Capital Allowances Examples

Capital Allowances Example 1

Company purchased £40,000 machinery on 6th April 2018  with a useful economic life of 4 years and has taxable profits for the year to 5th April  2019 of £100,000. The £40,000 will be eligible for the annual investment allowance:

Capital allowances pool

Additions (machinery purchased 1 April)    £40,000

Annual Investment Allowance                      (£40,000)

Balance carried forward                                 £nil

Tax computation

Taxable profits                                              £100,000

Add: Depreciation                                         £10,000*

Less: Capital allowances                              (£40,000)

Profits chargeable to Corporation Tax          £70,000

Corporation Tax @ 20%                                 £14,000

* Depreciation has been calculated by spreading the purchase price over the useful economic life (£40,000 / 4 = £10,000 per year).


Capital Allowances Example 2

Company purchased a car in the previous year which has a depreciation charge of £15,000 per year and has a capital allowance pool brought forward of £6,000.  CO2 emissions for the vehicle were 150g/km.

Capital allowances pool

Balance brought forward                                £6,000

Writing Down Allowance @ 18%                    (£1,080)

Balance carried forward                                 £4,920

Tax computation

Taxable profits                                             £100,000

Add: Depreciation                                        £15,000

Less: Capital allowances                              (£1,080)

Profits chargeable to Corporation Tax         £113,920

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