Will claiming "Capital Allowances" make my tax returns complicated?

Bricks · 13 January 2022 at 3:22PM

I'm self employed and a sole trader. My accounts so far have been pretty simple because I don't buy and sell goods - I send out a few invoices per year for professional services and my expenses are fairly limited. In the past, I've just claimed the "tax free trading allowance" but this year I have some slightly more substantial expenses (mainly down to buying new computer equipment) and I'm therefore looking at whether it's worth claiming actual expenses.

I don't currently have an accountant, because everything is straightforward enough to manage by myself. I don't use cash basis (or haven't so far).

As far as I can see, computer equipment (and possibly one of my software licenses) can't go in the "allowable expenses" section and have to go under "capital allowances" instead.

If I've understood correctly, it'll all sit within the "Annual Investment Allowance" (AIA) and I can deduct the full value.

But in the guidance there is a suggestion that if I ever sold any of this stuff (or stopped using it for business purposes) then I'd have to enter proceeds into future tax returns. Is that right or am I over-thinking it, and this only really matters for very large value items? The likely scenario is that I might upgrade the computer in a couple of years, selling the old one for a couple of hundred quid on ebay or something. Is this going to cause me a headache in the future, and push my accounts and tax returns into a level of complexity where I'm going to have to start paying someone to do them for me? Because if so, I'd like to judge that against the financial benefit of claiming the allowance this year.

[Deleted User] · 13 January 2022 at 3:32PM

Yes you claim capital allowances or AIA as you correctly say. If you subsequently sell it you would have a balancing charge - just an entry in a different box. As you have claimed the full cost of the computer the balancing charge would simply be equal to the proceeds received. As I say, a separate entry in a different box - see attached - box 26 rather that 23. It should be noted that I have assumed that the computer is wholly and exclusively for business purposes.

On the other question of paying someone - this fee is also tax deductible but it does seem silly not to claim a legitimate expense to avoid paying accountancy fees!

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/974065/sa103s-2021.pdf

Bricks · 13 January 2022 at 3:48PM

[Deleted User] said:

Yes you claim capital allowances or AIA as you correctly say. If you subsequently sell it you would have a balancing charge - just an entry in a different box. As you have claimed the full cost of the computer the balancing charge would simply be equal to the proceeds received. As I say, a separate entry in a different box - see attached - box 26 rather that 23. It should be noted that I have assumed that the computer is wholly and exclusively for business purposes.

On the other question of paying someone - this fee is also tax deductible but it does seem silly not to claim a legitimate expense to avoid paying accountancy fees!

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/974065/sa103s-2021.pdf

Thanks!

Ok, so if I later sold it for £300, I'd just put £300 in that box in the tax return for the relevant year? And that effectively gets added into my "profits" for that year?

I got confused about what that box is for, because it is captioned "where you have "disposed of items for more than their tax value. I'm not sure what "tax value" means. But sounds like I don't need to worry about that.

Noted about the "wholly for business purposes". As I understand it, if I also use it for personal stuff then I just assign a proportion of its cost to "business purposes" and put that down as the amount I am claiming under capital allowances. And then apply the same proportion to the "balancing charge" if necessary in future.

[Deleted User] · 13 January 2022 at 4:00PM

As you asked. The ‘tax value’ is the value of the asset as yet unclaimed. In your case that would be Nil as you have claimed 100%.

Your first and final paragraphs are correct - perhaps you know more than you credit yourself with?

Bricks · 13 January 2022 at 4:17PM

[Deleted User] said:

As you asked. The ‘tax value’ is the value of the asset as yet unclaimed. In your case that would be Nil as you have claimed 100%.

In what scenario would it be less than 100% though?

[Deleted User] · 13 January 2022 at 4:26PM

If you chose not to claim the AIA (for example - if your profits were below the taxable allowance).

Or perhaps your accounting period was less than 12 months?

Additionally not all assets qualify for AIA - cars being a notable example.

https://www.gov.uk/capital-allowances/annual-investment-allowance