Seminar 5 Flashcards
is depreciation an allowable expense when calculating taxable expenditures?
no, instead businesses claim capital allowances
what are capital allowances?
allowable expenditure associated with the business expense involving the partial or total write-off of a capital asset (plant & machinery)
capital expenditures and depreciation are allowable/disallowable?
disallowable
what is made available instead of depreciation?
capital allowances
how do capital allowances work?
they’re deducted when calculating trading profit for tax relief purposes
plant & machinery = ?
apparatus used by businesses
includes machinery of all types, vehicles, furniture & equipment
plant & machinery are generally allocated to the…?
main pool
what is included in the special rate pool?
certain items including:
- pollutant cars with more than 50g/km emission
- integral features of a building (escalators, lifts, electrical systems, water systems)
what capital assets are generally allocated to the main pool?
all plant & machinery
cars with less than 50g/km emission
WDA = ?
write down allowance
how much is allowable credit to the book value of the capital asset that is written down
the ___ of any plant & machinery is added to the pool
the acquisition cost of the plant & machinery
if brought into the business by the owner, it’s the market value
how are disposals handled regarding taxable profits?
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
write down = ?
to reduce the value of a fixed asset
allowances are based on the acquisition cost or the market value of assets?
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
disposal value of an asset is the…
sales proceeds or the original cost - whichever is LOWER
if an asset is scrapped the disposal value is the…
scrap value/compensation received
WDA in the main pool and special rate pool are…?
main pool = 18% write off per year
special rate pool = 6% write off per year
is write down allowance restricted by the length of time an asset has been held within the period?
no
TWDV = ?
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)
FYA = ?
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
what does FYA mean for a capital asset?
FYA means all of the WDV can be deducted from trading profit
when is FYA given?
in the period of account in which the expenditure is incurred (first year)
AIA = ?
annual investment allowance
AIA means a business can claim up to £1million of expenditures as an allowable expense on plant & machinery (EXCEPT CARS)
if balance in the main pool or special rate pool (after additions and disposals but before WDA) is £1,000 or less, what happens?
the business can claim a write-down allowance of any amount because the sum is too small
the pool can be reduced to 0
if the chargeable period is longer/shorter than 12 months, what happens?
it’s adjusted proportionately for longer/shorter than 12 months
cars’ capital allowances = ?
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)
if an asset is used for business & private use, how is it handled?
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
what are balancing charges and when do they arise?
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
what are balancing allowances and when do they arise?
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
balancing charge = good/bad?
balancing allowance = good/bad?
balancing charge = bad
balancing allowance = good
what happens when a business ceases trading?
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
