Can someone explain Annual Investment Allowance?

[wysiwygonline]

Hi All,

Can someone help me on the following please.

I am a new business, self employed, only going for 6 months and I've been told recently about Annual Investment Allowance.

I've been told that I can buy a computer and monitors etc coming to about £5k and be able to offset 100% of this against tax in the first year. Meaning that it doesn't cost me a penny, only coming out of the corp tax I would pay.

I am currently turning over £6k per month and VAT registered (the £6k is before I add on VAT.)

Also this is not my strong point (tax) so if you could explain in simpleton terms that would be great!

Look forward to hearing back from anyone soon!

Paul

[bd6759]

You can claim capital allowances on plant and machinery. A computers count as machinery.

AIA is a form of capital allowance. You can claim 100% of the cost of acquiring P&M, up to the maximum limit. The limit is currently £250,000, but this is temporary. It will revert back to £25,000 in Jan 2015.

The allowance is deducted from your profits before tax is calculated. The allowance is not deducted from the tax you need to pay, but it reduces the amount of tax.

As a sole trader you pay income income tax, not corporation tax.

[wysiwygonline]

thanks for coming back... I'm a limited company not a sole trader. does that make a difference?

[wysiwygonline]

so if a computer costs £5k and my profit is £50k would it work out something like this:

50,000 - 5,000 = 45,000

20% of 45,000 is 9k saving me 1k on 20% of 50,000?

[Dean1491]

The AIA is a kind of capital allowance, which offers tax relief at 100 per cent on qualifying expenditure in the year of purchase. The maximum you can deduct from your taxable profits is now set to be £250,000. This pro-rates for short or long periods, and also for periods that span the operative dates and rates of allowance. To know more, Visit: http://defensetax.com/.