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Where the Annual Investment Allowance

(AIA) is not claimed or not available because the limit has already been reached, tax relief is given on the purchase of capital items on a reducing balance termed the ‘writing down allowance’.

Expenditure in excess of the AIA limit enters either the main pool or a ‘special rate’ pool for the purchase of integrated features and is eligible for the writing down allowance at 18% per annum (main pool) or 8% (‘special rate’ pool) in the accounting period.

For expenditure incurred before 31 December 2015 the limit was £500,000. As from 1 January 2016 the allowance has been fixed at £200,000. Expenditure in excess of the limit is dealt with under the standard ‘writing down allowance’ rules and any unused AIA is lost.

Transitional rules apply on a proportional basis for those companies whose tax period spans the operative date of 1 January 2016 (see Tip 32).
 
Example:
Company ASX Ltd has an accounting year ending 30 June 2016 with a pool balance brought forward of £53,000. On 3 January 2016 the company invested £650,000.

The 2016/17 calculation will be:
Pool balance brought forward                                £53,000
Additions qualifying for AIA                                   £650,000
AIA claim maximum **                                         £(50,000)
Balance allocated to main pool                             £600,000
Total eligible for writing down allowance                 £653,000
Writing down allowance (18%)                              £(117,540)
Balance of allowances carried forward                   £535,460
Total allowances claimed: £50,000 + £117,540 =    £167,540.
** Maximum: (£200,000 x 3/12) = £50,000

This is a sample tip taken from our 112 page guide:

101 Tax Tips For Landlords 2016/17