M3 - Capital Allowances

Question 1

What type of assets qualify for capital allowance?

Answer 1

Non-current fixed assets except buildings

Question 2

what two groupings of assets are there according to taxation purposes?

Answer 2

• main/general pool
• Special rate

Question 3

what qualifies as special rate in CA?

Answer 3

• Integral features
• long-life assets
• solar panels
• thermal insulation
• high CO2 emission cars

Question 4

What are the allowance rates for general pool assets?

Answer 4

WDA: 18% per annum

AIA: £1m per annum

Question 5

What are the allowance rates for special rate assets?

Answer 5

WDA: 6% per annum

AIA: £200k per annum

Question 6

How is AIA claimed?

Answer 6

During period of qualifying expenditure and against full profits

Question 7

should you use special rate allowances before main pool allowances?

Answer 7

Yes, it maximises tax relief

Question 8

What allowance of relief is there on investments in water technologies?

Answer 8

100%

Question 9

When a capital asset is sold, how is the value decided for tax purposes?

Answer 9

lower of the original cost or sale proceeds

Question 10

What happens if the WDA becomes negative due to a disposal or allowance deductions from the main pool WDA?

Answer 10

A balancing charge is added onto the TTP to balance the negative ‘balancing charge’ to nil

Question 11

Explain the small pool balance claim

Answer 11

When the WDA is less than £1k, it allows the balance of the pool to be claimed in full (100%) rather than only 18% or 6%

Question 12

What is a short life asset?

Answer 12

Any asset (other than cars) with an expected life of 8 years or fewer

Question 13

What happens when a short life asset is sold or scrapped?

Answer 13

It is separated and kept in a record of its own.

when it is sold, any unclaimed balance left is claimed in that period where it is sold. This does not happen with groups

Question 14

what are the WDA and AIA rates for short life assets?

Answer 14

Same as regular ones

Question 15

What is SBA?

Answer 15

Structures and Buildings Allowance

Question 16

How is SBA given?

Answer 16

3% of building value is given as an allowance on a straight-line basis

Question 17

What exceptions are there to SBA?

Answer 17

1. Cost of land
2. Any part of building which qualifies for capital allowances as an Integral Feature

Question 18

Criteria of SBA

Answer 18

• The building must be used for trade or income generation
• SBA can only be claimed once the building is actively being used

Question 19

Are SBA buildings grouped or kept separate?

Answer 19

Separate from each other

Question 20

Examples of an Integral feature?

Answer 20

1. Electrical System
2. Lighting System
3. Water System
4. A lift or escalator
5. External solar shading

Question 21

Rules for selling of a building under SBA

Answer 21

• no balancing allowance or charge is calculated
• previous claims under SBA are added to the sale price for calculating the chargeable gain
• the buyer will continue to claim 3% on the ORIGINAL purchase price from the first buyer

Question 22

What is SDA?

Answer 22

Super Deduction Allowance

Question 23

what is SDA?

Answer 23

• An allowance on capital expenditure purchased after 1 April 2021.
• It gives 130% relief during the first year

Question 24

Exceptions of SDA

Answer 24

• cars
• acquisitions before 1 April 2021
• acquisitions of secondhand assets

Question 25

is financing interest on a rental property an allowable expense?

Answer 25

No. Borrowing costs are never an allowable expense for companies or sole traders

Question 26

Is a property loss carried forward?

Answer 26

Yes, carried forward and applied to total profits in current and future periods

Question 27

Criteria of AIA