Capital allowance and Cash basis of accounting

Question 1

3 types of capital allowances?

Answer 1

FYA (100%)- New 0 emission vehicles and charger (never time apportion)
WDA (18%)- Main pool: 18% x TWDV p.a. (time apportion)
AIA (100%)- acquisition of any asset except car of £1,000,000

Question 2

What is the main pool and small main pool? What is included and mention disposal rules…

Answer 2

Main pool: cars between 1 to 50g/km Or second hand 0 emission cars

Small main pool: if TWDV before WDA is less than 1000 then write down to 0 but make sure to time apportion

Main pool disposal- before WDA deduct lower of proceeds or original cost

Question 3

What is special rate pool? What does it include?

Answer 3

WDA= 6% x TWDV (apply after AIA)
o Includes: long life assets, integral features, thermal insulation, solar panels, cars with emissions below 50

Question 4

What are long life assets and integral features?

Answer 4

Long life asset has life over 25 years and total cost in 12 month of over £100,000
 does not include cars, ships, P&M use in retail shops, showrooms, offices

Integral features: electric systems, cold water systems, lift and escalator

Question 5

If a trader cannot reclaim VAT on an asset…

Answer 5

claim CA on VAT inclusive price

If can reclaim-use exclusive price except cars with private use

Question 6

What are short life assets and when can you de-pool? give time limits

Answer 6

Short life assets: main pool assets that are expected to be used for less than eight years

Can de-pool to place SLA in single pool rather than main pool. Time limits for this are:
 Sole trader- 31 Jan after end of tax year of expenditure
 Company- two years after end of accounting of expenditure

Question 7

What is Structure and Building Allowance? What is the rate?

Answer 7

Contract to build entered on or after 29th October 2018 qualifies for allowance. These contracts include qualifying expenditure of commercial buildings/structures (office/road) but not land, fees or buildings that function as dwelling e.g. student accom

Only for non-residential land

Rate= 3% straight line over 12 months. Time apportion from when bought

Question 8

Formula for tax adjusted trading profits

Answer 8

Total cash receipts - Total allowable business expenses

Question 9

Give 4 examples of taxable receipts

Answer 9

Unpaid drawings should added to trading profit at reasonable sum

Sale of P&M (not cars) classed as taxable trading receipts except for non-depreciating

If trader uses capital asset privately, market value of asset at date is treated as taxable receipt

If trader ceases to trade, market value of inventory including WIP is treated as taxable receipt in final period

Question 10

What expenses are allowable under cash basis? (5)

Answer 10

Allowable: Most normal adjustment to profit rules on business portion

Including: Payment to buy P&M (not cars) however capital allowance cannot be claimed after this

P&M (not cars) under Hire Purchase agreement- deduction for each payment

Payment to buy cars are not allowable expenses (not deductible) but you can claim capital allowance or use fixed rate mileage allowance

For leased cars 15% restriction for higher emission cars did not apply. Can deduct lease payments no matter emission

Bad debts not allowable (unlike in accruals basis)

Question 11

List 3 impact of cash basis on other taxes

Answer 11

o Partner cannot deduct from their income, the interest paid on the loan to invest in the partnership or to buy P&M
o Selling plant and machinery will be taxed at trading income not capital gains
o VAT cash accounting scheme must also be used