Chapter 3: Sole Traders - Capital allowances

Question 1

Expenditure qualifying for capital allowances

Answer 1

Capital allowances are available for expenditure on plant and machinery (not buildings)

Question 2

Definition of ‘plant’

Answer 2

The ‘function of trade’ test helps determine whether capital allowances are available

An asset ‘with which the business operates’ such as computer is likely to be classified as plant which capital allowances can be claimed

An asset is ‘part of the setting’ within the business operates (such as flooring) will not be classified as plant

Question 3

HMRC allowance of specific items to qualify as plant and machinery

Answer 3

Surveillance equipment

Fire and burglar alarm systems

Sprinkler systems

Moveable partitions

Swimming pools

Specialist sound insulation

Fish Tanks, Zoo cages

Question 4

Sole traders and partnerships

Answer 4

capital allowance dates match accounting period

less than 12 months it should be scaled down

More than 12 months scaled up

Question 5

Limited companies

Answer 5

Calculated for chargeable account period

12 months or less

never more than 12 months

Question 6

Annual Investment Allowance (AIA)

Answer 6

claim 100% whole cost of most plant and machinery additions

Allowance - £1,000,000

everything other than CARS

if exceeds limit goes into a pool

Question 7

AIA process

3 steps

Answer 7

1. Do they qualify?
2. Limit £1,000,000 (time appportion)

3) Claim

Question 8

what qualifies for Writing Down Allowance (WDA)

Answer 8

Expenditure on cars
Expenditure in excess of the AIA limit
Balances brought forward from earlier periods

Question 9

The General Pool

Answer 9

Pro Rated

18% reducing balance method

Question 10

Disposals from the general pool

Answer 10

deducting the lower of original cost or sale proceeds

Question 11

Cars

Answer 11

No AIA

depends on CO2 emmissions - in ref

Question 12

First Year Allowance (FYA)

Answer 12

Zero emmision cars (100%)

No expenditure limit

Not time apportioned

First year allowance refers to first year you buy the car

Question 13

Special Rate Pool

Answer 13

Over 50g/km (0-50 in general pool)

Time apportioned

other asset additions such as integral features such as lifts and esculators

Question 14

Private use of assets

Answer 14

The trader only receives the business element of capital allowances on private use assets,

Held in a single asset pool

In its own column in the capital allowance schedule

Question 15

Disposal proceeds higher than the TWDV

Answer 15

Balancing charge

reduce capital allowance

increase taxable profits

(too many allowances taken in the year)

Question 16

Disposal proceeds lower than the TWDV

Answer 16

Balancing allowance

increase capital allowances

reduce taxable profits

(not enough capital allowances in year)

Question 17

Disposal of assets with private use

Answer 17

Business use proportion only for balancing allowance and balancing charge

Question 18

Balancing charge on general pool or special rate assets

Answer 18

Balancing charge only happens when the balance on the pool is negative

Question 19

Balancing allowance on general pool or special rate asset

Answer 19

Only arise on cessation of trade (only when sale proceeds are less than the TWDV of the pool)

Question 20

small pool allowance

Answer 20

less than £1000 - can be written off

Scaled up or down for long or short accounting periods

Question 21

Structures and building allowances

What qualifys?
% and what method

Answer 21

New commercial structure and buildings
on or after 20th October 2018 AND
first use of business is non-residential

3% straight line basis

claim once the building comes into use, time apportioned

Question 22

Structure and building allowance

What cost can you claim?

Answer 22

Cost on construction which includes:

-Fees for design
-Preparing site for construction
-Renovation,repair and conversion costs
-Fitting out works

Question 23

Structure building allowance

Costs you can’t claim

Answer 23

Land acq including stamp duty and legal fees

Items which qualify for capital allowances

Planning permission

Financing, such as loans

Landscpaing