What is tax written down value?

Definition of tax written down value

The tax written down value of an asset is the original value of the asset less any capital allowances you've claimed on that asset.

In this context, the asset's "original value" would be the amount that you brought it into your business for. If your business bought the asset new, then the original value would be the amount your business paid for the asset. If you used the asset personally before bringing it into your business, then the original value would be the asset's market value at the time you brought it into your business.

If you're a sole trader, you'll also need to adjust the original value down if you use the asset privately as well as for your business. For instance, if you bought a new computer for £2,000 and you're going to use it 50% for business and 50% personally, the asset's original value in your business would be £1,000 – not £2,000.

If you've claimed annual investment allowance on an asset, its tax written down value will be nil, because the annual investment allowance would have been for 100% of the asset's value.

Example of tax written down value:

Jack buys a car to use 80% for business and 20% for private journeys. He pays £5,000 for the car.

He's not allowed to claim the annual investment allowance on a car, so he claims capital allowances of 18%.

The original value of the asset is:

£5,000 x 80% *= £4,000*

In the first year Jack owns the car, the capital allowance he can claim on it will be:

£4,000 x 18% *= £720*

The car's tax written down value at the end of that year will be:

£4,000 - £720 *= £3,280*

In the second year Jack owns the car, the capital allowance he can claim on it will be:

£3,280 x 18% *= £590*

The car's tax written down value at the end of that year will be:

£3,280 - £590 *= £2,690*

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.

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