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Capital Allowances - AIA threshold

Capital Allowances - AIA threshold

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1- If a company buys an equipment for more than AIA threshold (£1,000,000). What happend to the remaining value?

For example: Equipment costing £3,000,000, how to tackle capital allowances considering we are claiming AIA.

 

2- Same question as above but period is 6 months long only? I understand we simply apportion the AIA threshold to 6 months.

What happens to the remaining value? Do we claim AIA again for 6 months next year?

 

Can you explain for both limited companies and sole trader?

Replies (9)

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By Anonymous.
07th Sep 2020 17:17

billy009 wrote:

Can you explain for both limited companies and sole trader?

Is the client a limited company or a sole trader?

Have you looked at the HMRC manuals?

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca20000

Thanks (3)
Replying to Anonymous.:
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By billy009
07th Sep 2020 23:29

Its a limited company and thanks for the link

Thanks (0)
Psycho
By Wilson Philips
07th Sep 2020 17:30

1. Excess over the limit is subject to WDAs at the appropriate rate.
2. You only get one shot at it - if the period is 6 months long, the limit is (currently) £500k. AIA availability for the next period just follows the normal rules. For the avoidance of doubt, though, you cannot 'carry forward' £500k from period 1 and claim a further £500k allowance in period 2 in respect of £3m expenditure in period 1 - don't know if that was what you were thinking.

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Replying to Wilson Philips:
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By billy009
07th Sep 2020 23:31

Thanks. I had a feeling that once you use AIA (in a short period), you have to claim WDAs the next year

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Replying to billy009:
RLI
By lionofludesch
08th Sep 2020 04:41

billy009 wrote:

Thanks. I had a feeling that once you use AIA (in a short period), you have to claim WDAs the next year

Short period, long period, any period.

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RLI
By lionofludesch
07th Sep 2020 17:32

Essentially the same for sole traders and limited companies.

1. The excess gets carried forward and you can claim 18% (probably) allowances on what's left at the start every year.

2. It's time apportioned. No, you don't get two bites of the cherry. So, in your example.

6 month period £500,000

Following 12 month period 18% of £2,500.000 = £450,000

Following 12 month period 18% of £2,050,000 = £369,000

Watch out for changes in maximum AIA allowable. Timing of your expenditure can make a big difference.

Thanks (2)
Replying to lionofludesch:
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By billy009
07th Sep 2020 23:35

1. I thought you get to claim the excess as WDA in the same year and then carry forward remaining and claim WDAs. But I wasn't sure hence the question.

2. Thanks for your detailed answer.

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Replying to billy009:
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By Piltdown Man
08th Sep 2020 10:26

1) You do get to claim the WDA in the same year.
2) The detailed answer is not correct. In Lion's example WDA's would also be available in the 6 month short period.
If you incur £3,000,000 of main pool P&M in the period for which £1,000,000 of AIA is available, the allowances for that year are £1,000,000 of AIA plus £360k (£2,000,000 * 18%) of WDA. The balance of £1,640,000 (£3,000,000 - £1,000,000 - £360,000) is carried forward for WDA's to be claimed in the following year. Appropriate adjustments required for periods other than a full year.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Sep 2020 11:01

Per comment below (above?) that is not quite correct.

Allowances in period 1 would be £500,000 AIA and £225,000 WDA (assuming nothing else in the pool)

Following period is £409,500 WDA (assuming 12 months)

And so on

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