4 Flashcards
(50 cards)
What is the distinction between capital and revenue expenditure?
Capital expenditure is added back to accounting profit, while revenue expenditure is fully deductible.
What types of expenditure are considered capital in nature?
- Purchase of non-current assets
- Depreciation
- Loss on sale of an asset
What is the significance of case law in determining capital or revenue expenditure?
Case law helps clarify the nature of the expense, which may differ from financial accounting definitions.
In the case of Law Shipping Co Ltd v CIR (1923), what was determined about initial repairs?
Initial repairs are not deductible as a revenue expense if necessary to make the asset serviceable for trade.
In Odeon Associated Theatres v Jones (1971), when are initial repairs deductible?
Initial repairs are deductible as a revenue expense if the asset can be used before repairs.
What is the distinction made in Samuel Jones & Co (Devondale) Ltd v CIR (1951) regarding restoration costs?
Restoring a subsidiary part is a repair (revenue), while replacing an entire asset is capital expenditure.
What was the ruling in O’Grady v Bullcroft Main Collieries Ltd (1932) regarding chimney replacement?
The replacement chimney was deemed a separate asset, qualifying as a capital expense.
What are capital allowances?
Capital allowances provide tax relief for capital expenditure on qualifying assets used in trade.
How are capital allowances treated in accounting?
They are deducted from trading profit as an allowable expense to arrive at taxable trading profit.
What types of assets qualify for capital allowances?
- Plant and machinery
- Patents, know-how, and R&D
- Structures and Buildings Allowance
What is the legal definition of ‘plant’ in the context of capital allowances?
Plant includes apparatus used for carrying on business, not the setting in which the trade is conducted.
What is the Writing Down Allowance (WDA) rate for the main pool?
The WDA for the main pool is 18% per annum on a reducing balance basis.
What is the WDA rate for the special rate pool?
The WDA for the special rate pool is 6% per annum.
What is the Annual Investment Allowance (AIA) for businesses?
The AIA is £1,000,000 per annum, pro-rated for periods of less than 12 months.
What happens to the balance of a short life asset after 8 years if unsold?
The balance remaining in the short life asset column is transferred to the main pool.
How are private use assets treated for capital allowances?
Only the business proportion of the allowance is allowed as a tax deduction.
What is the effect of a balancing charge in capital allowances?
A balancing charge arises when an asset is sold for more than the balance remaining in its column.
What is the implication of ‘de-pooled’ assets in capital allowances?
De-pooled assets are treated separately in calculations, allowing for specific tracking of allowances.
Fill in the blank: Capital allowances are the tax equivalent of _______.
depreciation
True or False: Capital allowances are only available for companies.
False
What is an important consideration when claiming capital allowances?
The function of the asset determines if it qualifies for allowances.
What is the significance of the Capital Allowances Act (CAA) 2001?
It contains the rules governing capital allowances.
What is a short life asset (SLA)?
An SLA is intended to be sold or scrapped within 8 years of purchase.
What must be done for an asset to be treated as a short life asset?
An election must be made to HMRC within a specified time limit.
