Capital Allowance query

ian46_2

Hi everyone, looking for a bit advice here

I'm just filling in my first years tax return for 2010/11. I'm a freelance photographer and have been doing this for a few years as a serious hobby before going full time.

Question is when I spoke to the adviser at the HMR this morning to clarify what and where the value of the "New" equipment I've bought should go and where the value of the "Old equipment minus the 20% write down should go, she gave me the right advise and where to put the figures.

She then said that if I don't need to declare them that I can carry them forward to 2011/12 tax year without the first years write down value. And to be honest as it stands this year I haven't earned enough to pay tax anyway. So is ok to then declare them for next years tax return to help bring the tax bill down????

cheers

Ian

pjclar02

Yes - you have two options. You can claim a writing down allowance for 2010/11. This will create a further loss that you can carry forward and offset against future profits from the same trade.

Or you can choose not to claim capital allowances this year, and carry the full value forward to next year as you say.

Which is best will very much depend upon your personal circumstances....

ian46_2

Thanks for that, the hmrc girl kept sorta hinting at that but kept saying she couldn't advise that I didn't declare it this year as I didn't need to, as I'll not be paying any tax due to not earning enough anyway

So can I clarify that I can carry the full value of the new equipment to next year?

pjclar02

Yes you can

Pennywise

But you can only claim the 100% AIA in year of purchase, so if you carry it foward, you'll only be able to claim the 18% writing down allowance every year on the reducing balance. You can't claim 100% in a subsequent year.

You may wish to think about claiming the 100% now, if it creates a big loss for you to carry forward to set against next year's profits, or current year (or prior year) income from elsewhere, say employment, to claim a tax refund.

It very much depends on your circumstances, not just for the 10/11 tax year, but also for 09/10 and the future.

ian46_2

Thanks Pennywise,

So all in all I'd still be better to carry all the new equipment and the old stuff I brought into the business forward to next years tax return. If i include it this year it works out that I was on a -8k

ian46_2

After reading that again Pennywise are you saying that if I claim it all this year which creates a loss of say 8k, can i then carry that loss and set that off against next years tax?? Or am i making no sense here?

ian46_2

Could somebody clarify that last post I made please

thanks

Ian

ceeforcat

If you make a loss of £8000 you can carry it forward against the following years profits from the same business. Just take into account the amount of Capital Allowances that you would be claiming though.

For example, let's say you have a profit before Capital allowances of £7000 and Capital Allowances of £10000. You would pay no tax on the £7000 as it is below the tax free personal allowance. You would need to consider whether you think it would be worth claiming £10000 of Capital Allowances to create only a £3000 loss.

chrismac1

Strictly - and this may help you - the key date is the date when the asset is first brought into use in the business, not the date of purrchase. So if you bought an item of equipment in March 2011 but it was first used in May 2011 and you can evidence this, you are perfectly entitled to claim your first year 100% allowance in the 2011-12 tax year.

chrismac1

These are the sorts of tax returns where accountants can earn their corn. Claiming CAs now could "waste" your tax-free personal allowance for the year. On the other hand they could create a loss which can then be offset against taxed income in 2010-11 or earlier tax years and hence generate a cash flow now by way of tax repayment.

Quite often you end up writing to a client and saying "You can have a £1,500 tax repayment in 4 weeks' time, or you can wait a year and pay £2,000 less tax than if you take the £1,500 now."