Capital Allowances

Question 1

What are capital allowances?

Answer 1

Taxable depreciation available in respect of expenditure on plant and machinery

Question 2

What is the set rate % of the WDA?

Answer 2

18%

Question 3

What expenditures on assets are included in the main pool?

Answer 3

All machinery, fixtures and fittings and equipment

Vans, forklift trucks, lorries, motorcycles

Cars with CO2 emissions of <50g/km for purchases on/after 6th April 2021

Question 4

What is the WDA?

Answer 4

Writing down allowance - given on the balance of the main pool at the end of the period of account.

If the period is longer or shorter than 1 year, WDA is increased/ decreased accordingly

Question 5

What are first year allowances (FYA)?

Answer 5

Allowance given in the period of account in which the expenditure is incurred.

ALWAYS given in full regardless of length of period of account

Question 6

What expenditures are given 100% FYA?

Answer 6

Eco - friendly expenditures, e.g. 0 emissions vehicles, charging points and low emissions cars.

Question 7

What is the annual investment allowance (AIA)?

Answer 7

AIA is available to a sole trader, partnership or company.

Can be used against qualifying expenditures including most plant and machinery BUT NOT CARS

Question 8

How much is the AIA?

Answer 8

£1million

Time adjusted for accounting periods longer/shorter than 12 months

Question 9

What kind of capital allowances are non low emission cars given?

Answer 9

Given WDA@18% and included in main pool if <50g/km

Question 10

What kind of capital allowances are low emission cars given?

Answer 10

FYA@100% if 0g/km

Question 11

How are assets with private use by sole trader/partner taxed?

Answer 11

Can only claim the business use % of the capital allowance

Private use not included

Question 12

How does a balancing charge arise?

Answer 12

When too many capital allowances have been given on an asset over its lifetime

Restrict if a private use asset, claim the business use %

Question 13

What are balancing allowances?

Answer 13

Extra capital allowances

Main pool - cessation of trade

Private use - any disposal

Question 14

What are the steps for calculating capital allowances?

Answer 14

1. Identify number of columns needed
2. Identify periods of account required
3. Add in tax written down value brought forward
4. Record acquisitions and disposals

Remember to restrict disposal proceeds to acquisition cost

5. Calc WDA, remember to restrict for short periods and private use
6. Add capital allowances into adjustment to profits computation

Question 15

Are Vans included as part of AIA?

Answer 15

Yes

Question 16

Are electric cars included as part of FYA?

Answer 16

Yes

Question 17

When employees have use of car, is there a private used restriction?

Answer 17

No

Question 18

When the costs are less than the proceeds, what happens?

Answer 18

The cost is used in any calculation

Question 19

What is considered a small pool?

Answer 19

<1000, write off