tax allowances for business

1jim

Hi
I am in first year of setting up a business, we are paying to have a web site designed to sell childrens clothing, how much of this can we ofest against tax? I havent managed to get a straight answer from the tax office at all. I read somewhere that you could off set 40% in 1st year, a further % in second year etc but really havent been able to find out where i stand with this as it is a business expense

Thanks
Jim

JC4LAB

Assuning you are a small business,I Should think All of it unless this dwarfs all other expenditure which is doubtful..Any computer equipment and software gets 100% allowance anyway,not 40%...If an accountant completes your tax return for you he will confirm the postion if there is any doubt.....The point here is maybe you do not want to claim it straightaway if its your first year and you dont make profit ..your personal alloawance is about £4700 per partner per annum..you can claim for it later.as capital allowance... Website design is not the massive expensise it use to be and is generally allowed as a general business expense..For a large company as a large capital project,it may be a different matter..Try this website https://www.Taxationweb.co.uk ...it should help you with all tax questions

1jim

Thanks for that will check out the web site
Jim

Jettycat

Where you purchase capital items (ie, something that will be used in the business for some time, eg, computer, fax, filing cabinet, web site, etc) you cannot claim the whole cost as an expense at the time it is incurred. This is because of the basic accountancy rule of matching income and expenses - this expenses will help you to earn income for several years so the cost should be offset against the income of several years. The Inland Revenue have special rules setting out how much of the cost you can claim in each year and the part of the cost you can claim as an expense is called a capital allowance.

The basic capital allowance is a Writing Down Allowance (WDA) which allows you to have 25% of the cost as an allowance on a reducing balance basis, ie, you get 25% of the cost (say, £1,000) as an expense (ie, £250) in the year you incurred it, 25% of what is left (ie, £750) as an expense (ie, £188) in the next year and so on. All capital expenditure is pooled together and this allowance is applied to the total.

However, the government have introduced various First Year Allowances (FYA) to encourage small business or certain type of spending. These apply in the year the expense is incurred (not the first year of the business). After an FYA has been applied the balance of expenditure goes into the pool and the WDA applies for future years.

The 100% FYA for Information and Communications Technology (ICT) - computers etc was only available for expenditure incurred between 1 April 2000 and 31 March 2004. This meant you could claim the whole cost (100%) of this type of expenditure as an expense in the year it was incurred.

There is a 50% FYA for expenditure by small enterprises between 6 April 2004 and 5 April 2005.

There was a 40% FYA for expenditure by small or medium enterprises between 1 July 1998 and 5 April 2004.

The rule defining small and medium enterprises changed on 30 January 2004 but you are small if you can satisfy two or more of the following:
- turnover is not more than £2.8m (medium is £11.2m)
- assets is not more than 1.4m (medium is £5.6m)
- employees are not more than 50 (medium is 250)

So, assuming you are a small enterprise, you prepare accounts to 31 March each year, you spent £1,000 on your website on 1 June 2004 and you don't spend anything else on capital items your allowances would be:

y/e 31 March 2005 - £500 (50% of £1,000)
y/e 31 March 2006 - £125 (25% of £500)
y/e 31 March 2007 - £94 (25% of £375)
y/e 31 March 2008 - £71 (25% of £281)

You can choose to disclaim any amount of capital allowances you don't need when you complete your tax return, but you do need to tell the Inland Revenue that you have incurred the expenditure. Whether or not you want to claim depends on your personal situation.

1jim

Hi thanks for that, it has been very useful, i have been trying to get this information from the nottingham office of inland revenue for a week with no luch, they sent me a leaflet on how to start up and register a business to shut me up!

Just one question if i may

I have paid the deposit for the website and will have paid about two more installments before end of this tax year, i will be paying approx 8more installments next tax year.
Do i declare full total this tax year for the purposes of the writing down allowance or do i just record the amount spent untill the end of this tax year and then record a new writing down allowance for next year with the amount spent then?

Thanks jim

Jettycat

If this a hire-purchase type agreement and you have just agreed to spread the cost then its all declared up front. If not then you declare as you incur the expense. Sounds to me like the first but without knowing your exact situation I couldn't be sure.