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Lecture 5- Capital allowances

Deleted user 28 questions Updated 12 Jul 2021

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1Capital allowances- Relief from [blank_start]income tax[blank_end] & [blank_start]corporation tax[blank_end] on capital expenditure on eligible [blank_start]assets[blank_end]. Similar to [blank_start]depreciation[blank_end] for accounting purposes
1. Aincome tax
2. Bcorporation tax
3. Cassets
4. Ddepreciation
2Capital allowances are available on categories of [blank_start]expenditure[blank_end] such as [blank_start]plant & machinery[blank_end] & [blank_start]integral features[blank_end]
1. Aexpenditure
2. Bplant & machinery
3. Cintegral features
3Calculation of capital allowances is for particular [blank_start]accounting period[blank_end] unless it is longer than [blank_start]18 months[blank_end] (chargeable periods). Capital allowances are treated as an [blank_start]accounting expense[blank_end]
1. Aaccounting period
2. B18 months
3. Caccounting expense
4Plant & machinery- [blank_start]Apparatus[blank_end] used by business [blank_start]person[blank_end] for carrying on business not their own [blank_start]stock-in-trade[blank_end] which they buy or make for [blank_start]resale[blank_end]. Capital expenditure on plant & machinery may qualify for [blank_start]capital allowances[blank_end]
1. AApparatus
2. Bperson
3. Cstock-in-trade
4. Dresale
5. Ecapital allowances
5Two items that are statutorily deemed as plant are [blank_start]thermal insulation[blank_end] for an [blank_start]industrial[blank_end] building & [blank_start]equipment[blank_end] to comply with [blank_start]fire[blank_end] regulations
1. Athermal insulation
2. Bindustrial
3. Cequipment
4. Dfire
6Another two items that are statutorily deemed as plant are [blank_start]safety[blank_end] regulations at [blank_start]sports[blank_end] grounds & [blank_start]assets[blank_end] necessary to safeguard [blank_start]personal security[blank_end]
1. Asafety
2. Bsports
3. Cassets
4. Dpersonal security
7Another three items that are statutorily deemed as plant are [blank_start]computer software[blank_end], [blank_start]building[blank_end] alterations incidental to installing [blank_start]plant & machinery[blank_end] & expenditure on [blank_start]integral features[blank_end] of building or structure
1. Acomputer software
2. Bbuilding
3. Cplant & machinery
4. Dintegral features
8If VAT cannot be reclaimed, then [blank_start]cost[blank_end] for capital allowances is [blank_start]VAT inclusive price[blank_end]. There are certain items which you cannot reclaim [blank_start]VAT[blank_end] & if you are not registered for [blank_start]VAT[blank_end], you cannot reclaim it
1. Acost
2. BVAT inclusive price
3. CVAT
4. DVAT
9Although legally an asset purchased on [blank_start]hire purchase[blank_end] does not pass to purchaser until [blank_start]final[blank_end] instalment is paid, [blank_start]capital Allowances[blank_end] (on capital cost) can be claimed when contract is [blank_start]started[blank_end]. Items bought under finance leases – bought under term of more than [blank_start]5[blank_end] years are treated as for [blank_start]hire purchase[blank_end]
1. Ahire purchase
2. Bfinal
3. Ccapital Allowances
4. Dstarted
5. E5
6. Fhire purchase
10Items that were previously owned privately by [blank_start]proprietor[blank_end] will be treated as bought at [blank_start]market[blank_end] value on date that they are brought into [blank_start]business[blank_end]
1. Aproprietor
2. Bmarket
3. Cbusiness

11For businesses that have very [blank_start]large[blank_end] quantities of plant & machinery it would be impossible to keep [blank_start]record[blank_end] & [blank_start]calculate[blank_end] capital allowances separately on each item. Therefore, items are [blank_start]grouped[blank_end] together & an allowance is calculated for all [blank_start]items[blank_end] included in that “[blank_start]pool[blank_end]”
1. Alarge
2. Brecord
3. Ccalculate
4. Dgrouped
5. Eitems
6. Fpool
12There are two different pools. One is [blank_start]main pool[blank_end] & another is [blank_start]special rate pool[blank_end]
1. Amain pool
2. Bspecial rate pool
13Main pool includes most items of [blank_start]plant & machinery[blank_end] i.e. furniture & office equipment. Also, it includes cars acquired with emission factor <[blank_start]110g/km[blank_end] ([blank_start]130g/km[blank_end] before 6.4.18)
1. Aplant & machinery
2. B110g/km
3. C130g/km
14Special rate pool includes [blank_start]integral[blank_end] features of building, thermal [blank_start]insulation[blank_end] of building & [blank_start]solar[blank_end] panels, items with working life of > [blank_start]25[blank_end] years (if [blank_start]£100k/year[blank_end] spent) & cars with emission factor > [blank_start]110g/km[blank_end] (130g/km before 6.4.18, & is planned to be reduced to [blank_start]50g/km[blank_end] from 6.4.2021)
1. Aintegral
2. Binsulation
3. Csolar
4. D25
5. E£100k/year
6. F110g/km
7. G50g/km
15Relief for allowances is given on [blank_start]reducing balance[blank_end] basis. Allowance must be [blank_start]claimed[blank_end] but trader can [blank_start]restrict[blank_end] amount [blank_start]claimed[blank_end]
1. Areducing balance
2. Bclaimed
3. Crestrict
4. Dclaimed
16Procedure is to [blank_start]bring forward[blank_end] balance from previous period. Then add any [blank_start]additions[blank_end] & calculate [blank_start]annual investment[blank_end] allowance & [blank_start]first year[blank_end] allowance. After that deduct [blank_start]proceeds[blank_end] of sale (restricted to original [blank_start]cost[blank_end]). Then calculate [blank_start]writing down[blank_end] allowance & deduct from [blank_start]pool[blank_end] balance. Finally, [blank_start]carry forward[blank_end] balance to next chargeable period
1. Abring forward
2. Badditions
3. Cannual investment
4. Dfirst year
5. Eproceeds
6. Fcost
7. Gwriting down
8. Hpool
9. Icarry forward
17One accelerated capital allowances is [blank_start]annual investment[blank_end] allowance. This allowance allows [blank_start]traders[blank_end] to claim full cost (100% of first tranche of [blank_start]expenditure[blank_end] made by [blank_start]business[blank_end] during accounting period but exclude [blank_start]motor cars[blank_end])
1. Aannual investment
2. Btraders
3. Cexpenditure
4. Dbusiness
5. Emotor cars
18Limit for annual investment allowances is [blank_start]12[blank_end] month [blank_start]chargeable[blank_end] period – will be [blank_start]increased[blank_end] or [blank_start]decreased[blank_end] accordingly
1. A12
2. Bchargeable
3. Cincreased
4. Ddecreased
19For periods spanning [blank_start]change[blank_end] in rate, calculation of [blank_start]limit[blank_end] for annual investment allowances will be calculated [blank_start]proportionately[blank_end]
1. Achange
2. Blimit
3. Cproportionately
20For annual investment allowances you have to make [blank_start]claim[blank_end] but anything that is not [blank_start]claimed[blank_end] will be added to appropriate [blank_start]pool[blank_end] as normal, & [blank_start]writing down[blank_end] allowances may be [blank_start]claimed[blank_end]
1. Aclaim
2. Bclaimed
3. Cpool
4. Dwriting down
5. Eclaimed
21Restrictions exist for persons who control more than [blank_start]1[blank_end] business. There are rules to prevent [blank_start]splitting[blank_end] of business to [blank_start]claim[blank_end] more than [blank_start]1[blank_end] annual investment allowance
1. A1
2. Bsplitting
3. Cclaim
4. D1
22Another accelerated capital allowances [blank_start]first year (enhanced)[blank_end] allowance. This allowance is for encouraging [blank_start]expenditure[blank_end] on [blank_start]energy efficient[blank_end] items (100% allowance in year of purchase). It is given instead of [blank_start]writing down[blank_end] allowance in period of acquisition. If asset is bought & sold in same accounting period, it can get [blank_start]first year[blank_end] allowance & [blank_start]writing down[blank_end] allowance. If it is not claimed, [blank_start]writing down[blank_end] allowance is available in period it was acquired
1. Afirst year (enhanced)
2. Bexpenditure
3. Cenergy efficient
4. Dwriting down
5. Efirst year
6. Fwriting down
7. Gwriting down
23If [blank_start]proceeds[blank_end] > [blank_start]pool value[blank_end] (may arise during [blank_start]trading[blank_end] but more common when trade [blank_start]ceases[blank_end] or is [blank_start]sold[blank_end]), there will be [blank_start]negative[blank_end] figure. This is [blank_start]negative[blank_end] allowance which is added to accounting [blank_start]profit[blank_end] to compute [blank_start]taxable[blank_end] profit (balancing charge). Balancing charge is always given when an [blank_start]asset[blank_end] that is not included in “[blank_start]pool[blank_end]” is sold
1. Aproceeds
2. Bpool value
3. Ctrading
4. Dceases
5. Esold
6. Fnegative
7. Gnegative
8. Hprofit
9. Itaxable
10. Jasset
11. Kpool
24Non pooled assets- These cannot go into one of [blank_start]pools[blank_end] & have to be kept [blank_start]separate[blank_end]. These are assets with some [blank_start]private[blank_end] use by [blank_start]owner[blank_end] of business, have [blank_start]short[blank_end] life but depreciate quite [blank_start]quickly[blank_end] & may be [blank_start]leased[blank_end] assets
1. Apools
2. Bseparate
3. Cprivate
4. Downer
5. Eshort
6. Fquickly
7. Gleased
25Assets for private use by owner of business should be kept [blank_start]separate[blank_end]. However, you add [blank_start]full[blank_end] cost of that asset into its column, deduct [blank_start]full[blank_end] amount of [blank_start]writing down[blank_end] allowance but then [blank_start]disallow[blank_end] part of allowance (only claim proportion of allowance). There are no [blank_start]restrictions[blank_end] on any asset with [blank_start]private[blank_end] use by an employee– [blank_start]private[blank_end] use is dealt with via benefits in kind legislation
1. Aseparate
2. Bfull
3. Cfull
4. Dwriting down
5. Edisallow
6. Frestrictions
7. Gprivate
8. Hprivate
26An [blank_start]election[blank_end] needs to be made for assets to be treated as [blank_start]short life[blank_end] asset. It can stay in its [blank_start]separate[blank_end] pool as long as it disposed of within [blank_start]8[blank_end] years of end of [blank_start]accounting[blank_end] period of purchase. As it is not within [blank_start]main[blank_end] pool, balancing allowance/charge would be given on [blank_start]sale[blank_end]. However, if still owned by end of [blank_start]8[blank_end] years, transfer to [blank_start]main[blank_end] pool. Motor cars are excluded from [blank_start]de-pooling[blank_end]
1. Aelection
2. Bshort life
3. Cseparate
4. D8
5. Eaccounting
6. Fmain
7. Gsale
8. H8
9. Imain
10. Jde-pooling
27Cessation of trade- [blank_start]Year[blank_end] in which trade ceases. There is no [blank_start]annual investment[blank_end] allowances, no [blank_start]first year[blank_end] allowances & no [blank_start]writing down[blank_end] allowances. You [blank_start]bring forward[blank_end] balance on pool at [blank_start]start[blank_end] of year, add any [blank_start]additions[blank_end], deduct [blank_start]disposal proceeds[blank_end] & balance on each pool will be [blank_start]balancing allowance[blank_end]/[blank_start]charge[blank_end]
1. AYear
2. Bannual investment
3. Cfirst year
4. Dwriting down
5. Ebring forward
6. Fstart
7. Gadditions
8. Hdisposal proceeds
9. Ibalancing allowance
10. Jcharge
28If there is any transfers between [blank_start]connected[blank_end] persons, it's treated as [blank_start]market[blank_end] value or elect for asset to be transferred at tax [blank_start]written down[blank_end] value. However, on disposal, [blank_start]proceeds[blank_end] will be limited to original cost
1. Aconnected
2. Bmarket
3. Cwritten down
4. Dproceeds

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Lecture 5- Capital allowances

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