6 - capital allowances

Question 1

what happens to capital allowances with profit

Answer 1

deducted from adjusted accounting profit
the cost of them is not included in PL so they are deducted from profit for tax

Question 2

do you have to claim the whole capital allowance

Answer 2

no, not if taxable profits aren’t high enough to need it, larger allowances can be carried forwards to future periods of account

Question 3

what are the two rules regarding disposal value

Answer 3

this cannot exceed the original cost of the asset
normally just sales proceeds

Question 4

what happens if the asset is given away or sold for less than market value?

Answer 4

disposal value becomes market value

Question 5

what is WDA?

Answer 5

writing down allowance

Question 6

what is writing down allowance

Answer 6

percentage of the main pool allowance for a period of account

Question 7

how much is the writing down allowance

Answer 7

18% per annum

Question 8

how does the WDA work in the main pool?

Answer 8

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

Question 9

what is the FYA?

Answer 9

first year allowance

Question 10

how does the FYA work

Answer 10

offers tax relief at 100% on qualifying expenditure in the year of purchase

Question 11

what are the three assets that normally qualify for FYA

Answer 11

new/unused zero emission goods vehicles
charging points for electric vehicles
new qualifying low emission cars

Question 12

what is the AIA used for?

Answer 12

annual investment allowance is used to give 100% tax relief to any expenditure

Question 13

what is the value of AIA

Answer 13

1,000,000 per annum between 1 jan 2019 to 31 march 2023

Question 14

how does WDA interact with AIA

Answer 14

any expenditure incurred where AIA is not given, is eligible for WDA

Question 15

what is the small pool limit

Answer 15

1000

Question 16

how does the small pool limit work

Answer 16

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

Question 17

how do single asset pools work and what for

Answer 17

normally on cars
not put into main pool but put into their own single pool

Question 18

how are cars treated as assets

Answer 18

not eligible for AIA
cars which are not low emission cars receive 18% WDA
cars with are low emission can receive FYA of 100%

Question 19

how are assets with private use treated in terms of pools and WDA

Answer 19

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

Question 20

what is a balancing charge

Answer 20

if too many capital allowances have been given over a liftime, a balancing charge arises

Question 21

how does a balancing charge occur?

Answer 21

if an asset is sold for an amount in excess of TWDV

Question 22

what is TWDV

Answer 22

tax written down value

Question 23

what is a balancing allowance

Answer 23

if too few capital allowances have been given on an asset, an balancing allowance can arise

Question 24

when does a balancing allowance occur

Answer 24

if an asset is sold for less than the TWDV

Question 25

when can a balancing charge occur

Answer 25

on main and single asset pools when they are sold, or when trade has not ceased

Question 26

when can a balancing allowance occur

Answer 26

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

Question 27

how are balancing charges added to the computation

Answer 27

either to reduce capital allowances in the period or by adding it to adjsuted profits

Question 28

how are balancing allowances added to the computation

Answer 28

onto capital allowances otherwise available