Owner-Managed Businesses

Capital allowances for sole traders and partnerships

Produced by Tolley
  • 19 Oct 2021 08:19

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Capital allowances for sole traders and partnerships
  • Private use adjustments
  • Statutory flat rate for mileage
  • Know how and capital allowances
  • Patents and capital allowances

Capital allowances for sole traders and partnerships

Some aspects of capital allowances only apply to sole traders and partnerships, these are as follows:

  1. private use of assets which qualify for capital allowances eg cars

  2. capital allowances on know-how

  3. capital allowances on patents

Each of these is detailed further below.

Private use adjustments

Sole traders or partnerships may use assets for both business and private purposes. For example, it is common for a sole trader to have a car which is used mainly for business, but at the weekends or in the evenings, used for private purposes.

If all the costs of running the car are paid for by the business, the tax computations must be adjusted to take account of the private use. Therefore, motor expenses in the profit and loss account are reduced for the private element of those costs.

Likewise when considering the capital allowance computations, the capital allowance must be reduced by the private element. The private element is normally given as a percentage which is then applied to the computations. In practice, the private usage may need to be agreed with HMRC.

This is only applicable where the car is owned by the sole trader or partner. It is necessary to consider whether this is the case, or whether the car is in fact leased. See the Capital allowances on cars guidance note for further information.

Private use adjustments never apply to companies.

The director of the company might use a company car for his private purposes. However, this will not affect the tax computations for the company. Instead:

  1. trading deductions and capital allowances will be available to the company in full

  2. the director will have a taxable benefit for the use of the car under the car benefit rules

For a sole trader or partnership, the private proportion of annual investment allowance (AIA), first year allowances (FYAs), writing down allowances (WDAs) or balancing adjustments must be removed from the computation, therefore, all that remains is

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