Chapter 8 - Capital Allowances

Question 1

What is the purpose of capital allowances?

Answer 1

To provide tax relief for businesses for capital expenditure on any qualifying assets.

Question 2

Who can use capital allowances?

Answer 2

Primarily for unincorporated businesses using accruals basis. Businesses using cash basis may claim capital allowances on cars whilst on the cash basis. (It will say in the exam)

Question 3

Definition of Plant and machinery

Answer 3

Any apparatus that has an active not a passive function within the business.

Question 4

What are the extra assets deemed to be plant?

Answer 4

• The cost of any alterations to the building before installing plant
• The cost of acquiring computer software

Question 5

What is the main pool?

Answer 5

Expenditure on plant and machinery which gets grouped into a pool of expenditure which the capital allowances are claimed on.

Question 6

What items are not included in the main pool?

Answer 6

• Zero emission cars
• Cars with emissions of 50g/km
• Assets used partly for private purposes by the owner.
• Short-life assets that have been elected to be de-pooled.

Question 7

What is the Annual Investment Allowance? (AIA)

Answer 7

It’s a 100% allowance for the first £1,000,000 incurred by the business in the first 12 months.

Question 8

What are the key rules for the AIA?

Answer 8

• Not available on cars
• The maximum allowance reduces and increases to reflect the periods of account

Question 9

What are the rules for the FYA

Answer 9

First-year Allowance
- New zero-emission cars

Question 10

What is a WDA?

Answer 10

Writing down allowances (Equivalent of tax allowable depreciation)
- An annual of 18% is given on a reducing balance basis in the main pool.

Question 11

Periods of account

Answer 11

AIA and WDA are adjusted to match the length of the period of accounts. NEVER ADJUST THE FYA