Claiming allowances is a relatively simple way to reduce a company’s gross profits, so that less tax is payable at year end. There’s a large number of allowances available, all with varying criteria, with some being suitable for a limited company and others more suited to a sole trader. The end result is the same, less tax to be paid by the business.
Capital allowances
If you buy assets for use in your business, known as plant and machinery, capital allowances can be claimed. You can claim against the purchase of machinery, equipment and vehicles used for the company. The value of the item may be deducted from the gross profits in most cases. There are other business costs which you can claim capital allowances for, including research and development. Other items for use in the business can also be claimed but will be deducted as business expenses.
Annual Investment Allowance
Your company can claim Annual Investment Allowance on some items for your business, up to a value of £500,000. You can’t claim for cars or for items which were given to you, or were used by you before the business commenced. Annual Investment Allowance has to be claimed during the period when you purchased the item. If you have business assets which have a value of more than £500,000, you can claim writing down allowances. The annual amount is due to change on 1st January 2016, to £200,000.
Writing down allowances
Most items you buy for business use can be claimed under Annual Investment Allowance. However, if you use up the total of £500,000 in one year, you can claim using writing down allowances. You can also use writing down allowances if you have items which can’t be claimed using Annual Investment Allowance.
Using writing down allowances, you claim a percentage of the item each year, reducing your gross profits. If your profits are low in a particular year, and you have bought assets for the company, you may want to claim some as Annual Investment Allowance and the remainder as writing down allowances.
Allowances are generally claimed when you complete the annual tax return. There are other types of allowances available for a company to claim, although some have varying criteria. If you would like to discuss the various types of allowance available with an accounting service, and how they can benefit your company, contact us to arrange a meeting.