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Capital allowances: a guide for authors

Created: January 2019

Capital allowances let you claim tax relief on capital expenditure. Relief is available on items such as computers, office furniture and equipment, reference library, vehicles and other physical assets you may use in your professional activities.They represent HMRC’s version of depreciation, which cannot be claimed in any other way.

Currently, authors can claim “Annual Investment Allowance (AIA)” on expenditure incurred during each tax year of up to £200,000. This limit was temporarily increased to £1m in the last budget for 2 years starting from 1st January 2019. AIA of up to 100% of the cost of the asset can be claimed in the tax year in which it is purchased.

It’s not compulsory to claim 100% of the purchase price in the year of purchase. In some cases, authors might prefer to claim a lesser amount, either to maximise the tax saving over the years, or sometimes to avoid allowances being wasted.

An example might help. 

An author whose sole income is from writing makes a profit of £15,000. Having bought office furniture and equipment costing £8,000, it would probably be best to claim only £3,150, reducing the taxable income to £11,850 to equate to the tax free personal allowance.

In this instance there would be no income tax to pay, but a Class 4 National Insurance liability would remain for those below retirement age.

The unclaimed balance of £4,850, known as the “pool”, can be carried forward to future years, when Writing Down Allowance (WDA), currently of up to 18% of the remaining, reducing balance can be claimed each year.  When this balance reaches £1,000, you can claim all or part of it.

Where no capital allowance claim has been made previously for any asset, WDA can be claimed at 18% on the cost or market value at the time it is brought into professional use. Once you start writing activities, you can claim AIA on assets you’ve bought previously, such as reference library, office equipment and furniture etc, that are still in use.

Unless you’re claiming a mileage allowance for business car use, you can claim capital allowances, based on the cost of the car and its CO2 emissions, restricted to the business use percentage.

Instead of claiming actual car expenses and capital allowances, you can claim a fixed allowance for business mileage as follows:

  • First 10,000 miles 45p
  • After 10,000 miles 25p

In addition to the mileage allowances, you can also claim road tolls, congestion charge and parking.

Mileage allowances are claimed as expenses in the self-assessment tax return. Capital allowances are shown separately. There are currently boxes for AIA and WDA included separately on the tax return form.

For more information on capital allowances, contact Barry Kernon on:

T: +44(0)20 7874 7875

E: bkernon@hwfisher.co.uk