How to use FreeAgent’s capital allowances calculation
This article explains how customers with UK limited company and sole trader accounts can make use of FreeAgent’s capital allowances calculation.
Unincorporated landlord, partnership and limited liability partnership (LLP) accounts
If you are a UK unincorporated landlord or a partner in a partnership or LLP, FreeAgent treats all capital assets as 100% allowable automatically in your estimate Self Assessment tax calculations. Please note that it's not currently possible to change the tax treatment of capital assets in these types of FreeAgent accounts.
You may need to manually override this on your Self Assessment tax return, especially if you’re using cash basis accounting. If you’re unsure whether you need to adjust your tax return, please speak to your accountant.
What the capital allowances calculation involves
UK limited company & sole trader accounts
The following options are available for capital assets purchased within an accounting year ending on or after 23rd July 2020 for UK limited company accounts, or ending on or after 6th April 2023 for sole trader accounts.
You are able to select one of the following tax treatments for the capital assets you record:
- Annual investment allowance - 100% relief on qualifying purchases
- Full expensing - 100% first-year relief on qualifying purchases (limited companies only)
- First year allowance - 100% relief on qualifying purchases
- Main pool - 18% written down relief on qualifying purchases
- Special rate allowance - 50% relief on qualifying purchases (limited companies only)
- Special pool - 6% written down relief on qualifying purchases
- No capital allowances - no tax relief on qualifying purchases
Depending on the date you purchased the asset, you may also select a tax treatment that is no longer available:
-
Super-deduction - 130% relief on qualifying purchases between 1st April 2021 and 31st March 2023 (limited companies only).
If the assets were purchased in an accounting year that includes (but does not end on) 31st March 2023, you'll see the percentage for this allowance is less than 130% and FreeAgent has also calculated a tax pool adjustment. The relevant percentage will be calculated by FreeAgent based upon the number of days in your accounting year that fall before 31st March 2023 (when 130% would be claimed) and the number of days that fall after that date (when the allowance will only be 100%).
Based on the tax treatment you select, FreeAgent generates a sophisticated capital allowances calculation.
FreeAgent is also able to automatically calculate any balancing charges that are due if you dispose of an asset. The balancing charge amount is calculated regardless of the purchase date of the asset.
Assets purchased within an accounting year ending before 23rd July 2020 will be treated by FreeAgent as 100% allowable for tax. As a result, a more basic calculation for these assets will be available to view in your FreeAgent account.
How to make use of the comprehensive capital allowance calculation
You can select the tax treatment for a capital asset and view the calculation in your accounts.
Selecting a tax treatment
Follow the steps outlined below to apply FreeAgent’s comprehensive capital allowances calculation to any asset purchased within an accounting year ending on or after 23rd July 2020, if you have a UK limited company account, or ending on or after 6th April 2023 if you have a sole trader account.
Navigate to the ‘Accounting’ tab at the top of the screen and select ‘Reports’.
Choose ‘Capital Assets’ from the ‘Breakdown’ area.
Select the relevant asset and select ‘Edit tax treatment’ from the 'Asset details' panel on the right-hand side.
Select the relevant tax treatment for the asset from the drop-down menu. If you’re not sure which tax treatment to select, read HMRC’s guide on capital allowances or speak to your accountant. You can then view the calculation.
Find out how to edit the default tax treatment for capital asset categories.
Viewing the tax treatment and calculation (UK limited company accounts only)
Once you’ve selected the appropriate tax treatment, you can view how it has been claimed in the asset’s timeline.
Annual investment allowance and first year allowances will show on the timeline against the date on which you purchased the capital asset. Writing down allowances, small pool allowance adjustments and balancing charge adjustments show on the final day of your current Corporation Tax period.
The ‘Capital Allowances’ section of your Corporation Tax forecast in FreeAgent will reflect the tax treatments that have been applied. You will be able to view the allowance for all capital assets here.
Viewing the tax treatment and calculation (UK sole trader accounts only)
Once you’ve selected the appropriate tax treatment, you can view how the relevant allowance has been claimed in the asset’s timeline.
Navigate to the accounting tab at the top of the screen and select ‘Reports’ from the drop-down menu.
Select ‘Capital Assets’.
Select the ‘Capital allowances’ tab.
This will enable you to view the allowances for all capital assets.
Annual investment allowance and first year allowances will show on the timeline as at the date on which you purchased the capital asset.
Accounting periods longer or shorter than a year
For accounting periods that are longer or shorter than 12 months, the amount of annual investment allowance (AIA), small pools allowance and writing down allowance you claim is increased or reduced accordingly. For example, if your accounting period is six months, the maximum AIA you can claim is £250,000 (6/12 × £500,000).
Please note that this doesn't apply to first year allowances. You can claim the full amount of the first year allowance if you are still in business at the end of the accounting period.