Chapter 7: Capital allowances

Question 1

The function test for plant

Answer 1

If an asset performs a FUNCTION in the trade it is plant.

If an asset provides a SETTING in which the business is carried out on it is not plant.

Therefore fixed walls, floors, ceilings, windows, stairs, or lift shafts are not plant

Question 2

AIA includes:

Answer 2

Plant and machinery

Integral features

Long life assets and

Private use assets but not cars

Pro rate AIA limit if period is longer or shorter than 12 months

AIA is given for motorbikes, vans and lorries

WDA for more than max AIA

Question 3

Main pool

Answer 3

Most purchases of plant, after AIA, go into the main pool

The pool qualifies for an 18% WDA (reducing balance basis) per annum

Deduct sale proceeds (limited to max of original cost) from pool before calculating WDA

Pro rate for periods longer/shorter than 12 months

Question 4

Cars

Answer 4

emissions 1 - 50 g/km to main pool and write down in the main pool at 18%

New cars 0 emissions 100% FYA

Over 50g/km special rate pool 6%

Never pro rate FYA

Question 5

Special rate pool 6%

Answer 5

WDA at 6% instead of 18%

Cars with over 50g/km

Long life assets (life over 25 years)

Plant and machinery integral to a building such as space or water heating systems, electrical and lighting systems, lifts and escalators, powered systems of ventilation, cooling or air purification, cold water systems

Question 6

Single asset pool

Answer 6

Assets with private use by sole trader or partner

Short life assets

Question 7

Private use assets

Answer 7

Trader only receives the business element of CAs on private use assets. AIA, FYA, WDA is calculated in full, it is the allowance which is pro-rated for business use

Balancing allowance / charge on disposal

Ignore private use by employees

Question 8

Short life assets

Answer 8

qualify for AIA

Fast depreciating asset can be kept out of main pool by making an irrevocable de-pooling election

Most assets can be de-pooled except for cars

Time limit for election: Jan, months after the relevant tax year ends

The benefit of the election is that traders obtain a balance adjustment on sale. Assuming proceeds are less than TWDV this will be a balancing allowance

If short asset is not disposed of within eight years of the end of the basis period in which the expenditure was incurred, at the beginning of the next period the TWDV is transferred to the main pool

Question 9

WDA for small pools

Answer 9

Small pool limit is £1000 for a month period (pro-rate for short or long periods)

does not apply for single asset pools

Question 10

Balancing charge / allowance

Answer 10

Balancing allowances only arise on cessation of trade

Balancing allowances are effectively a loss on sale

Balancing charge arise any time when sale proceeds exceed TWDV of the pool

Question 11

Year of cessation

Answer 11

No AIA, FYA or WDA in final accounting period

Instead there is a balancing allowance or charge on the disposal of assets

Question 12

SBA

Answer 12

Annual straight line allowance of 3% given over 33 years and 4 months

Expenditure which qualifies for AIA cannot qualify for SBA

Unused building is purchased from a developer, then qualifying expenditure is the price paid less the value of the land.

SBA can be claimed from when the building/structure is bought into qualifying use

Question 13

SBA - Exam smart

Assume SBA is only available on a building/structure constructed on or after 6 April 2020 (1st for companies)

If a question involves the purchase of a building (as opposed to new construction) assume that the SBA is not available