Capital allowances Flashcards
Capital allowances:
Tax allowances for certain types of capital expenditure
Writing down allowance (WDA):
For each period of account a business may claim a capital allowance known as a WDA on a proportion of the value of its capital assets.
Tax written-down value (TWDV):
The WDA is claimed as a capital allowance and is deducted from the pool balance. The remainder of the value of the pool is then carried forward to the start of the next period of account
First year allowance (FYA):
A type of capital allowance, which offers tax relief at 100% on qualifying expenditure in the year of purchase. There is no limit on the qualifying amount although the qualifying assets are very restricted.
Annual investment allowance (AIA): A type of capital allowance, which offers tax relief at 100% on qualifying expenditure in the year of purchase. The maximum deductible from taxable profits is £1,000,000 pa.
Annual investment allowance (AIA):
A type of capital allowance, which offers tax relief at 100% on qualifying expenditure in the year of purchase. The maximum deductible from taxable profits is £1,000,000 pa.
Small pool limit:
If the balance on the main pool, after additions and disposals but before claiming the WDA, is less than the small pool limit, a WDA can be claimed up to the value of the small pool limit. This means that the main pool may be written down to nil, rather than a small balance being carried forward on which allowances have to be claimed each year.
Balancing charge:
If too many capital allowances have been given on an asset over its lifetime, a balancing charge arises. This might happen if an asset is sold for an amount in excess of its tax written down value.
Balancing allowance:
If too few capital allowances have been given on an asset over its lifetime, a balancing allowance may arise. This might happen if an asset is sold for an amount less than its tax written down value.
