Chapter 9 - Capital Allowances - Basic Comps

Question 1

General Pool

Answer 1

Plant and machinery is usually pooled together into the general pool/main pool. The rate of CAs on the general pool is 18%. WDV is then carried forward

Question 2

Gen Pool Additions

Answer 2

Additions are brought in at cost. If the costs includes VAT:
- If the trader is VAT registered, the VAT is recoverable and the addition should be the VAT exclusive amount
- If not, the addition should be the VAT inclusive amount
If the asset was originally used privately, the value will be the market value when it begins being used in the business

Question 3

Gen Pool Disposals

Answer 3

Disposal value is usually the sale proceeds unless
- asset sold for less than market value to someone who can’t claims CAs
- Where the P&M is given away; and
- Where the trader stops using the P&M in the business
If the proceeds exceed the original cost, the disposal value is limited to the cost price

Question 4

Gen Pool - Short and Long Periods of Account

Answer 4

The WDA of 18% applied for a 12 month period, therefore where a trader has a non-12 month period, the rate must be apportioned

Question 5

When Expenditure is Incurred

Answer 5

A trader gets CAs in the AP in which the expenditure is incurred. This is generally the date where the obligation to pay becomes unconditional, unless there is a gap of more than 4 months between:
1) the date on which the obligation to pay becomes unconditions; and
2) the date on which payment is required to be made
the expenditure is not incurred until the date on which payment is required to be made

Question 6

Pre Trading Expenditure

Answer 6

Treated as if incurred on the first day of trade

Question 7

Hire Purchase Agreements

Answer 7

HP asset expenditure is incurred at the time when the asset is brought into use. CAs are claimed on the capital cost of the asset (cash price), interest is deductible from trade profits.

Question 8

Short Lease Agreements

Answer 8

Operating or finance lease, capital allowances are not available as the trader doesn’t own the asset

Question 9

Claiming Capital Allowances

Answer 9

CAs aren’t given automatically. They must be claimed and can be claimed at any time until the limit for the amendment of the return is up ie 3 years.

Question 10

Disclaiming Capital Allowances

Answer 10

Can be beneficial to disclaim some or all CAs.