6: Capital Allowances Flashcards
What are capital allowances and what do they apply to?
Form of depreciation for tax purpsoes
Calculated at standard rates that apply to all businesses.
Only available on plant and machinery
How would you define Plant and Machinery?
Assets WITH which the business operates. Must place an active role
Machinery: machines, motor vehicles and computers
Plant: fixtures and fittings, furniture and equipment
Also
- building alterations incidental to installation of P&M
- licences to use computer software
What are the two pools?
Main pool: all assets not private use, pooled together to allow calculation of a single capital allowance. Not cars over 50g Co2
Private use pool: separate pool for each asset that is partly for private use. Only the business proportion can be claimed
What are the four types of capital allowances?
Writing Down Allowance: annually, on everything. 18%.
Annual Investment Allowance (AIA): 100% (up to £1mil) off some new purchases.
First Year Allowance (FYA)s: 100% on electric stuff.
Balancing adjustments: occur when there are disposals.
What is a writing down allowance
18% off any assets in the balance of the pools in the end of the accounting period.
TIME APPORTION!
What is the Annual Investment Allowance?
100% off new assets, or £1mil tops.
Cannot be used on assets qualifying for FYA or cars.
Items that qualify for this can also qualify for WDA.
Time apportion
What are First Year Allowances?
100% off on:
- new and unused zero-emission cars and goods vehicles
- charging points for electric vehicles
NEVER TIME APPORTION. Full 100%.
It’s always 100%, even for private use assets
How do disposals work with capital allowances?
If the asset is sold, deduct the lower if:
- disposal proceedings
- original cost
If the asset is permanently removed, deduct:
- the market value on date of transfer
If the asset is destroyed, deduct:
- the scrap value/compensation received
How does the small pool WDA work?
If the balance on the main pool is less than £1000 when you come to do WDA, then write it all off.
Still time apportioned.
Only for main pool!
How do private use assets work?
Only claim the business proportion when calculating allowances!
What’s the difference between balancing charges and balancing allowances?
Both go at the end to get the written down amount of pool to 0… sometimes!
If, after a disposal, the amount in the pool is negative:
- apply a balancing charge to get it to zero.
If, after a disposal, the amount is positive:
- if a disposed private use asset, apply a balancing allowance to get it to zero.
- if a disposed main use asset, do nothing, unless the business in the cessation of trade!
How do allowances work when a business ceases to trade?
No allowances are allowed in the final period of accounts, apart from balancing.
Just do this:
- add in additions
- deduct disposals
- calculate a balancing adjustment on each pool to get the total to 0.
How does time apportioning work for AIA and WDA?
AIA - basically never apportion, only if it might go over a million!
WDA - only time apportion if there is a short or long accounting period.
Do not shorten for length of ownership!!!
When are balancing allowances allowed in the main pool?
ONLY at the cessation of trade!
How does private use work by an employee?
It doesnt count at all!!
Has to be a business owner
