Capital Allowances For Unincorporated Business (CH4) Flashcards
What are capital allowances
Capital allowances are available on the cost of plant and machinery used in the business and are deducted from adjusted profits to arrive at taxable profits
-given instead of depreciation
-calculated as an expense for an accounting period
-scale allowances down/up if the accounting period is <> 12 months
-capital allowances are calculated based on the purchase price of the asset
- if the business is vat registered this should be net of recoverable input vat
- if the asset was purchased in the 7 years before commencement of trade it will be treated as acquired at market value on the day trade commenced
Qualifying assets for CA
Buildings are not plant therefore not fixed walls, floors, ceilings, windows, stairs or lift shafts
Function test
- If an asset performs a function in the trade, it is plant (eg cars, computers, machinery, dishwashers)
- If it provides a setting in which the business is carried on, it is not plant. A football club stand has been held to be a setting, as have false ceilings used to hide air conditioning pipes
Annual investment allowance (AIA) of CA criteria/rates (4 lines)
- 100% allowance on qualifying expenditure (max allowance of £1m per annum)
2.scale allowances down/up if the accounting period is less / more than 12 months long
3.not available for cars, but AIA given for motor bikes, vans and Lorries
4.WDA given on expenditure in excess of the qualifying amount
Main pool criteria/details (3 lines) CA?
- Most purchases of plant, after the AIA has been used, go into the MP
2.the pool qualifies for an 18% WDA (reducing balance basis) per annum
3.pro rate for periods of account/accounting periods less than or greater than 12 months
Special rate pool qualifying assets/criteria rates (4 lines includes table)?
1.cars with CO2 emissions >50g/km
2.long life assets (life > 25 years and total expenditure in a 12 month period of account of >=£100k eg aircraft)
3. P&M integral to building (see below examples)
4.expenditure on replacement of P&M integral to a building which is more than 50% of the replacement cost of the asset (when the expenditure is incurred). Otherwise, the expenditure is treated as allowable revenue expenditure (ch3)
Integral examples
Space or water heating systems
Electrical and lighting systems
Powered systems of ventilation,cooling or air purification
Lifts and escalators
Cold water systems
Planning point for AIA ?
If possible claim AIA on long life assets and integral P&M in preference to claiming it on assets that could go into the main pool this qualifying for 18% WDA
100% FYA criteria/rates? (2 lines)
1.Businesses purchasing P&M qualifying for 100% FYA are able to take an allowance equal to the cost of the asset in the period of account of purchase (never time apportioned for periods not equal to 12m)
2.qualifying assets: energy saving technology or new zero emission (electric) vehicles
What car g/km do you need for each pool / FYA (MP AND SRP)?
New zero emission cars : 100% FYA
Co2 emissions <=50g/km : 18% WDA IN MP
Co2 emissions >50g/km :6% WDA SRP
How are private assets treated for CA ?
(3 lines)
1.the trade only receives the business element of CA on private use assets(PUA)
2.PUA are not pooled - each such asset has its own column in CA working
3.there will be a balancing allowance or charge, essentially loss or profit, on disposal
Ignore private use by emoooyees as they will be taxed on the benefit arising on company car (bik)
CA - disposals criteria + pro forma
1.The power of sales proceeds and the original cost of an asset are deducted from the pool when the asset is dispossessed of (before calculating the WDA)
2.balancing allowances and charges pro forma
TWDV BF X
disposal (proceeds limited to cost) (X)
=X/(X)
Balancing allowance /(charge) (X)/X
CA - including table of what happens? (Definition, when they arise in pools and when they arise on non pool assets (PUA/Short life)) for balancing allowances?
Balancing allowances:
Defn:extra CA given if sales proceeds<TWDV of the pool (eliminates remaining balance on pool)
When arise in pool:only upon cessation of trade (if sale proceeds <TWDV of the pool)
When arise on non pool assets:if assets disposed of for proceeds <TWDV
CA - including table of what happens? (Definition, when they arise in pools and when they arise on non pool assets (PUA/Short life)) for balancing charges?
Balancing charges:
Defn: negative CA given which arise at any time when sale proceeds > TWDV of the pool
When arise in pool:whenever sale proceeds >TWDV of the pool
When arise on non pool assets:if assets disposed of for proceeds >TWDV
How are short life assets (SLA) treated in CA? (5 lines)
1.Fast depreciating assets, (eg computer equipment), can be kept out of the main pool by making an irrevocable de-pooling election by 31 January after the end of the tax year.
2.most assets can be de-pooled, except for cars, assets with any non business use and assets in the SRP.
3.the benefit of the election is that the trader obtains a balancing adjustment on sale. Assuming proceeds are < TWDV this will be a balancing allowance
4. SLA qualify for the AIA, hence only beneficial to elect SLA, if the AIA is fully utilised for the period
5. If held for more than 8 years after the end of the accounting period in which it was purchased, the trader transfers the remaining tax written down value into the main pool
Balance in pool <£1k what happens?
If the main pool and/or SRP balance is less than £1k (after purchases, disposals, AIA AND FYA, but before WDA), it can be written off (take the whole balance as WDA)
What’s happens in year of cessation?
1.no AIA, FYA, or WDA in final accounting period, instead there will be a balancing allowances or charges on the disposal of assets
2.the pro forma calculation for the final year would like this below:
Balance bf
Additions
Disposal proceeds or MV if the trader takes over the asset
Balancing allowance
