Capital Allowance and Depreciation

Question 1

What are Capital Allowances (CAs)?

Answer 1

Capital Allowances are tax reliefs available to businesses on capital expenditure.

Question 2

True or False: Capital Allowances can be claimed on all types of business expenses.

Answer 2

False

Question 3

Fill in the blank: Capital Allowances allow businesses to write off the cost of ______ against their taxable income.

Answer 3

capital assets

Question 4

What types of assets are typically eligible for Capital Allowances?

Answer 4

Tangible assets such as machinery, equipment, and vehicles.

Question 5

Multiple choice: Which of the following is NOT a type of Capital Allowance? A) Annual Investment Allowance B) First Year Allowance C) Revenue Expenditure

Answer 5

C) Revenue Expenditure

Question 6

What is the Annual Investment Allowance (AIA)?

Answer 6

AIA allows businesses to deduct the full value of qualifying items up to a certain limit in the year of purchase.

Question 7

True or False: Capital Allowances can be claimed on property improvements.

Answer 7

True

Question 8

What is the purpose of Capital Allowances?

Answer 8

To incentivize investment in capital assets by providing tax relief.

Question 9

Fill in the blank: The First Year Allowance allows businesses to claim ______ of the cost of certain assets in the first year.

Answer 9

100%

Question 10

What is the main benefit of claiming Capital Allowances?

Answer 10

To reduce taxable profits and thus lower tax liability.

Question 11

Multiple choice: Which of the following assets qualifies for Capital Allowances? A) Land B) Buildings C) Machinery

Answer 11

C) Machinery

Question 12

What is writing down allowance (WDA)?

Answer 12

A fixed percentage of the remaining value of an asset that can be claimed each year.

Question 13

True or False: Capital Allowances can be carried forward to future years if not fully claimed.

Answer 13

True

Question 14

Fill in the blank: The rate of writing down allowances may vary depending on the type of ______.

Answer 14

asset

Question 15

What is the significance of the ‘qualifying date’ in Capital Allowances?

Answer 15

It determines when an asset is eligible for claiming CAs.

Question 16

Multiple choice: Which of the following best describes how Capital Allowances impact cash flow? A) Increase cash flow B) Decrease cash flow C) No effect on cash flow

Answer 16

A) Increase cash flow

Question 17

What should a business do to claim Capital Allowances?

Answer 17

Include them in their tax return for the relevant accounting period.

Question 18

True or False: Capital Allowances are only available to limited companies.

Answer 18

False

Question 19

Fill in the blank: The maximum amount for the Annual Investment Allowance is subject to ______ by the government.

Answer 19

change

Question 20

What happens if a business sells an asset that has previously claimed Capital Allowances?

Answer 20

The business may need to make a balancing charge or balancing allowance.

Question 21

Multiple choice: Which of the following is a key factor in determining the amount of CAs a business can claim? A) The business’s revenue B) The type of asset C) The location of the business

Answer 21

B) The type of asset

Question 22

What is a balancing charge?

Answer 22

A taxable amount that may arise when an asset is sold for more than its tax written down value.

Question 23

True or False: Capital Allowances can only be claimed on new assets.

Answer 23

False

Question 24

Fill in the blank: Businesses can claim Capital Allowances on ______ assets that are used for business purposes.

Answer 24

used

Question 25

What is the effect of Capital Allowances on a business's tax return?

Answer 25

They reduce the taxable profit reported on the return.

Question 26

Multiple choice: Which of the following is a potential drawback of Capital Allowances? A) Complexity in calculations B) Guaranteed tax savings C) Immediate cash refund

Answer 26

A) Complexity in calculations

Question 27

Is depreciation allowable for tax purposes?

Answer 27

No, depreciation is not an allowable tax expense

Question 28

What is 100% First Year Allowance (FYA) for?

Answer 28

New zero-emission cars (0g/km CO2) and zero-emission goods vehicles.

Question 29

What assets go into the Special Rate Pool?

Answer 29

High-emission cars (>50g/km CO2), WDA at 6%.

Question 30

What type of assets are included in the Special Rate Pool?

Answer 30

Assets that qualify for capital allowances at a special rate, such as long-life assets and certain integral features.

Question 31

True or False: The Special Rate Pool includes all types of plant and machinery.

Answer 31

False

Question 32

Fill in the blank: The Special Rate Pool primarily consists of _______ assets.

Answer 32

long-life

Question 33

Which of the following is NOT included in the Special Rate Pool? A) Machinery B) Cars C) Integral features

Answer 33

B) Cars

Question 34

What is the main purpose of the Special Rate Pool in capital allowances?

Answer 34

To allow businesses to claim tax relief on specific types of assets over a longer period.