Chapter 3 - Capital Allowances

capital expenditure

one-off expenditure that bring benefits over a number of years

revenue expenditure

regular ongoing expenditure that only brings benefit in the period in which the expenditure made

allowances on plant and machinery

• allowances are computed for the same period as the accounts

• deducted from the taxable profits of the period

• include all additions and disposals occurred during the account period

• expenditure must be of capital nature

general pool for capital allowances on plant and machinery

expenditure on cars with CO2 emissions of 50g/km or less

annual investment allownce

• available for plant and machinery available during the accounting period

• when claiming allowance, there is 100% relief on plant and machinery expenditure

• £1 million for a 12 month period

• not available for cars

• can be scaled up/down for long/short account period (has to be less than 12 months for a company, unincorporated businesses can have an accounting period longer than 12 months)

first year allowance

• special allowances given in addition to AIA

• available at 100% on expenditure for zero emission cars

• never apportioned for long/short accounting periods

writing down allowances (WDA)

• 18% general pool on the remaining balance that isn’t covered with AIA

• 6% on special rate

• can be claimed on cars that fo not qualify for FYA and do not go into the special rate pool. Emissions must be between 1-50 g/km.

Basic proforma for WDA

treatment for disposals

• deduct proceeds from tax written down value b/f (TWDV B/F)

• proceeds from zero emission car (100% FYA claimed) is deducted from general pool

• if asset is sold for more than original cost, then only original cost is deducted from pool

treatment for periods that are no 12 months long

• AIA and WDA are adjusted = n/12

• FYA is never adjusted

• cannot be scaled for longer than 12 months

what happens when a business ceases trade

• no AIA/ FYA/ WDA

• add assets/ deduct disposals from pool as normal (treat at market value)

• if pool is positive, balancing allowance is given - BA is deducted from taxable profits (reduces tax)

• is pool is negative, balancing charge is given - BC is added to taxable profits (tax increases)

what falls within the special pool

• cars with CO2 emissions greater than 50g/km

• assets now wholly used for unincorporated businesses

treatment for assets used partly for private purposes (sole traders and partnerships)

if the business asset is used for personal use:

• asset is in a separate column in the tax computation

• calculate capital allowances as normal - then separate for business and personal use (only business use receives the allowance)

• BA/ BC will arise at date of disposal

• for sole trader/ partnership - make adjustment if sole trader/partner uses asset for private use

• for companies - no adjustment is needed

exemptions for assets used for private use

• asset used by employee/director for private use has no restriction

• company claims full 100% of capital allowance

full expensing for companies

• rate of 100% for assets in main pool and 50% for assets in special pool.

• only available to companies + expenditure on plant and machinery

• not available on cars

• disposal is valued at lower of cost and proceeds (disposal value)

• if asset has been relieved with AIA and is sold, disposal value is deducted

what happens if expenditure for plant and machinery qualifies for both AIA and full expensing

• use AIA to relieve expenditure up to AIA limit then use full expense to relieve the exces

structures and buildings allowance

• SBA is available for qualifying expenditure on new commercial structures and buildings for contracts entered into on/after 29 October 2018

• expenditure only on building itself (not for cost of land)

• if existing building (prior to 2018) is converted/renovated, it still qualifies

• commercial structures = offices, factories, warehouses, walls, bridges, tunnels, retail and wholesale premises

• allowance is 3% straight line over a 33.5 year period

• each building is treated separately

• asset must be in use to qualify

• pro-rated for long accounting periods

• adjustment is made for chargeable gain or capital loss