Understanding whether it is possible to carry forward capital gains tax allowances depends in no smalle measure on the type of capital allowances involved.
Annual Investment Allowance (AIA)
Most businesses can claim an AIA for expenditure on most plant and machinery, apart from cars. In many cases (depending on the level of expenditure) this may mean it is possible to claim the entire expenditure on qualifying items against this allowance.
The maximum AIA had been increased to £500,000 in respect of expenditure incurred on or after 1 April 2014 for corporation tax or 6 April 2014 for income tax and before 1 January 2016.
However, the AIA has been reduced permanently to £200,000 from 1 January 2016. The AIA is in addition to the existing first year allowance which can be claimed for various items Eligibility for AIA.
It is available to:
1. persons carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office); or
2. any partnership consisting only of individuals Businesses can claim the AIA in respect of expenditure on long-life assets and integral features, as well as on general P&M.
Where more than £25,000 is spent in any chargeable period, any additional expenditure will be dealt with in the normal way by entering either the special rate or main pool, where it will be eligible for the usual WDA.
If the chargeable period is more or less than a year, the maximum allowance is proportionately increased or reduced, as the case may be.
There are special rules applicable to an individual who has more than one business and those businesses are related because they have similar activities and/or share premises.
Businesses have an AIA for the first £25,000 of their expenditure on most P&M for 2012-13 (£100,000 for April 2010 to April 2012).
In the event the accounting period straddles the old and new allowances, the allowance should be apportioned.
For example, a business with an accounting period from 1 January 2012 to 31 December 2012 would require a split in its maximum AIA entitlement as follows:
(a) the proportion for the period 1 January 2012 to 5 April 2012, i.e., 3/12 x £100,000 = £25,000; and
(b) the proportion from 6 April 2012 to 31 December 2012, i.e., 9/12 x £25,000 = £18,750.
The maximum AIA available, therefore, would be the total of (a) + (b) = £25,000 + £18,750 = £43,750.
The Chancellor’s announcement on 5 December 2012 was to increase the AIA from £25,000 to £250,000 with effect from January 2013 for two years.
This change will not affect the above apportionment. The current AIA is £200,000 is for a 12=month period from 1 January 2016.
As can be seen in the Table below there were many changes from April 2008 to January 2016.
Summary of AIA
The two tables below show the AIAs from 2010 to 2016.
First Year Capital Allowances (FYA)
FYA currently is 100% for expenditure on certain specific assets. The assets include new cars with
CO2 emissions not more than 95 grams per kilometre driven, certain energy-efficient equipment,
certain environmentally beneficial, currently water efficient equipment, equipment for refueling with
natural gas, biogas or hydrogen fuel, and new zero-emission goods vehicles, such as electric vans.
Writing Down Capital Allowances (WDA)
WDAs relate to expenditures which have not been claimed under the
above two heads and on residual balances that have been carried forward from the previous accounting period. There are two rates for WDA (writing down allowances) at 18% for the main pool of assets and 8% for assets in the special rate pool.
The 8% rate applies to expenditure incurred on integral features and on long life assets.
Subject to certain exceptions, qualifying expenditure on P&M is pooled for the purpose of calculating the WDA, balancing charge or balancing allowance.
There are single asset pools, class pools and main pool. WDA are annual allowances that can be claimed to reduce or “write down” any remaining balance of capital expenditure on P&M in respect of which no CAs have already been claimed.
Such a balance is placed in what is known as a “pool” of unrelieved’ expenditure. From April 2012 the rate has been decreased from 20% to 18% a year.