October 26th, 2012 / Insight posted in

Computer fails to qualify for tax break

SK writes: I run a small business from home. I purchased a computer for the business last October and in calculating my taxable profits I wrote off 25% of the purchase price against tax for 1999-2000, as usual. Can I write off the remaining 75% for 2000-01 following the chancellor´s budget announcement? Or did I jump the gun?

Capital allowances are available in respect of certain capital spending where the assets are for a trade. Computer equipment qualifies under the rules. Normally, capital allowances are calculated at the rate of 25% on the cost of the asset and then 25% of the reducing balance in later years. However, since July 1997 the rules have allowed an increased rate of capital allowances in the first year of acquisition of the asset. First-year allowances have been available at the rate of 40% and therefore in your example you would have been able to claim an additional 15% of the cost of the computer against your taxable profits of the business in the year 1999-2000. The chancellor announced in his budget last month that small businesses that invest in information and communication equipment from April 1, 2000 will be able to claim 100% first-year allowances. This means that businesses that qualify will be getting immediate relief on the whole cost of the equipment. Unfortunately, this allowance will not apply to the computer you purchased last October.