Working Out Capital Allowance Rates

You need to work out how much you can claim for items that do not qualify for AIA or for first year allowances. It is not necessary for items that do qualify because you would claim the full cost.

WORK OUT YOUR ALLOWANCE: Make a separate calculation based on the current rates and pools for capital allowances.

  1. Determine the closing balance from the last accounting period.
  2. Add the value of any item bought (or given) in the current period that qualifies for this pool. Do not include VAT unless you are VAT registered.
  3. Next, go ahead and deduct the value of any item sold or ‘disposed of‘ grouped in this pool.
  4. Use the correct rate to work out how much you can claim.
  5. Determine the closing balance by deducting the amount you can claim from the pool. This is the ‘tax written down value‘.

An Example: You determine the opening balance in the main pool is £8,000. You buy a machine for the business valued at £1,400. Thus, the new total for this pool is £9,400 [£8,000 plus £1,400].

You sell a work desk for £300. The new total for this pool then becomes £9,100 [£9,400 minus £300].

Once you apply the correct rate for the main pool [18%] the amount you can claim in this period for this pool is £1,638 [18% of £9,100].

The amount remaining [£7,462] would be the closing balance or tax written down value. It gets carried over and becomes the opening balance in the next accounting period for this pool.

Items Used Outside the Business

Items get placed in a single asset pool because you use them outside of your business. So, you need to reduce the amount you claim by the same amount they get used ‘privately’.

Even so, you must still deduct the full amount of the item from the pool to determine the closing balance.

An Example: The business has a single asset pool for a company car that qualifies for the main rate [18%]. The opening balance of the pool is £10,000. But, you use the same car for family trips for half the time.

The amount you could have claimed for the car is £1,800 [18% of £10,000] if you did not use it outside the business. But, because you use it half the time for the family you would only be able to claim £900 [half of £1,800].

You should still deduct the full amount of capital allowances [£1,800] from the balance. This is despite only claiming half of the amount [£900] on the tax return.

Thus, the closing balance for this pool would be £8,200 [£10,000 minus £1,800]. This would be the starting balance for the next tax year.

Items Used Privately Not in a Single Asset Pool

What if you start using something outside of the business that you already claimed capital allowances on? In cases like these you should:

  • Add the market value of the item to a single asset pool. The market value is the amount you would expect to sell the item for.
  • Deduct the same amount from the particular pool that the item was in.

What happens if the amount deducted is more than the balance in that pool? In this case, the difference becomes a ‘balancing charge‘ which must get declared on the tax return.

Claiming Less than the Full Amount

You can choose to claim less that you have entitlement to. You do not have to claim the full amount. If so, you only claim part of the amount and the rest stays in the closing balance.

Having £1,000 (or less) in the Pool

The balance in the main pool or special rate pool may be £1,000 or less before working out the allowance. In this case you would be able to claim the full amount.

In accounting procedures this is also known as a small pools allowance. But, it does not apply to single asset pools. You can choose between claiming a small pools allowance and writing down allowances. But, you cannot claim both.

This amount gets adjusted if the accounting period is set at more or less than 12 months. You would claim it in the same way as claiming capital allowances – on your tax return.

An Example: Having an accounting period of 9 months means the limit would be 9/12 x £100,000 = £75,000.

How to Calculate Capital Allowances with Examples for the United Kingdom