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Capital allowance during break in trade

My client is a a joiner and claimed capital allowances on his tools introduced to the business last year.  He continued to trade until August 2011 when he got a paid job for a short time, then recommenced self employment in April 2012.  I'm reasonably happy that he hasn't permanantly discontinued his trade and therefore balancing adjustments shouldn't be made, but it doesn't seem right to claim a full year's CAs.  Should I just time apportion the claim for the period of trade?

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By BKD
14th Jun 2012 14:17

What did he do with the tools ...

... whilst he was employed?

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By smcytm
14th Jun 2012 14:34

He still held them

..

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By BKD
14th Jun 2012 14:43

That wasn't the question I asked :)

Again - what did he do with them whilst employed?

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No

Plant and machinery capital allowances are available on expenditure incurred for the purposes of the trade and WDAs will continue to be available all the while the trade continues (ie doesn't cease).

However, the allowances fall to be apportioned (between uses) where there is both use for the trade, and use for other purposes (such as the employment).

In the case of hand-held tools, since he seems to have continued holding them throughout the duration of the employment, that would seem to cause an effective restriction. :)

I assume you're familiar with S.68 ITTOIA 2005? Which would accelerate tax relief for replacement small tools.

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By BKD
14th Jun 2012 15:58

Steve

You've extrapolated to the answer I was fishing for! (But which hasn't yet been explicitly provided.) In addition to the restricted allowances in the circumstances you refer to, is it not also the case that a (part) disposal value needs to be brought in?

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Hmmm. Yes, but

Yes, I agree. I hadn't considered that.

Obviously to the extent that you recognise a disposal, it's then deemed expenditure in respect of which you can claim capital allowances against the employment income. Then you'd need to reverse the exercise at the end of the employment. Sounds like a distinct waste of time to me!

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