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4: Self-employment Income & Capital Allowances Cheat Sheet (DRAFT) by

Business Tax 4: Income from Self-employment & Capital Allowances.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

What are Capital Allowa­nces?

Tax-de­duc­tible deprec­iation allowances are applied to assets, replacing standard deprec­iation charges, typically disallowed for tax purposes.

What comes under Plant & Machinery?

Not defined in the Capital Allowances Act 2001. Based on Yarmouth v France (1887), it includes any apparatus used perman­ently in a business (fixed or movable), excluding stock-­in-­trade.

In what manner, are capital allowances calcul­ated?

Calculated on pooled amounts, not individual assets.

What does the main pool consist of?

Includes general plant & machinery, cars with emissions <50 g/km, factory machines, and office equipment. Zero-e­mission cars qualify for a 100% first-year allowance and are not pooled.

Small Pools of Plant and Machinery

If a pool's Written Down Value (WDV) drops to £1,000 or less, the business can claim up to £1,000 as a Writing Down Allowance (WDA) to fully write it off.
 

How do Capital Allowances work?

They function similarly to reducing balance deprec­iation, allowing a percentage of the remaining asset value to be deducted from trading profits annually.
 
Note: if an asset is sold for more than its original cost, it may trigger a capital gains tax liability.

Expend­iture deemed to be P&M

• Items attached to buildings (buildings may qualify for SBA; land does not).
• Computer software, thermal insula­tion, personal security assets, and integral features of buildings.
 
Treated as Plant and Machinery.

What does the special rate pool consist of?

Covers "­unusual items" like cars with emissions ≥50 g/km, integral building features (e.g., electr­ical, heating, cooling systems), solar panels, thermal insula­tion, and long-life assets (25+ years) with annual spending over £100k.

Annual Investment Allowance (AIA)

• £1,000,000 annual limit for Plant and Machinery (excluding cars).
• Excess goes to pools; time-a­ppo­rtion if rates change.
• Claim any amount up to the limit.
• Disposal values subtracted from pools.
• AIA usually covers everyday purchases, avoiding WDV pools.
 

Eligible Expend­iture

Capital Allowances (CA) typically apply to the following types of expend­iture:
• Plant & Machinery.
• Structures and Buildings.
• Patent Rights.
• Know-How.
• Research and Develo­pment.
 
These represent the areas where businesses can claim tax relief through capital allowa­nces.

Writing Down Allowances & WDV

A business can claim WDA for each pool (Main or Special Rate). The process involves:
1.Calcul­ating WDV
• Start with WDV brought forward from the previous year.
 
• Add new assets at cost price (or market value if applic­able).
 
• Subtract assets sold at their sale price, scrap value, or compen­sation received (if disposal value > original cost, subtract original cost).
 
2. Applying WDA
Deduct a percentage of the total WDV to calculate the new WDV.
 
• Main Pool: 18% per year.
 
• Special Rate Pool: 6% per year.
 
Adjust for chargeable periods shorter or longer than 12 months.
 
Optional Claim
It’s not mandatory to claim the maximum WDA; unclaimed amounts remain in the pool for future use.
 
Hybrid rates apply if the chargeable period spans different rates.