You will see this term come up in connection with your Self Assessment.
Capital Allowances are the tax approved form of depreciation on certain capital expenditure / purchases of equipment for your business – HMRC doesn’t let you claim the cost of buying or depreciating an asset for your business, but gives you Capital Allowances instead.
Annual Investment Allowance
For most equipment – eg props, computer equipment – a so called “Annual Investment Allowance” (AIA) is available to write the cost off against tax at the outset. The current AIA is £1m – clearly more than the Capital Expenditure of most Yoga businesses.
Vans count for AIA if used wholly for business, otherwise they need to be treated separately and private use apportioned (if not claiming on a mileage basis).
Cars are not eligible for AIA, and instead have lower rates of Writing Down Allowance (WDA).
Expenditure in excess of AIA (and most Yoga businesses won’t be investing this much) is subject to a Writing Down Allowance normally 18%.
Capital or Revenue?
For small items of equipment, known as consumables, these can be written off against tax as an expense outside of the Capital Allowance regime. The threshold for this is subjective and depends on your business size, but in most cases £500 is a sensible threshold for writing off assets as an expense rather than claiming them via Capital Allowances – and if they are covered by AIA at 100% then it makes no difference to tax anyway, just presentation on the return. In a studio you may decide, after its kitted out, to write off any further small expense on props and small bits of equipment.
Capital Allowances in Practice
Some things you may be claiming Capital Allowances on:
- Computer or Laptop
- iPads and other ICT
- Studio equipment and furnishings
- Home office furniture (desk etc)
- Props and equipment
Generally Capital Allowances can’t be claimed on existing buildings, but probably on some of the fittings in the building will be eligible, and a new “Structures and Buildings Allowance” applies from autumn 2018 on new builds and major alterations but not buildings in the grounds of a residence, so ruling out home studios.
You will probably need to research Capital Allowances further or take advice if they effect you.
Cars
Cars do not count for AIA. If you are not claiming on a Mileage Basis (which is more straight forward) then Capital Allowances on cars are at rates of between 6%, 18% and 100% of the value of the car dependant on emissions levels, with the unrelieved balance carried forward. The claim for each year is private use apportioned.
Example
Here is an example of a Capital Allowance Calculation – opens in a new window
