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Capital Allowances for dummies

Lets try to explain “Capital Allowances” simply…

Capital equipment are items that are NOT “day to day” expenses.

Capital Equipment are “one-off” purchases for equipment that you hope to keep for a while; usually 2 to 8 years.

There are 4 main types of capital allowances.

1. Annual Investment Allowance.

In this category, you can get Capital Allowance deductions for most items of plant and machinery NOT including cars. (more in a moment under the “Written Down Allowance”)

Here, you can claim 100% !.

It is called “Capital Allowance” because there is an upper limit of what you can claim. This is currently £250,000 for a 12 month period up to 2015.

On the 1st January 2015, the upper limit will reduce to £25,000.

2. First Year allowance

These are for cars with low emissions (less than 95g per 100 kilometres), and other green technologies.

3. Written Down Allowance

There are 3 subcategories;

1) “Main pool”. 18%

Lets say you spend more than the upper limit, the Capital Allowance for this amount is 18% on a reducing basis.

Cars – the capital allowance for cars is 18%

11) “Special Rate pool”. 8%

This is for longer life items such as thermal installations, lifts etc

111) “Single Asset Pool”

These are for small items that may be breakable like tools, plates, cups etc.

4. Small Pools allowance 100%

This is for items less than £1,000.

It is for residual amounts after the “Written Down Allowance” gets to less than £1,000. It is a “mop up” mechanism.

(Note: this does not apply to previously owned assets that were transferred into the business which was less than £1,000.)

The “Capital Allowance” rules apply to self employed businesses, partnership and companies.

So there it is !. Let me know if I can help you with your business.