Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

APC - Taxation Allowances > Capital Allowances > Flashcards

Capital Allowances Flashcards

(71 cards)

Start Studying
1
Q

What are the benefits of Capital Allowances?

A

Capital Allowances reduce the profits chargeable to tax for a company.

Companies include qualifying expenditure in the tax computation for the relevant tax period and submit to HMRC.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is Capital Expenditure?

A

Capital expenditure incurred for the enduring benefit of the trade (Atherton v British Insulated & Helsby Cables Ltd)

If more than 50% of an asset is replaced within 12 months it is capital rather than revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is Revenue Expenditure?

A

Revenue expenditure is expenditure incurred on repairs or replacement of assets for the purposes of running the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When is expenditure deemed to be incurred?

A

Expenditure is deemed to be incurred when there is an unconditional obligation to pay (S.5)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are Integral Features?

A

(S. 33A)
Electrical systems (including a lighting systems)
Cold water systems
Space or Water heating systems
Lifts, escalators or moving walkways
External solar shading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are Newly Qualifying Integral Features?

A

1 April 2008:
Parts of electrical services
Cold water services
External solar shading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is Thermal Insulation?

A

(S. 27 / S. 28) Insulation that has a main purpose to reduce heat loss from the building.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the conditions to claim Capital Allowances?

A

(S. 11)
Incurred qualifying expenditure
Have a qualifying activity
On the provision of plant or machinery wholly or partly
Own the plant or machinery (as a result of incurring capital expenditure)

Relevant interest in the land
UK Charge to Tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a Qualifying Activity?

A

(S. 15)
A trade
An ordinary property business
A profession or vocation
A UK holiday letting business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a Relevant Interest in the land?

A

(S. 175)
Leasehold / Freehold or Servitude (or an agreement to acquire an easement or servitude)
licence to occupy the land

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the main reliefs associated with Tax Written Down Allowances (TWDA’s)?

A

Main Pool PMA’s - 18% - Reducing Balance
Special Rate Pool PMA’s - 6% - Reducing Balance
Structures and Buildings Allowances - 3% - Straight Line Basis
Capitalised Revenue - Companies Depreciation Policy
Land Remediation Relief - 150% / 50% / 16% tax credit
AIA - 100% - £1m limit per annum

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the Fixed Value Requirement?

A

(S. 187A) When the previous owner has been required to bring a disposal value to account.
The value of the assets must be fixed / agreed by one of three ways:
Election (S. 198 / S. 199)
Preservation of allowances (if the current owner cannot claim CA’s (a charity)
Application to Tribunal (if the previous owner and current owner cannot agree) this must include:
-Name and address of the party making the application
- Name and address of representative (if applicable)
- Address for documents to be sent
- The facts of the application
- The sought after result of the application

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the Pooling Requirement?

A

(S. 187A) The pooling requirement requires the previous owner to pool all of the assets that are being transferred to the new owner within 2 years of the transfer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are Contributions?

A

(S. 537 / S. 538) A person that has made a capital contribution can claim capital allowances if:
The recipient would have been treated as incurring the expenditure
The contribution must be calculated separately and allocated to contribution pools
the recipient would have been able to claim PMA’s or is a public body
They are not connected to the recipient

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Where are Contributions in the legislation?

A

The legislation on contributions ranges from S. 532 - S. 543, But the most relevant are S. 537 / S. 538.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are Reverse Premiums?

A

(Business Income Manual)
A payment or other benefit received as an incentive to take on a lease or other interest in land.

Most common types of reverse premiums:
- Cash lump sum
- Contributions - towards a tenant’s specific costs
- Other sums paid to third parties (paying off a loan etc)
- Writing off another obligation

Inducements that are not reverse premiums:
- Rent Free periods
- Reduced Rents
- Replacement of an old lease with a new lease at a lower rent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are Rent Free Periods?

A

Rent free periods are an inducement for a tenant to take on a new lease, they are not a reverse premium.
It is when the landlord offers a tenant a period where they do not have to pay any rent at the start of the lease.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the current FYA’s available?

A

Full Expensing: 100% MP, 50% SRP
ECA’s: 100% for EV Chargers and expenditure on electric vehicles Until 31 March 2026)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the exclusions to FYA’s?

A

(S. 46)
- Expenditure incurred in the chargeable period the qualifying activity is discontinued
- Cars
- Long Life Assets
- Leased Plant or Machinery
- Gifts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the conditions for the Super-deduction?

A

Expenditure incurred between 1 April 2021 - 31 March 2023.
Contracts entered into after 3 March 2021.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the conditions for Full Expensing?

A

Expenditure must be incurred between 1 April 2023 - 31 March 2025.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the recent changes to legislation?

A

Super-deduction: 1 April 2021
Full Expensing: 1 April 2023
Corporation Tax increased to 25%: 1 April 2023
AIA to £1m: 1 January 2021

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the 4 Tests for Plant and Machinery?

A

Completeness Test
Functional Test
Business Use Test
Premises Test

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the Completeness Test?

A
  1. Complete and self-contained asset (able to function independently).
  2. Used for producing income.
  3. Useful economic life of more than 1 year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is the Functional Test?
1. Is the stock in trade? 2. Is the asset the business premises or part of the business premises? 3. Is the item used for carrying on the business?
26
What is the Premises Test?
(Wimpy v Warland) 1. Does the asset have a visually separate identity? 2. Degree of permanence to the building. 3. Is the building or structure would be incomplete without it. 4. The extent to which it is intended to be replaced.
27
What is the Business Use Test?
Does an asset have a qualifying use or just aid it? 1. Used for carrying on the qualifying trade. 2. Kept for permanent long-term employment in the business. 3. Not to be classified as stock or trade.
28
What is a REIT?
Real Estate Investment Trust They are tax efficient property investment companies. To qualify for REIT status the company must: - UK Resident for Tax Purposes - The property rental business must involve at least 3 properties - No single property can represent more than 40% of the total value of properties. - At least 90% of the profits must be distributed to the shareholders annually.
29
How do REIT's claim Capital Allowances?
REIT's claim Shadow Capital Allowances REIT's do not benefit from any actual tax savings from Capital Allowances but there are benefits for claiming: - 90% of the profits must be distributed, but using capital allowances will lower the total profits that are mandatory required to be disbursed, keeping more cash in the business for reinvestment and improved liquidity. - By claiming full Capital Allowances, they can pass more allowances on to future owners. - by maximising Capital Allowances, REITS pay less mandatory disbursements so can distribute excess profits as ordinary dividends (these rates are at lower tax rates).
30
What are JPUT's?
Jersey Property Unit Trust
31
What is a Long Funding Lease?
(S. 70A and the Finance Act 2006) Pre 2006, the lessee could not claim PMA's on a leased item, but if a person borrowed money to buy an asset, they could claim PMA's which are very similar. S. 70A the lessee can claim PMAs on the asset rather than lessor. Long Funding Lease legislation applies if: - The lease is finalised after 1 April 2006 - The lease term commences after 1 April 2006
32
How do Capital Allowances interact with CGT?
Taxation of Chargeable Gains Act 1992 (TCGA): Capital Allowances can interact with Capital Gains Tax The SBA clawback integrates with CGT
33
How do you complete Acquisition Claims?
Completing an Acquisition claim is split into the following sections: - Review the Sale and Purchase Agreement (SPA), The Commercial Property Standard Enquiries (CPSE) and HM Land Registry. - Create and estimate of the rebuild costs for PMA's and the building. - Calculate the Bare Site Value using the Comparable Method and Residual Method. - Use the VOA Apportionment Formula to carry out a just and reasonable apportionment as set out in S. 562.
34
What are the requirements to complete a Construction / Capex Claim?
Need to have a breakdown of Costs: CSA and Final Account Fixed Asset Additions / Capex Ledger Need to know if any FYA's are available Understand the type of project: Property Type, Construction, Refurbishment, Redevelopment Have contact information available
35
What information would you request for a Capex Claim?
Construction Contract Contract Sum Analysis Final Account Capex Ledger Drawings Practical Completion Statement Confirmation of Contributions / Dilapidations (if appropriate) PM / QS Contact Details
36
What information would you request for an Acquisition Claim?
Sale and Purchase Agreement Completion Statement: Total Cost, SDLT, Fees Commercial Property Standard Enquiries (CPSE) Valuation Report Building Survey Drawings Operations and Maintenance Manuals (O&M) Year End Dates Property History
37
What is an S198 election?
S. 198 Election to fix Disposal Value of Capital Allowances, S.187A needs to be satisfied with the Pooling Requirement. A new interest in the land (Sale) Can range from Original Cost (requires a claw back), TWDV or £1 elections are irreversible. There is a 2 Year time limit to claim (S.201) A valid election must include: - The agreed amount - Information about the buyer and seller - Information to identify the land - Particulars of the interest in the acquired - Schedule of Assets - The Unique Tax Reference Number (UTR) of each person agreeing the election.
38
What is an S199 election?
S. 199 Election is the same as a S.198 Election but for and existing interest (leasing a property). A valid election must include: - The agreed amount - Information about the buyer and seller - Information to identify the land - Particulars of the interest in the acquired - Schedule of Assets - The Unique Tax Reference Number (UTR) of each person agreeing the election.
39
What are SBA's?
(S.270AA) Introduced on 29 October 2018, increased to 3% on 1 April 2020. They are claimed on structures that form buildings such as roofs, walls, ceilings, doors etc.
40
What are the exclusions to SBA's?
Plant and Machinery Allowances (lead to pooling) Land and Soft Landscaping Any Residential Use (Hotels and Care Homes are exceptions)
41
What is an SBA Statement?
There must be a SBA Allowance Statement to claim SBA's: - Information to identify the Structure (address and description) - Date of the earliest written contract for construction - Total Qualifying Costs - Date the Structure was brought into use for non-residential activity
42
What is a Dwelling Area Restriction?
(S. 35) Expenditure is non-qualifying if it is incurred in providing plant or machinery for use in a dwelling-house. If plant or machinery is used partly in a dwelling-house and partly for a qualifying trade, a just and reasonable apportionment can be made. HMRC Briefing Note 45/10 - Guidance on Cluster Flats (Student Accommodation)
43
What is the Market Value Rule?
(S. 270BH) "Market Value Amount" is the amount of expenditure that would be normal to incur for the works on the open market.
44
What is an Assignment?
Assignment is the transfer of rights from one party to another. There is no new contract.
45
What is Novation?
Novation is the replacement of one of the parties in and agreement between two parties. Rights and Obligations are transferred. Novation creates a new contract.
46
What are Short Life Assets?
(S.83) Must be elected as a SLA The actual useful expected life of the asset is irrelevant (manual) but generally less than 8 years is accepted. SLA's go into their own pool but after 8 years they are moved to MP (treated the same).
47
What is in a Short life Asset election?
Made in writing to HMRC Specify the asset, the cost and the date expenditure was incurred. Made within 2 years of being incurred Election is irrevocable
48
What are the exclusions for Short Life Assets
(s. 84) Gifts Assets intended for another purpose Long Life Assets Special Rate Pool assets
49
What are Long Life Assets?
(S. 90-92) Long Life Assets are assets that would be expected to have a useful economic life of more than 25 years when new. Long Life assets are treated as Special Rate Pool.
50
Can you explain a brief history on Capital Allowances?
The Modern era of Capital Allowances came into effect after WWII in the Income Tax Act 1945, this introduced allowances for industrial buildings, plant and machinery and mines etc. Now the most common types of Capital Allowances ate PMA's, SBA's, Various FYA's etc.
51
Which clients do Capital Allowances apply to?
Limited Companies Companies members of Groups or Partnerships Sole Practitioners Individuals
52
What property types do Capital Allowances apply to?
All commercial property types. Can not claim for residential use.
53
How do you provide advice?
Providing accurate Capital Allowances reports. Using my knowledge of the legislation and case law. Discuss the claims with clients before issuing reports.
54
What do we mean by an Entitlement Review?
Checking the client / potential client is entitled to claim Capital Allowances: UK Charge to Tax Satisfy S. 11 Interest in Land Sale and Purchase Agreement (App) Commercial Property Standard Enquiries (App) HM Land Registry (App)
55
When is Entitlement relevant?
It is relevant at the start of the process, but all the way through. I do not want to provide advice and then find out that they are not entitled to claim Capital Allowances.
56
What is the 1 Moth Rule?
(S.5) 1 month rule - If expenditure is incurred 1 month after a chargeable period, it is deemed to be incurred before the chargeable period finished.
57
What is the 4 Month Rule?
(S.5) 4 moth rule - If in the agreement expenditure is not required to be paid until 4 months after, the expenditure is incurred on that date.
58
What is an SBA Clawback?
When a building is sold that SBAs have been claimed. The tax relief claimed as a result of SBAs needs to be calculated and paid back through CGT.
59
What is the Super Deduction Balancing Charge?
When you sell a building that the Super Deduction has been claimed You need to deduct the uplift to calculate a balancing charge and add it to the taxable profits
60
How do you calculate the Hybrid Rate?
For expenditure straddling 1 April 2023 Divide the number of days in the period before 1 April 2023 by the total number of days in the accounting period Multiply the result by 0.3 Add 1 If full year is used - standard rate is 1.07 / 107%
61
What is a Sale and Leaseback?
(S.221) When a person sells and asset and leases it back under a finance lease. Stops a person in a loss-making situation to sell an asset at a higher price than its Written Down value and lease it back. Disposal value is restricted to the lowest of: True disposal value Market value Notional written down value of seller's capital expenditure Notional written down value of someone connected to the seller's capital expenditure
62
How are JPUT's Structured?
Legal ownership of the assets are with one or more trustees, who hold the assets for the unit holders At least 2 trustees hold the investments SPVs are usually used to act as trustees
63
What are the benefits of JPUT's
Tax Efficiency: - no income tax or CGT for trustees - No SDLT for the transfer of units within a JPUT - Can be structured to be transparent for UK income tax - Some can elect to be exempt or transparent for CGT and Corporation Tax
64
What is Background Plant and Machinery?
(S. 70R) Plant or Machinery that might be reasonably expected to be installed in a building Sole of main purpose is to contribute to the functionality of the building
65
What is Section 25?
Building Alterations connected to the Installation of Plant or Machinery BWIC
66
What is Section 26?
Demolition Costs Demolition of Plant and Machinery qualifies at the same rate
67
What is Special Rate Pool Expenditure?
(S. 104A) Thermal Insulation Integral Features Long Life Assets
68
What is Section 173
(S. 173) The meaning of a "Fixture" and "Relevant Land"
69
What is Section 201
2 Year time limit to for S.198 and S.199 Elections
70
What is Section 214?
Connected Persons The buyer and seller in a "relevant transaction" cannot be connected
71
What is Section 562
General conditions for an Apportionment Claim "Just and Reasonable" Apportionment

APC - Taxation Allowances (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions