JuliaS73
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Capital Allowances/AIA and tax planning

Any reason why you would not want to use AIA to reduce tax bill to zero?

I have a new client who for the past few years has made large asset purchases (c£300k).  The previous accountant had only used a fraction of the AIA in 13/14 and 14/15 and instead added the assets to a pool which is now quite large.  This left the client with a fairly hefty tax bill in both years which could have been reduced to zero (or at least lowered substantially) if more had been allocated to the AIA instead of the pool.  My question is, am I missing a hidden tactic of why you would ever want to have a large tax bill and leave AIA under-utilised?  The only potential reason I can think of is if you believe the client will have net disposals or fewer additions in the future, to spread the benefit of the capital allowances - but that's not the case with this client so the pool would just keep increasing...

Would it be acceptable to ask the previous accountant why they did this?  Or is it wrong to question tax planning strategy?

Thanks in advance for any suggestions.

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11th Jan 2017 21:17

There are various reasons why you may not wish to claim the full AIA. I suggest asking the client what the previous accountant's reasoning was. It could be that the previous accountant screwed up, or there may be circumstances that you have not been made aware of.

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11th Jan 2017 21:24

Thanks for your reply. The client has no idea what capital allowances are, and I think even if it had been explained to him at the time, he wouldn't have understood it! But he says he doesn't remember any conversation - he just paid the amount of tax they told him to pay...

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By Ruddles
11th Jan 2017 21:48

Do you have full details?

Possible reasons are associated businesses using some of the allowance or non-qualifying assets e.g. cars. Timing of the expenditure might also be crucial. But those are just guesses - the previous accountant is your best bet and I wouldn't hesitate in asking.

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12th Jan 2017 08:47

What was the fraction ?

18% ? 20% ? 25% ?

Just wondering.....

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to lionofludesch
12th Jan 2017 19:14

18% allowance on the pool.

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to JuliaS73
13th Jan 2017 09:32

So the previous accountant seems unaware of AIA and has just claimed 18% WDA?

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12th Jan 2017 14:35

Damage limitation. If the time limits are capable of being met, why not amend the 14/15 return and claim the AIA's in respect of expenditure pooled in that period? If in time the amendment ought to be straightforward.

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By Ruddles
to Piltdown Man
12th Jan 2017 14:49

Shooting in the dark. We don't know that an amendment is in point, because no-one has told us the reason(s) for the apparent underclaim. As far as we know, the claims could be in the maximum amount permitted.

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to Ruddles
12th Jan 2017 16:51

Agreed - no we don't, but if the apparent underclaim was, for example, to simply eliminate that year's liability then if an amendment is possible surely that is worth exploring, particularly as the clock is ticking towards the date when this may no longer be a possibility?

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By Ruddles
to Piltdown Man
12th Jan 2017 17:00

Did you bother to read the question?

But of course if an amendment is possible it is worth exploring. Starting with a request to the previous agent to provide detailed calculations of the AIA claimed.

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to Ruddles
12th Jan 2017 17:04

What, of course, Julia omits to say, is whether we speak of Income Tax or Corporation Tax.

She just says "a client".

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to lionofludesch
12th Jan 2017 18:22

lionofludesch wrote:

What, of course, Julia omits to say, is whether we speak of Income Tax or Corporation Tax.

Indeed. That was my immediate impression on reading the question. It makes a big difference to the answer.

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to lionofludesch
12th Jan 2017 19:16

Apologies - the client is a sole trader, so income tax.

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12th Jan 2017 20:32

There still could be a number of reasons for disallowing.

If Julia can't be arsed to give more than one sentence replied, I can't be arsed either.

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to cheekychappy
12th Jan 2017 20:43

Sorry cheekychappy - what more did you want me to say? There was a question about whether it was income tax or corporation tax and I answered it????!!!!

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By Ruddles
to JuliaS73
12th Jan 2017 20:52

I think the question that needs to be answered is -

Have you checked ALL relevant details and satisfied yourself that it would have been possible to claim a higher amount of AIA, taking into account in particular the timing and nature of expenditure?

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to Ruddles
12th Jan 2017 21:16

I am awaiting a response from the previous accountant. Thanks for all your help.

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