Chapter 14 Capital allowances – cars and other assets Flashcards
14.1 Cars
Lorries, vans and trucks are not considered cars for capital allowance purposes. For expenditure incurred before 1 April 2025, new and unused cars with CO2 emissions of no more than 50g/km are eligible for a 100% FYA. Expenditure on cars with CO2 emissions between 51g/km and 110g/km are added to the general pool and cars with CO2 emissions exceeding 110g/km are added to the special rate pool.
14.2 Private Use Adjustments
Sole traders or partnerships can use assets for both business and private purposes. If all the costs of running the car are paid by the business, the tax computations must be adjusted to take account of the private use. Therefore motor expenses in the P+L account will be reduced for the private element of the costs. The capital allowance will be reduced by the private element.
For sole traders or partnerships, the private proportion of AIA, FYAs and WDAs must be removed from the computation, so that all remains is the business element of the allowance. Any assets which are used partly for business and private purposes must be shown separately in their own column in the capital allowance computation. There is no adjustment where an asset is used privately by an employee. Instead:
• Trading deductions and capital allowances will be available to the employer in full, and
• The employee will have a taxable employment benefit for the use of the asset under the benefit rules
14.3 Balancing allowances and charges
Balancing adjustments apply when single assets in their own pool are sold. When an asset in its own pool is sold, the disposal proceeds are deducted from the pool. These proceeds are limited to original cost. The proceeds deducted from the pool with either:
• Exceed the TWDV of the pool, or
• Be less than the TWDV of the pool
Where proceeds exceed, a balancing adjustment will arise. The balancing charge is a negative capital allowance, it decreases capital allowances for the year and is an additional trading profit. Where proceeds are less, a balancing allowance will arise, this increases the total capital allowances claim for the year. Balancing adjustments do not usually arise on pooled assets until the cessation of the trade. A private use adjustment must also be made to any balancing allowance or balancing charge which may arise when a private use asset is sold.
14.4 Short life assets
A business may make an election in respect of a short life asset. The election will be appropriate where the predicted useful life of the asset is less than eight years, computer equipment is a good example. Cars and assets with partial non business use and expenditure in the special rate pool are excluded from this claim.
If a business acquires an asset is can make an election to depool the asset, the asset will sit in its own column. This means a balancing allowance is made if the asset is sold within an eight-year period. This will accelerate capital allowances. HMRC accept that large numbers of short-life assets can be bunched as long as the capital allowance computations give the correct statutory result.
14.5 Cessation of a business
When a business closes down, the capital allowances columns must be shut down. Balancing adjustments will arise in the separate pools. When the trader keeps an asset for his own private use on cessation of the business, the disposal value is the market value at the date of cessation. No WDAs, FYAs or AIAs are given in the accounting period of cessation.
14.6 Balancing adjustments – general and special rate pools
A balancing allowance will only ever arise in the general or special rate pool on the cessation of trade. A balancing charge can arise in the general or special rate pool when plant is sold in the year and the disposal proceeds exceed the TWDV.
14.7 Capital allowances for structures and buildings
SBA can be claimed in respect of a building or structure that is used for the purposes of a business where construction begins on or after 29 October 2018 and the first use of the building is non-residential. Relief is available for buildings including offices, retail premises, factories and warehouses.
SBA is calculated at a flat rate of 3% of qualifying expenditure per annum, this is a straight-line basis. The allowance starts on the later of the date the expenditure is incurred and the date when the building is first brought into business use. If the allowance starts part way through an accounting period, the SBA will need to be proportionally reduced. The SBA is proportionally reduced or increase for short and long APs.
There is no balancing adjustment if a building in respect of which an SBA has been claimed is disposed of. The old owner will not be entitled to claim the SBA from the disposal. The new owner can claim SBA of 3% of the original expenditure over the remainder of the 33.3-year period, the amount they pay is irrelevant.
