Self Assessment Capital Allowances Question

[NiceCupOfTea]

As above, quick question about Capital Allowances for self employed people.

An expensive item used for the business is bought, you can offset 18% of its value (Writing Down Allowance) against your tax liability, reducing its "value" by that 18% per year. So, the next year you can offset 18% of (original value - 18% claimed for in the previous year), and so on carrying the "new value" forward to the new year.

When you sell the item you have a balancing charge to be paid, but I'm a bit confused about working this out. I sold one item for a profit (I actually bought it cheaply but didn't realise at the time!). So the balancing charge was the difference between the value carried forward and the amount I sold it for which was rather large!

Is this correct? I'm concerned that it may show up as an anomaly to be investigated so I want to get it right. With musical instruments (in this case) the 18% is a bit tenuous as values can sometimes go up!

If I'm correct the alternative is to claim the full value in the tax year you buy it and the "profit" from selling it in the tax year you sell it - but the WDA spreads it over several years...

Thanks in advance...

[Eric Mc]

Have you thought about claiming the 100% Annual Investment Allowance? That seems to be what you are referring to in your last comment.

I'd go for the 100% write off now and pay any balancing charge years down the line when it is finally sold.

[NiceCupOfTea]

Thanks Eric - it's tempting, but this particular instrument is a massive expense (around £8k) so I can't help thinking it looks massively suspicious! Not to mention when I sell it as it is a second instrument it may not get replaced so I will suddenly have a huge tax bill in that tax year...

[Eric Mc]

Nothing suspicious at all. Are you planning on submitting a detailed capital allowance computation as an accountant would? That would give HMRC the information they would need to allay any suspicions they might have.