Capital Allowances Example 1

Company purchased 20,000 machinery on 1 April 2013 with a useful economic life of 4
years and has taxable profits for the year to 31 March 2014 of 100,000. The 20,000 will be
eligible for the annual investment allowance:

Capital allowances pool

Additions (machinery purchased 1
March)

20,000

Annual Investment Allowance

(20,000
)

Balance carried forward

nil

Tax computation
Taxable profits

100,000

Add: Depreciation

5,000*

Less: Capital allowances

(20,000
)

Profits chargeable to Corporation Tax

85,000

Corporation Tax @ 20%

17,000

* Depreciation has been calculated by spreading the purchase price over the useful
economic life (20,000 / 4 = 5,000 per year).

Capital Allowances Example 2

Company purchased machinery previously which has a depreciation charge of 15,000 per
year and has a capital allowance pool brought forward of 6,000:
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

Corporation Tax @ 20%

22,784

Capital Allowances Example 3

Company purchases machinery on 10 April 2012 for 110,000 with a useful economic life of
10 years.
Cost

110,000

Annual Investment Allowance

(25,000)

Balance remaining carried forward

85,000

Writing down allowance @18%

(15,300)

Balance carried forward

69,700