Capital Allowances question

[MGroves]

As I understand it, Capital Allowances serve much the same purpose as Depreciation, in that they reflect the gradual reduction in the value of capital assets. Capital Allowances are HMRC's way of making sure you don't write off an unreaonable amount of the value too soon, thus deferring your corporation tax bill.

My question is this: is it acceptable to allow less than the maximum Capital Allowance for any given asset. And if so, can one "catch up" again, in later years?

Specifically, I am thinking of not taking any Capital Allowances this year, to simplify my CT return. The business is making a loss anyway, and will be next year too. I suspect I will sell several of the capital assets in the next year or two, so the Allowances on those will be moot anyway.

S I suppose I could rephrase my question: if you have capital assets that are several years old, and you have not taken any Capital Allowances on them, can you do it retrospectively?

Cheers,

Michael...

[elainec100@cheapaccounting]

why would you want to do this?

Include the CA, increase the loss which is available to carry back to losses from previous years and get a tax refund.

Or carry forward against future profits.

[MGroves]

Hi Elaine,

Thanks for the fast reply!

Hypothetically, then: if you haven't taken your CA for, say, 2 years, what are your options?

Cheers,

M...

[Jenni384]

If you don't take them, you can't 'make it up' in future years, other than your pool will have a higher value in it.

EG, if you qualify for a AIA (100% allowance) you have to claim this in the first year.
If you don't, the value goes in the pool on which you can (typically) claim 20% of the balance in subsequent years.

So, you may well lose out if you don't claim the max you can in the first year.

Yes, you can choose to defer. No, it might not be tax efficient.

[GaryMc]

Do you have any other forms of income in the business? If so, it may be efficient to defer but if it is just the one trade then generally there is no point

[MGroves]

Thanks, Jenni - very clear and concise.

Gary, I'm curious to know under what circumstances it's efficient to defer, even with two trades? Surely as Elaine pointed out in her first post, you can't do better than taking whatever CAs are allowed, as early as possible, and carrying forward the loss?

[elainec100@cheapaccounting]

You may be able to amend previous years - read here:

http://www.hmrc.gov.uk/ct/returns/amend.htm

Don't know your specifics - so it may be too late.

[Arcadian]

It's sometimes useful not to claim - and therefore leave the pool higher for future years - where the client's income is less than personal allowances anyway. Claiming the allowance in those circumstances would only waste it.

[elainec100@cheapaccounting]

Time limit here:

Time limits for amending your Company Tax Return

You can amend your Company Tax Return at any time up to 12 months after your filing deadline (known to HMRC as your 'filing date' or 'statutory filing date'). Your filing deadline is usually 12 months after the end of your Corporation Tax accounting period. So you can usually make an amendment to a return up to 24 months after the end of your accounting period.
So if your accounting period is from 1 April 2008 to 31 March 2009:


your filing date for your return is 31 March 2010
your deadline for making amendments to that return is 31 March 2011

The deadline for amending your Company Tax Return is not extended if you file late. So if you file your return more than 12 months late, you won't be able to make an amendment to it.
If you find an error on your Company Tax Return but you're too late to amend it, you must still tell HMRC immediately. If you don't, you may be liable to a penalty if there's more Corporation Tax to pay. If you've paid too much Corporation Tax as a result of the mistake, you may be able to get this back. This is known to HMRC as 'mistake relief'. If you think this applies to your company or organisation you should contact your Corporation Tax Office immediately.

[GaryMc]

Trade losses brought forward can only be set against trade profits of the period. If you were to make a small trade loss but have a large amount of interest income, for example, any brought forward losses couldn't be used. In this scenario, a bigger value brought forward on your assets would enable you to increase the current year trade loss and offset more of the other income.

[elainec100@cheapaccounting]

The guy has a limited company!!!

[MGroves]

Elaine: thanks for the linky and the clarification.

Arcadian: You mean if the client can't carry forward their losses? (Edit: as Elaine says, I have a Ltd Co).

Gary: So if I understand you correctly, you can offset a loss from Trade A against profits from Trade B (within the same company), in the same year, but not offset Trade A losses carried forward from previous years? That's a kinda weird policy, but that being the case, I can understand why deferring CAs might sometimes be useful.

[elainec100@cheapaccounting]

Tax losses

If your company makes a loss instead of a profit, you can choose to:


carry it forward and use it to reduce your taxable profits for a later accounting period
carry it back and use it to reduce your taxable profits for an earlier accounting period

In the budget you can carry back for 3 years.

[elainec100@cheapaccounting]

It's sometimes useful not to claim - and therefore leave the pool higher for future years - where the client's income is less than personal allowances anyway. Claiming the allowance in those circumstances would only waste it.

Sharon

Not sure I understand this - assume you are mixed up with a sole trader?

[GaryMc]

Elaine: thanks for the linky and the Gary: So if I understand you correctly, you can offset a loss from Trade A against profits from Trade B (within the same company), in the same year, but not offset Trade A losses carried forward from previous years? That's a kinda weird policy, but that being the case, I can understand why deferring CAs might sometimes be useful.

That is correct - and tax is full of these oddities! It keeps a lot of accountants in work

[Arcadian]

Sharon

Not sure I understand this - assume you are mixed up with a sole trader?

Yes, I am thinking of a sole trader. I woudn't say I'm mixed up, being an accountant as well ;) but sorry if I confused the thread!