Example Calculations

Capital Allowances Example 1

Company purchased £20,000 machinery on 1 April 2018 with a useful economic life of 4 years and has taxable profits for the year to 31 March 2019 of £100,000. The £20,000 will be eligible for the annual investment allowance:

:

Capital allowances pool 
Additions (machinery purchased 1 March) £20,000
Annual Investment Allowance (£20,000)
Balance carried forward £nil
Tax computation 
Taxable profits £100,000
Add: Depreciation £5,000*
Less: Capital allowances (£20,000)
Profits chargeable to Corporation Tax £85,000
Corporation Tax @ 19% £16,150

* Depreciation has been calculated by spreading the purchase price over the useful economic life (£20,000 / 4 = £5,000 per year).

Capital Allowances Example 2

Company purchased a car at cost for £25,000, with CO2 emissions above 110g/km on 1st April 2018. Depreciation is calculated at 25% on a straight line basis. Taxable profits for the year ended 31 March 2019 were £100,000.

Capital allowances special rate pool 
Additions  £25,000
Writing Down Allowance @ 8% (ii) (£2,000)
Balance carried forward £23,000
Tax computatio 
Taxable profits £100,000
Add: Depreciation £6,250
Less: Capital allowances (£2,000)
Profits chargeable to Corporation Tax £104,250
Corporation Tax @ 19% £19,808

Notes:

i) For the financial year commencing 1st April 2018, the corporation tax rate falls to 19%.

ii) If you purchase a car with CO2 emissions of less than 50g/km, then you would receive a full 100% deduction. 

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