Where the annual investment allowance, which gives an immediate 100% deduction against profits is not claimed, either because the allowance has been used up or because a claim is not beneficial, for example to prevent personal allowances from being wasted, relief for qualifying capital expenditure is given by means of a writing down allowance. Allowances are given at the rate of 18% on the main pool. A reduced rate (8% before 1/6 April 2019 and 6% thereafter) applies to assets in a special rate pool, for example high emission cars and integral features.
Small pools allowance
The legislation allows the whole balance of the main pool to be written off in a single year when the value of the pool is less than £1,000. This is known as the small pools allowance. The allowance, equal to the tax written down value of the pool, is claimed instead of the writing down allowance.
The £1,000 limit is adjusted proportionately where the accounting period is more or less than 12 months (so £500 for a six-month period and £1,500 for an 18-month period).
Example
Ben is a self-employed website designer. He prepares accounts to 31 March each year. He purchased a computer and printer in April 2017 for a total cost of £1,400. To preserve his personal allowance, he claims a writing down allowance instead of the annual investment allowance. The cost of the computer and printer is allocated to the main pool.
In 2017/18 he claims a writing down allowance of £252 (£1,400 @ 18%). The tax written down value of the pool on 1 April 2018 is £1,148.
For 2018/19 he claims a writing down allowance of £207 (£1,148@ 18%). The tax written down value is £941.
For 2019/20, Ben claims the small pools allowance and is able to deduct the remaining pool balance of £941 from his profits instead of a writing down allowance of £169. This reduces his profits for the year by £772.
