How to use FreeAgent’s capital allowances calculation

This article explains how customers with UK limited company accounts can make use of FreeAgent’s capital allowances calculation.

UK sole trader, partnership and limited liability partnership (LLP) accounts

If you are a UK sole trader or a partner in a partnership or LLP, FreeAgent treats all capital assets as 100% allowable automatically in your Self Assessment tax calculations. Please note that it's not currently possible to change the tax treatment of capital assets in FreeAgent accounts that are not UK limited company accounts, but you'll be able to see the Annual Investment Allowance figure on your Self Assessment tax return.

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 accounts

Capital assets purchased within an accounting year ending on or after 23rd July 2020

FreeAgent’s capital allowances calculation is available for assets purchased within an accounting year ending on or after 23rd July 2020. It works by inviting you 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 from 1st April 2023 until 31st March 2026
• 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 between 1st April 2021 and 31st March 2026
• Special rate pool - 6% written down 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.
  
  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 in the Corporation Tax area of your account. 

FreeAgent is also able to automatically calculate any balancing charges that are due if you dispose of an asset within an accounting year ending on or after 23rd July 2020. The balancing charge amount is calculated regardless of the purchase date of the asset.

Capital assets purchased within an accounting year ending before 23rd July 2020

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 the Corporation Tax area of your FreeAgent account. 

How to make use of the comprehensive capital allowance calculation

Selecting a tax treatment

If you have a UK limited company account, 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.

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.

Viewing the tax treatment and calculation

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.