Capital allowances

Question 1

Capital allowances

Answer 1

A form of tax allowable depreciation
Deducted from adjusted trading profits
Available to sole traders, partnerships and companies
Calculated for each accounting period and must me claimed by the taxpayer who decide how much to claim up to the maximum

Question 2

Capital allowances on plant and machinery

Answer 2

Assets which perform a function in a business qualify
Assets which merely form part of the setting in which the business is carried out do not qualify

Question 3

Structures and buildings allowance

Answer 3

Commercial buildings and structures built after 29/10/18 qualify
The cost of the land on which the building / structure is built and residential properties do not qualify

Question 4

Acquisition cost

Answer 4

Purchases recorded at purchase price net of recoverable VAT
VAT inclusive price used if VAT is irrecoverable
If trader brings in a personally-owned asset to use in the business, cost = market value when brought into the business

Question 5

Availability of capital allowances on the purchase of fixtures as part of the acquisition of a building is conditional on…

Answer 5

The seller having either claimed first year allowances on the fixtures or allocated them to a capital allowance pool prior to the date of sale
The value of the fixtures being formally fixed (joint election by seller and purchaser which specifies the amount of the sale proceeds to be allocated to the fixtures)

Question 5

Disposal value

Answer 5

The lower of
- disposal proceeds
- original cost
If asset given away or sold for less than market value, disposal value = market value on date of disposal

Question 6

Annual Investment Allowance

Answer 6

£1,000,000
Available to a sole trader, partnership or company on the purchase price of the qualifying plant and machinery purchased in an accounting period

Question 7

Assets qualifying for the main pool

Answer 7

All machinery, fixtures and fittings and equipment
Vans, forklift trucks, lorries and motorcycles
2nd hand zero emission cars
Cars with CO2 emissions of 1-50g/km
18% writing down allowance given on the balance of the main pool at the end of the accounting period

Question 8

Assets qualifying for the special rate pool

Answer 8

Long life assets ( > 25 years and > £100k spent on asset in an accounting period)
Thermal insulation and solar panels
Integral features to a building
Cars with CO2 emissions > 50g/km
6% writing down allowance given on the balance of the special rate pool at the end of the accounting period

Question 9

Assets qualifying for the 100% First Year Allowances

Answer 9

New electric cars
New zero emission goods vehicles
R&D capital expenditure
Electrical charge-point equipment
Purchase of new plant and machinery to use in a designated enterprise zone
Available in the accounting period in which the asset is purchased
Not scaled up or down for long / short accounting periods

Question 10

Cars capital allowances summary

Answer 10

CO2 = 0g/km = 100% FYA
1g/km < CO2 < 50g/km = Main Pool (18% WDA)
CO2 > 50g/km = Special rate pool (6% WDA)

Question 11

WDA for small goods

Answer 11

Main pool or special rate pool balance can be written off if balance is below £1000 after purchases, disposals, AIA and FYA but before WDA)

Question 12

Assets with private use by sole trader or partner

Answer 12

AIA / FYA / WDA calculated in full in the private use asset column
Allowance in the allowance column scaled by the % of business use

Question 13

Balancing adjustments are required to correct a situation where…

Answer 13

• Too many capital allowances have ben given on an asset and it is sold for more than its tax written down value (balancing charge)
• Too few capital allowances have been given on an asset and it is sold for less than its tax written down value (balancing allowance)

Question 14

Short-life assets

Answer 14

Kept out of the main pool by making an irrevocable de-pooling election by 31 January after the end of the tax year
Trader obtains a balancing adjustment on sale
Qualify for the AIA - only beneficial to elect if the AIA is fully utilised for the period of purchase

Question 15

Pre-trading expenditure

Answer 15

Capital expenditure incurred before a business starts is eligible for capital allowances
It is treated as incurred on the first day of trading as so is included in the capital allowances computation for the first accounting period
Rate of allowances determined by the actual date of the expenditure

Question 16

Capital allowances for the final period of account upon cessation

Answer 16

Any items acquired in the final period added to TWDV b/f
No WDAs / FDAs / AIAs given for the final accounting period
Disposal value of assets in each pool deducted from the balance, giving rise to balancing allowances / charges
Any assets taken over personally by the owner are treated as sold for market value

Question 17

Qualifying structures

Answer 17

Roads
Walls
Bridges
Tunnels

Question 18

Structures and buildings allowance

Answer 18

Contract to build entered after 29/10/2018
First use of the building is non-residential
Each commercial building / structure treated separately
3% of the cost of the structure or building on a straight-line basis
Scaled up / down for long / short accounting periods
3% based on acquisition cost if bought from a developer (excluding land)
Claimant must have an interest in the structure / building
Can only be claimed once the building first comes into use
Available to the person with the interest in the land whether the asset is used in a trade / profession or owned for rental

Question 19

Qualifying buildings

Answer 19

Offices
Shops
Warehouses
Factories
Hotels
Care homes

Question 20

Structures and buildings allowance for seller of asset

Answer 20

Time apportions their relief up to the date of disposal - no balancing adjustments on disposal
Increases their proceeds on disposal by the allowance claimed to the date for the purposes of calculating the chargeable gain on disposal

Question 21

Structures and buildings allowance for buyer of asset

Answer 21

Takes over the remaining allowances over the remainder of a 33.3 year period
Relief continues to be based on 3% of the original cost of the asset - no uplift for any increase in value