,000. You use the car for your family for half the time.
If you did not use it outside your business, you could’ve claimed £1,800 (18% of £10,000) for the car. Because you use it for your family half the time, you can only claim £900 (half of £1,800).
You still deduct the full amount of capital allowances (£1,800) from your balance - even though you can only claim half of them (£900) on your tax return.
The closing balance in this pool is £8,200 (£10,000 minus £1,800). This is the starting balance for the next year.
Items you use privately that are not in a single asset pool
If you start using something outside your business that you’ve already claimed capital allowances on:
- add the market value of the item (the amount you’d expect to sell it for) to a single asset pool
- deduct the same amount from the pool it was in
If the amount you deduct is more than the balance in the pool, the difference is a ‘balancing charge’ - you must put it on your tax return.
Claiming less than you’re entitled to
You do not have to claim the full amount you’re entitled to. If you only claim part, the rest stays in your closing balance.
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.
For example, if your accounting period is 9 months the limit will be 9/12 x £1,000 = £750.
How to claim
Claim on your tax return.