Annual Investment Allowance & Corporation Tax

Annual Investment Allowance & following years corporation tax calculation

Didn't find your answer?

This question relates to a small private limited compnay.

If qualifying plant and machinery is purchased for £170,000 (within the £200,000 current annual allowance), then in theory the £170,000 is deducted from trading profits in order to reduce corporation tax for that financial year.  However if trading profits were only £100,000 for the financial year that the machine was purchased in, is the balance of £70,000 of the machinery subject to writing down allowances in the following year or can the the full £70,000 be offset against next years profits for corporation tax purposes. HMRCs website does not give enough detail.

Any help appreciated, thank you

 

Replies (36)

Please login or register to join the discussion.

avatar
By bajones
01st Dec 2016 11:46

AIA of £170k deducted from profit of £100k creates a loss of £70k.

Thanks (1)
By Tim Vane
01st Dec 2016 11:47

You claim it all in the current year. But your accountant will deal with this for you, surely? Why are you worrying about it?

Thanks (0)
avatar
By L Chamberlain
01st Dec 2016 11:56

I am trying to project future cashflows

I realise there will be no corp tax to pay in year 1, however what happens in year 2, does the balance of the machinery have to be written down and put in the pool or can the entire balance of £70,000 be offset against the next years profits

Thanks (1)
Replying to L Chamberlain:
Stepurhan
By stepurhan
01st Dec 2016 12:00

L Chamberlain wrote:

I am trying to project future cashflows

I realise there will be no corp tax to pay in year 1, however what happens in year 2, does the balance of the machinery have to be written down and put in the pool or can the entire balance of £70,000 be offset against the next years profits

There is no balance. Read the original answer. If you don't understand what the original answer means (and it is one of the more straightforward parts of corporation tax), pay for someone who does understand to do this for you.
Thanks (2)
RLI
By lionofludesch
01st Dec 2016 12:00

If you only claim £100,000, you can only claim 18% of the rest in the next year, not the full £70,000.

You need to claim the lot, creating a loss, which you can carry forward in full.

It's a schoolboy error you were on the point of making. It could have cost you thousands. Perhaps, as advised above, you need an accountant.

Thanks (3)
Replying to lionofludesch:
avatar
By L Chamberlain
01st Dec 2016 12:06

lionofludesch wrote:

If you only claim £100,000, you can only claim 18% of the rest in the next year, not the full £70,000.

That was the answer I was looking for, thank you

Thanks (2)
Replying to L Chamberlain:
RLI
By lionofludesch
01st Dec 2016 12:10

Is there anything else you've done wrong ?

Thanks (0)
Replying to lionofludesch:
avatar
By L Chamberlain
01st Dec 2016 12:19

I may not have phrased the question perfectly but I haven't done anything wrong.

No need to be insulting

Merry Christmas!

Thanks (2)
Replying to L Chamberlain:
RLI
By lionofludesch
01st Dec 2016 12:34

L Chamberlain wrote:

I may not have phrased the question perfectly but I haven't done anything wrong.

Insulting ? No, not at all - merely offering food for thought.

How can you be so sure you've not made other errors ?

Thanks (0)
Replying to L Chamberlain:
James Reeves
By James Reeves
02nd Dec 2016 10:43

L Chamberlain wrote:

Merry Christmas!

Wishing people Merry Christmas on the 1st of December? Really?

Happy Easter!

Thanks (0)
Replying to L Chamberlain:
Stepurhan
By stepurhan
01st Dec 2016 12:23

L Chamberlain wrote:

lionofludesch wrote:

If you only claim £100,000, you can only claim 18% of the rest in the next year, not the full £70,000.

That was the answer I was looking for, thank you


It really isn't the answer you were looking for, or rather you seem to be ignoring the important word "if" at the beginning.

IF you only claim £100,000, then the remainder would be claimable at 18% on a written down basis from then on.

But no accountant of any worth would only claim £100,000 in a company. You're the one that will end up out of pocket if you do that though so have fun.

Thanks (0)
Replying to stepurhan:
avatar
By L Chamberlain
01st Dec 2016 12:49

I never said I would only claim £100,000, I merely asked for the tax treatment of the remaining £70,000 the following year

I wanted to ask the question to help decide whether to purchase this machinery and forecast cashflows. There is no error made if no action has been taken yet, I just wanted some advice.

Thanks (1)
Replying to L Chamberlain:
Stepurhan
By stepurhan
01st Dec 2016 14:00

L Chamberlain wrote:

I never said I would only claim £100,000, I merely asked for the tax treatment of the remaining £70,000 the following year

I wanted to ask the question to help decide whether to purchase this machinery and forecast cashflows. There is no error made if no action has been taken yet, I just wanted some advice.

You do understand that forecast cash-flows need to be based on accurate information, right?

If you only claim £100,000 in the first year, your cash-flows will be different than if you claimed £170,000 in the first year. Specifically you will, assuming a profitable business, have larger cash outflows for corporation tax.

You say you've never said you would only claim £100,000, but your repeated reference to the "remaining £70,000" indicates you still don't get it. You're the one that risks ending up making bad decisions because of bad forecasts.

Thanks (0)
Replying to stepurhan:
paddle steamer
By DJKL
01st Dec 2016 13:06

"But no accountant of any worth would only claim £100,000 in a company."

I can, on a hypothetical basis, imagine scenarios where a restricted claim might be the best approach.

I would need pretty sound forecasts to be sure, but if say year one of a business and the trade occasioning the loss (inc the AIA) is not expected to make a profit in years 2-5 but the company also has say rental income arising that will make a steady profit years 2-5, well maybe having WDA losses years 2-5 might be more useful rather than having a large c/fwd trade loss that will not be able to be used until year 6.

I do appreciate probably not on point re the OP's case (well presume it is not) but it is always worth remembering that there is often no one size fits all re tax.

A lot of individuals asking questions on Any Answers need to be told, over and over; tax planning needs to be tailored to specific circumstances and DIY operators do so at their own peril.

Thanks (0)
Replying to DJKL:
Stepurhan
By stepurhan
01st Dec 2016 14:03

DJKL wrote:
I can, on a hypothetical basis, imagine scenarios where a restricted claim might be the best approach.
Acknowledged, but given the OP can't seem to grasp that an unrestricted claim of the full amount is even possible, (and the scenarios that would merit a restricted claim are unusual) I didn't want to complicate matters further.
Thanks (0)
Replying to stepurhan:
paddle steamer
By DJKL
01st Dec 2016 13:17

.Duplicate

Thanks (0)
avatar
By bajones
01st Dec 2016 12:41

You don't have to claim any AIA or WDAs if you don't want to. Don't let them bully you into it.

Thanks (1)
Replying to bajones:
Portia profile image
By Portia Nina Levin
01st Dec 2016 13:14

It is on the .GOV.UK website. You have to claim them if you buy a machine; it is the law.

Thanks (0)
Replying to Portia Nina Levin:
paddle steamer
By DJKL
01st Dec 2016 13:19

Portia Nina Levin wrote:

It is on the .GOV.UK website. You have to claim them if you buy a machine; it is the law.

Presume the reason "Rage Against the Machine" formed, to fight against such tyranny.

Thanks (0)
avatar
By stolaves64
02nd Dec 2016 10:40

Some of you should think about how you come across when you post replies. I cringe when I read some of them. No wonder accountants get a bad name! - Someone was only looking for a bit of assistance.....don't be so condescending about it. I thought the question was clear enough and as far as I can see it's been answered. Why make more out of it than need be??

Thanks (7)
Replying to stolaves64:
By Tim Vane
02nd Dec 2016 10:52

I think you need to re-read the start of the thread.

The OP was looking for assistance. The first two replies to the query were clear and concise. The next post from the OP made it clear that they neither understood the replies or the correct action to take. They then took umbrage when it was pointed out that they needed further help.

If you think it's fine to let the OP pay several thousand in tax more than necessary in their startup years then fine. You clearly have a different definition of assistance.

Thanks (1)
Replying to Tim Vane:
avatar
By stolaves64
02nd Dec 2016 11:12

You should perhaps re-read your own posts and see how you come across. Too many on here coming across as superior that's all.

Thanks (3)
Replying to stolaves64:
Portia profile image
By Portia Nina Levin
02nd Dec 2016 11:14

Are you familiar with irony at all?

Thanks (0)
Replying to Portia Nina Levin:
avatar
By stolaves64
02nd Dec 2016 12:07

I'm sorry I even got involved in this!! I think I'll go back to my passive existence and leave you all to it. It's nearly Christmas after all................

Thanks (1)
Replying to stolaves64:
By JCresswellTax
02nd Dec 2016 12:29

Goodbye then, you don't need to come back either. You are very boring.

Thanks (0)
Replying to JCresswellTax:
avatar
By stolaves64
02nd Dec 2016 12:42

Sorry? What did I do to you? No need for that whatsoever.

Thanks (3)
Replying to stolaves64:
Stepurhan
By stepurhan
02nd Dec 2016 11:01

stolaves64 wrote:

Some of you should think about how you come across when you post replies. I cringe when I read some of them. No wonder accountants get a bad name! - Someone was only looking for a bit of assistance.....don't be so condescending about it. I thought the question was clear enough and as far as I can see it's been answered. Why make more out of it than need be??

The tone of the responses is the result of frustration from the OP repeatedly not understanding the answers they have been given.

May I suggest that before you start judging other members, you walk a mile in their shoes. This is only your second post in your near two years of membership (third if you count article comments as well). Spend some time answering queries like this here and see how long it takes for your patience to wear thin.

Thanks (0)
Replying to stepurhan:
avatar
By stolaves64
02nd Dec 2016 11:17

So I can't have an opinion if I haven't been a regular contributor? I'm glad, however, that you agreed that there was a tone. I do read articles and opinions regularly and my opinion should be no less valid. Not judgement just observation of how some responses come across which I don't believe does our profession justice.

Thanks (2)
Replying to stolaves64:
Stepurhan
By stepurhan
02nd Dec 2016 11:38

stolaves64 wrote:

So I can't have an opinion if I haven't been a regular contributor?


No, I'm saying that if you were a regular contributor, you might understand why those who do regularly contribute are sometimes less polite than they could be.

Because, without that experience, your post is akin to the man who described accountancy as "having to learn a few technical terms". You have never had a polite response pointing out an error met with abuse. You have never had an answer to a complex question receive not even an acknowledgement, let alone a thanks. You have never had an OP who insists people "stick to the question they asked" even though the responses prove they are asking the wrong question.

So, I repeat my statement. Try doing it yourself and see how long your patience lasts. In the mean-time, you might want to consider how hypocritical it is to lecture others who have put in that effort for acting "superior".

Thanks (1)
Replying to stepurhan:
avatar
By stolaves64
02nd Dec 2016 12:15

I understand where you're coming from with your 2nd paragraph so that's fair comment. No real need for the last bit though. I do appreciate that you actually take the time to post answers and that's a good thing.

Thanks (1)
Replying to stolaves64:
Stepurhan
By stepurhan
02nd Dec 2016 12:41

stolaves64 wrote:

I understand where you're coming from with your 2nd paragraph so that's fair comment. No real need for the last bit though. I do appreciate that you actually take the time to post answers and that's a good thing.

Since you decided to come in here and berate other members, there was every need for that last bit. If you really want to change the tone of answers, set an example. Don't criticise others for expressing their frustration whilst still providing useful information.
Thanks (0)
Replying to stepurhan:
avatar
By stolaves64
02nd Dec 2016 14:09

I fully understand frustration - I'm getting it from this thread. I had no intention to berate anyone and offer apologies if that's how it was taken - genuinely.

My general observation was simply that some responses can seem curt and disrespectful to the OP and, as an accountant myself, I don't believe those sort of responses do us any favours.

If I can draw a line under it I appreciate from your experience on here you can become frustrated and it wouldn't be a successful forum if members like you didn't provide answers to questions.

Thanks (4)
Portia profile image
By Portia Nina Levin
02nd Dec 2016 11:07

I am still not sure that the OP properly understands the information that has been given, but I am of the view that anybody that thinks they can just do it themselves deserves whatever they get.

I am just off to give myself a heart bypass on the kitchen table. Hoping to be back later.

Thanks (0)
Replying to Portia Nina Levin:
By Tim Vane
02nd Dec 2016 12:46

That's ridiculous. You can't expect us to believe you have a heart!

Thanks (1)
Replying to Tim Vane:
Portia profile image
By Portia Nina Levin
02nd Dec 2016 12:56

Well it is not entirely clear what I am bypassing from the YouTube video I am following.

Thanks (0)
avatar
By brumsub
02nd Dec 2016 12:15

Generally, you want to claim maximum allowances in a year. Also, you want to claim loss relief as soon as possible by carry back if applicable (or other loss relief provisions), or forward. This will have a bearing on your cash flow.

Have a quick word with your accountant.

Thanks (1)