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Where Taxpayers and Advisers Meet

Aia or Wda

Dtucky
Posts:2
Joined:Mon Jul 06, 2020 4:01 pm
Aia or Wda

Postby Dtucky » Mon Jul 06, 2020 4:08 pm

Hi,

I have taxable profits of £25000 for 19/20 tax return and available capital allowances of £19000. This takes me £6500 under the tax threshold so I don’t know if to claim the 100% allowance or the 18% wda. Any help would be appreciated.

Dave

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Aia or Wda

Postby Lambs » Mon Jul 06, 2020 4:32 pm

D,

You are right to be cautious here, because you can in theory end up wasting allowances.

Assuming you have no other taxable income, if you do nothing you will have self-employed profits of £25,000 which will exceed your tax-free Personal Allowance by £12,500 and be subject to tax and NICs.

If you claim the full AIA on your capital acquisition then your taxable profits will fall to just £6,000, which would be below the tax-free Personal Allowance and the Class 4 NICs threshold of £8,632.

But you are allowed to DISclaim as much of your Capital Allowance claim as you like - AIA / WDA, doesn't matter. So, if you want to, you can restrict your AIA claim to just £16,368, (saving £2,632 to be claimed as extra WDAs in future years), so that your taxable profit falls to £8,632 and you pay no Income Tax and no Class 4 NICs either. (You only pay Class 4 NICs on profits above £8,632 in 2019/20).

Alternatively, you can restrict your AIA claim to just £12,500 so your taxable profits fall to £12,500: you will pay no Income Tax and your Class 4 NICs bill will be just £350. You will have saved nearly £4,000 more in AIAs to claim as WDAs down the line, but it will have cost you £350 in Class 4 NICs at 9%.

Or, any other amount that you prefer.

If you can afford to pay the Class 4 NICs of £350, it may be better in the long run to pull your profits down to £12,500 and to use less AIA in 2019/20 to save more as WDAs for future years: if you think your profits are going to be roughly the same in future, it's arguably more efficient to use the WDAs where they can save you tax AND NICs at (20%+9%) = 29%, instead of saving you just 9% this year.

Remember that your AIA / WDA claim has to be adjusted for any private use of the capital asset on which the relief is claimed.

I trust this is useful.

With regards,

Lambs

Dtucky
Posts:2
Joined:Mon Jul 06, 2020 4:01 pm

Re: Aia or Wda

Postby Dtucky » Mon Jul 06, 2020 5:52 pm

Thanks, that is really helpful.

Regards,

Dave

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Aia or Wda

Postby robbob » Mon Jul 06, 2020 6:52 pm

Lambs are you able to expand on that fine answer and factor in the tax credit scenarios this year and next 2 for an individual with 8 kids and a very large hottub please :)



- ps i am jk - but its normally the type follow up question i get when i have worked out the tax answer - hopefully the op isnt claiming tax credits - if they are whats best for tax credits tends to trump anything else would be my advise.

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Aia or Wda

Postby Lambs » Mon Jul 06, 2020 8:42 pm

R,

Yes, impact on Tax Credits may well be relevant. I normally consider I am doing well to remember NICs...

VB,

Lambs


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