Chapter 11 - Income from self-employment: Capital Allowances Flashcards
Eligible expenditure: 5
- Plant and machinery
- Patent rights
- Know-how
- Research and Development
- Renovation of business premises
Case defining plant and machinery?
Yarmouth v France (1887) - “whatever apparatus is used by a businessman for carrying on his business, not his stock in trade which he buys or makes for sale, but all his goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business”.
Different between assets with carry out active/passive function:
Active: the apparatus with which the business is carried on
Passive: The setting in which the business is carried on
Active qualifies as plant and machinery - passive does not
Expenditure statutorily deemed to be plant and machinery: 5
Expenditure on thermal insulation of a building
Expenditure on assets necessary to safeguard personal security
Expenditure on integral features of a building or structure
Expenditure on computer software
Expenditure on building alterations, incidental to installation of plant and machinery
What forms the main pool of capital allowances?
General plant and machinery.
Motor vans, motor cycles and lorries
Motor cars if do not exceed 130g/km
Low emission cars (not exceeding 75g/km) are eligible for 100% first year allowance and do not join any pool
What forms the special rate pool?
Cars exceeding 130g/km
Acquisition or replacement of certain “integral features” of building such as electrical systems water systems heating lift/escalators external solar shading
Expenditure on thermal insulation and solar panels
Assets with life longer than 25years only if company spends over 100k a year on such items
WDA rules
Personal - business
Hire purchase
Items of P&M owned by the trader and then bought into the business at a later date are treated as if purchases at their market value on that date.
Plant and machinery acquired by hire purchase is treated as if bought for its cash price.
Disposal of pool items during the chargeable period- disposal value is subtracted from pool equal to: 3
- Sales proceeds if the asset is sold on the open market
- Market value on the date of disposal, if the asset is given away or sold for less than market value
- Scrap value or compensation received if the asset is scrapped or destroyed.
If disposal value exceeds original cost of item, only the original cost os subtracted from the pool.
WDA £1,000 rule
If the balance in the main pool or special rate pool before calculating WDA is £1,000 or less, the business may claim a WDA of any amount up to the amount of that balance. This rule means that it is not necessary for businesses to carry forward very small pool balances for many years.
What is Annual investment allowance? AIA
Expenditure on plant and machinery (not motor cars) up to a specified amount each year is eligible for 100% AIA. If expenditure exceeds maximum AIA, the excess enters appropriate pool.
AIA Between businesses
If businesses are related (trade or from same location), only one AIA can be claimed. If not- 2 can be claimed
What is a balancing allowance/charge
If disposed machinery exceeds balance of expenditure in the relevant pool this indicates that the capital allowances given exceeds the depreciation which has actually occurred. In these circumstances the written down value of the pool is set to 0 and a balancing charge is made, equal to the amount of the excess - this is a negative capital allowance which is added to trading profits for tax purposes.
Non-pooled assets
- assets with some private use
- short life assets
- expensive motor cars acquired before april 2009
Short-life assets 2
Can elect an asset( not car) should be treated as a short life asset. if this de-pooling election is made the asset is treated on an individual basis then:
if not disposed of within 8 years it is transferred to main pool
If disposed of within the eight year period, a balancing allowance will be given (or balancing charge made).
elections must be made by 31 jan in the second tax year
