Capital Allowance - balancing allowance?
Discussion
It's been a while since I have looked at CA's but I'm trying to help a friend do her tax return.
The only capital item she was claiming allowances on was her car which was in special rate / single asset pool. She sold it in the tax year for less than the balance in the pool.
I assumed this would give rise to a balancing allowance given there are no more assets in the pool but the GOV website suggests you can only claim this on cessation of the business?
If this is true what would I do with the remaining pool - is it just lost?
The only capital item she was claiming allowances on was her car which was in special rate / single asset pool. She sold it in the tax year for less than the balance in the pool.
I assumed this would give rise to a balancing allowance given there are no more assets in the pool but the GOV website suggests you can only claim this on cessation of the business?
If this is true what would I do with the remaining pool - is it just lost?
That is the nature of "Pooled Assets". As they are lumped together in a "pool" they become indistinguishable from any other assets that have been absorbed into that pool. The normal procedure is to carry the remaining pool balance forward and keep claiming the relevant annual Capital Allowance on the gradually reducing balance until the pool is completely gone or the business ceases.
HOWEVER, if the pool only contains one distinguishable asset, it is obvious that if the asset is disposed of, that there can be nothing left in that pool. In those circumstances you CAN claim a balancing allowance to clear the pool even if the business has not ceased.
Per HMRC -
If you sell or dispose of an asset that is in a short life asset pool before 8 years you will have a balancing allowance or a balancing charge. If you want your asset treated as a short life asset, you need to tell HM Revenue and Customs in writing by 31 January after the end of the tax year that you bought the item in. You can’t change your mind once you have told HMRC.
HOWEVER, if the pool only contains one distinguishable asset, it is obvious that if the asset is disposed of, that there can be nothing left in that pool. In those circumstances you CAN claim a balancing allowance to clear the pool even if the business has not ceased.
Per HMRC -
If you sell or dispose of an asset that is in a short life asset pool before 8 years you will have a balancing allowance or a balancing charge. If you want your asset treated as a short life asset, you need to tell HM Revenue and Customs in writing by 31 January after the end of the tax year that you bought the item in. You can’t change your mind once you have told HMRC.
Eric Mc said:
That is the nature of "Pooled Assets". As they are lumped together in a "pool" they become indistinguishable from any other assets that have been absorbed into that pool. The normal procedure is to carry the remaining pool balance forward and keep claiming the relevant annual Capital Allowance on the gradually reducing balance until the pool is completely gone or the business ceases.
HOWEVER, if the pool only contains one distinguishable asset, it is obvious that if the asset is disposed of, that there can be nothing left in that pool. In those circumstances you CAN claim a balancing allowance to clear the pool even if the business has not ceased.
Per HMRC -
If you sell or dispose of an asset that is in a short life asset pool before 8 years you will have a balancing allowance or a balancing charge. If you want your asset treated as a short life asset, you need to tell HM Revenue and Customs in writing by 31 January after the end of the tax year that you bought the item in. You can’t change your mind once you have told HMRC.
Understood thanks Eric.HOWEVER, if the pool only contains one distinguishable asset, it is obvious that if the asset is disposed of, that there can be nothing left in that pool. In those circumstances you CAN claim a balancing allowance to clear the pool even if the business has not ceased.
Per HMRC -
If you sell or dispose of an asset that is in a short life asset pool before 8 years you will have a balancing allowance or a balancing charge. If you want your asset treated as a short life asset, you need to tell HM Revenue and Customs in writing by 31 January after the end of the tax year that you bought the item in. You can’t change your mind once you have told HMRC.
So following on from that, the balancing allowance would then be adjusted for an average business use over the life of owning the asset? Or the business use % in the final year of use?
Eric Mc said:
Business /private use adjustment as relates to the final year of use.
Thanks Eric.Ouch - so if she didn't use the car for any business use in the tax year in question she can't claim any of the balancing allowance (despite using the car for business purpose in previous years)?
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