6 - capital allowances Flashcards
what happens to capital allowances with profit
deducted from adjusted accounting profit
the cost of them is not included in PL so they are deducted from profit for tax
do you have to claim the whole capital allowance
no, not if taxable profits aren’t high enough to need it, larger allowances can be carried forwards to future periods of account
what are the two rules regarding disposal value
this cannot exceed the original cost of the asset
normally just sales proceeds
what happens if the asset is given away or sold for less than market value?
disposal value becomes market value
what is WDA?
writing down allowance
what is writing down allowance
percentage of the main pool allowance for a period of account
how much is the writing down allowance
18% per annum
how does the WDA work in the main pool?
the allowance comes off the capital allowance balance, this is then the allowance for the year. the rest of the main pool balance is carried forwards
what is the FYA?
first year allowance
how does the FYA work
offers tax relief at 100% on qualifying expenditure in the year of purchase
what are the three assets that normally qualify for FYA
new/unused zero emission goods vehicles
charging points for electric vehicles
new qualifying low emission cars
what is the AIA used for?
annual investment allowance is used to give 100% tax relief to any expenditure
what is the value of AIA
1,000,000 per annum between 1 jan 2019 to 31 march 2023
how does WDA interact with AIA
any expenditure incurred where AIA is not given, is eligible for WDA
what is the small pool limit
1000
how does the small pool limit work
if the balance on the main pool, after additions/disposals but before claiming WDA is less than the SPL then the main pool can be written to nil
how do single asset pools work and what for
normally on cars
not put into main pool but put into their own single pool
how are cars treated as assets
not eligible for AIA
cars which are not low emission cars receive 18% WDA
cars with are low emission can receive FYA of 100%
how are assets with private use treated in terms of pools and WDA
they are kept in a single asset pool, AIA and WDA is still used but the trader can only claim the business element of the allowance
what is a balancing charge
if too many capital allowances have been given over a liftime, a balancing charge arises
how does a balancing charge occur?
if an asset is sold for an amount in excess of TWDV
what is TWDV
tax written down value
what is a balancing allowance
if too few capital allowances have been given on an asset, an balancing allowance can arise
when does a balancing allowance occur
if an asset is sold for less than the TWDV
when can a balancing charge occur
on main and single asset pools when they are sold, or when trade has not ceased
when can a balancing allowance occur
can only arise on the main pool if the business has come to an end, they can arise on single asset pools when the assset is sold
how are balancing charges added to the computation
either to reduce capital allowances in the period or by adding it to adjsuted profits
how are balancing allowances added to the computation
onto capital allowances otherwise available
