Capital Allowances

Question 1

What is WDA?

Answer 1

Writing down allowances: available annually

Question 2

What is AIA?

Answer 2

Annual investment allowance: available on certain assets in the period of acquisition

Question 3

What is FYA?

Answer 3

First year allowance: available on certain assets in the period of acquisition

Question 4

What are balancing adjustments?

Answer 4

A balancing allowance or charge may arise in the period of disposal

Question 5

Capital allowances are only available on what?

Answer 5

Capital allowances are only available on plant and machinery. These are assets with which the business operates rather than in which the business operates

Question 6

What assets can you use AIA against?

Answer 6

The AIA can be used against any assets purchased in the year that would be allocated to the main pool, except assets qualifying for 100% FYA and cars

Question 7

Can you carry unused AIA forward?

Answer 7

No

Question 8

What do you do if expenditure exceeds the available AIA?

Answer 8

Then the balance is eligible for the 18% WDA by transferring the balance into the main pool before calculating the WDA for the period

Question 9

Which allowances should you apportion?

Answer 9

Where there is a short or long period of account, the WDAs and AIA are time apportioned accordingly.

Never time apportion FYAs - the full rate is charged irrespective of the length of the period of account or the length of ownership of an asset within the period of account

Question 10

What do you deduct when an item from the main pool is sold?

Answer 10

Before giving WDAs for the period, deduct the lower of:

• disposal proceeds
• original cost

Question 11

What do you do if the disposed item is not sold?

Answer 11

The proceeds are assumed to be:

• The market value on the date of transfer if the asset is permanently removed from the business by the owner (to only be used privately from now on)
• The scrap value/compensation received if the asset is scrapped/destroyed

Question 12

What do you do if the asset being disposed of qualified for AIA or FYA in the year of acquisition?

Answer 12

The deduction is then made from the main pool or a single asset pool

Question 13

If there is an overall net BC, what happens?

Answer 13

If there is an overall net BC it is added to the tax adjusted trading profit

Question 14

What is the small pool WDA?

Answer 14

If the balance in the main pool on which the WDA is to be calculated is £1,000 or less then the whole amount can be claimed at once rather than having to write down at 18%

The small pool WDA is not available to private use assets

The £1000 limit is time apportioned for periods not equal to 12 months

Question 15

Who do the special rules as the private use of assets apply to?

Answer 15

The owner of the business only. Not to employees

Question 16

What do you do if the TWDV b/f exceeds the disposal value?

Answer 16

A balancing allowance is given as insufficient allowances have been claimed in the past

Question 17

What do you do if a business ceases to trade?

Answer 17

• No AIA, WDA, or FYA is available in the final period of account

Instead of the normal capital allowance computation:

• Add in any additions made in the final period
• Deduct any disposals made in the final period
• Calculate a balancing adjustment on each pool to bring the TWDV c/f on each pool to nil