Tax Glossary

Tax Written Down

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Last updated on:
March 17, 2024

Tax written down value is a term closely associated with Capital Allowances in the realm of taxation, particularly for business assets. It's essential for calculating tax relief on certain business assets that don't qualify for immediate full deductions under the Annual Investment Allowance (AIA).

Decoding Tax Written Down Value

When you acquire an asset for your business, you often can subtract its entire cost from your pre-tax profits through the AIA. However, some assets, like vehicles or items previously used personally, fall outside the AIA's scope. Here, Writing Down Allowances come into play, necessitating the knowledge of the asset's tax written down value.

This value is the asset's initial purchase cost minus any capital allowances claimed on it so far.

  • For new assets, the "original value" is what your business paid for it.
  • For pre-used assets, it's their market value when introduced to your business.
  • Adjustments must be made for personal use if you're self-employed and use the asset both personally and professionally.

Illustrative Scenario:

Consider purchasing a laptop for £1,000, intended for 50% business and 50% personal use. In this scenario, its business "original value" would be £500, reflecting its proportional use in your business activities.

For assets fully covered by AIA, the tax written down value is zero, as the entire value has already been claimed.

Example in Action:

Jill acquires a Fiat for £10,000, planning to use it 80% for business and 20% for personal trips. Cars are ineligible for AIA, prompting Jill to claim Writing Down Allowances at 18%.

  • The car's "original value" for business use is £8,000 (80% of £10,000).
  • First-year capital allowance: £8,000 x 18% = £1,440.
  • End-of-first-year tax written down value: £8,000 - £1,440 = £6,560.
  • Second-year capital allowance: £6,560 x 18% = £1,180.80.
  • End-of-second-year tax written down value: £6,560 - £1,180.80 = £5,379.20.

Understanding tax written down value is crucial for accurately claiming tax relief on business assets over time, especially for those not qualifying for immediate deductions under AIA.

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