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Tax relief on your car and computer

You may already own a car or computer prior to commencing self employment. If so, you will bring them into your tax calculations at valuation on commencement.

Your car and computer are classed as capital expenditure for the purpose of obtaining income tax relief. Relief is not given directly against your profit for the year, as it would be if they were revenue expenses, and instead, relief is given in the form of capital allowances.

Capital allowances take the form of either writing down allowance (WDA) or first year allowance (FYA). FYAs are available on the cost of plant and machinery and are available only in the year of acquisition. The rate changes from year to year and is announced in the Budget. The cost of your computer falls into the category of plant and machinery and therefore FYAs are available. In the second and subsequent years of ownership, WDA is claimed at the rate of 25% per annum on a reducing balance basis.

In the case of your car, FYAs are not available, and only WDAs are available. These are calculated at the rate of 25% per annum on a reducing balance basis, except that for �expensive� cars (with a cost of more than �12,000), WDA is limited to �3,000 per annum.

For capital expenditure which is partly business and partly private, the capital allowance claim is adjusted so that you only claim for the business element. This will be the case for your car, but the likelihood is that your computer will be used wholly for the purpose of your practice and a claim made in full.

If you sell or scrap the car or computer for less than its written down value, you will obtain relief for the difference between the written down value and the proceeds, if any. Alternatively, if the asset is sold at a value in excess of the written down value, there will be tax to pay on the profit.

You do, therefore, eventually get full tax relief on the difference between the cost and sale proceeds of the car or computer for the time they are used for business purposes, subject to a deduction for private use.