Seminar 5

Question 1

is depreciation an allowable expense when calculating taxable expenditures?

Answer 1

no, instead businesses claim capital allowances

Question 2

what are capital allowances?

Answer 2

allowable expenditure associated with the business expense involving the partial or total write-off of a capital asset (plant & machinery)

Question 3

capital expenditures and depreciation are allowable/disallowable?

Answer 3

disallowable

Question 4

what is made available instead of depreciation?

Answer 4

capital allowances

Question 5

how do capital allowances work?

Answer 5

they’re deducted when calculating trading profit for tax relief purposes

Question 6

plant & machinery = ?

Answer 6

apparatus used by businesses

includes machinery of all types, vehicles, furniture & equipment

Question 7

plant & machinery are generally allocated to the…?

Answer 7

main pool

Question 8

what is included in the special rate pool?

Answer 8

certain items including:

• pollutant cars with more than 50g/km emission
• integral features of a building (escalators, lifts, electrical systems, water systems)

Question 9

what capital assets are generally allocated to the main pool?

Answer 9

all plant & machinery

cars with less than 50g/km emission

Question 10

WDA = ?

Answer 10

write down allowance

how much is allowable credit to the book value of the capital asset that is written down

Question 11

the ___ of any plant & machinery is added to the pool

Answer 11

the acquisition cost of the plant & machinery

if brought into the business by the owner, it’s the market value

Question 12

how are disposals handled regarding taxable profits?

Answer 12

any plant & machinery disposed during the period is deducted from the pool

for disposals, the amount deducted is whichever is LOWER out of:
- the sales proceeds
or
- the original cost

WDA may then be claimed on the remaining balance in the pool

Question 13

write down = ?

Answer 13

to reduce the value of a fixed asset

Question 14

allowances are based on the acquisition cost or the market value of assets?

Answer 14

acquisition cost

market value at the point at which the asset was made available is only for assets brought into the business by the owner

Question 15

disposal value of an asset is the…

Answer 15

sales proceeds or the original cost - whichever is LOWER

Question 16

if an asset is scrapped the disposal value is the…

Answer 16

scrap value/compensation received

Question 17

WDA in the main pool and special rate pool are…?

Answer 17

main pool = 18% write off per year

special rate pool = 6% write off per year

Question 18

is write down allowance restricted by the length of time an asset has been held within the period?

Answer 18

no

Question 19

TWDV = ?

Answer 19

tax written down value

the new value of the capital asset brought into the new period after the write-down allowance has been deduced from the previous period(s)

Question 20

FYA = ?

Answer 20

first year allowance

100% write-off is available to brand new:
- 0 emission motor cars
- machinery for use in the refuelling of vehicles
- 0 emission goods vehicles
- charging points for electric vehicles

Question 21

what does FYA mean for a capital asset?

Answer 21

FYA means all of the WDV can be deducted from trading profit

Question 22

when is FYA given?

Answer 22

in the period of account in which the expenditure is incurred (first year)

Question 23

AIA = ?

Answer 23

annual investment allowance

AIA means a business can claim up to £1million of expenditures as an allowable expense on plant & machinery (EXCEPT CARS)

Question 24

if balance in the main pool or special rate pool (after additions and disposals but before WDA) is £1,000 or less, what happens?

Answer 24

the business can claim a write-down allowance of any amount because the sum is too small

the pool can be reduced to 0

Question 25

if the chargeable period is longer/shorter than 12 months, what happens?

Answer 25

it’s adjusted proportionately for longer/shorter than 12 months

Question 26

cars’ capital allowances = ?

Answer 26

depend on their emissions figure

zero emissions = 100% WDA due to FYA

less than or equal to 50g/km = 18% WDA (main pool)

more than 50g/km (pollutant) = 6% WDA (special rate pool)

Question 27

if an asset is used for business & private use, how is it handled?

Answer 27

it’s put in a single pool

the capital allowance is calculated as normal, but then the allowable expense is reduced to its business use proportion

Question 28

what are balancing charges and when do they arise?

Answer 28

balancing charges are bad and added to taxable profits

they arise when too much capital allowance has been given

e.g., if an asset is sold for an amount in excess of its WDV

it’s either reduced from capital allowances or added to tax adjusted profit

Question 29

what are balancing allowances and when do they arise?

Answer 29

balancing allowances are good and are deducted from taxable profits

when too few capital allowances have been given, a balancing allowance arises

e.g., if an asset is sold for less than its WDV

balancing allowances are added to capital allowances

Question 30

balancing charge = good/bad?
balancing allowance = good/bad?

Answer 30

balancing charge = bad
balancing allowance = good

Question 31

what happens when a business ceases trading?

Answer 31

additions are added to the pools as usual

no AIA, FYA or WDA in the final trading period

disposal value is subtracted from the balance of unrelieved expenditure, generating balancing allowances/charges