Share this content
0
16
4119

Negative Capital Allowance

Year 1 - Purchase low emissions car for £13500 with 100% FYA. Claim £13500 CA with no other assets in pool. Balance is nil.

Year 3 - Sell car for £9000. Balance in pool is -£9000.

I understand that small balances in pool can be written off, but what about a negative balance? Is the £9000 written off or is it added to trading profits?

Replies

Please login or register to join the discussion.

Balancing Charge

As there is zero balance in the pool - the disposal proceeds will trigger a balancing charge, certainly not written off!

Thanks (0)

Good grief ...

... Rickenbacker

Thanks (0)

.

"Rickenbacker"

whats that mean?

Thanks (0)

follow the epsilons!

Good grief Rickenbacker, no idea where it comes from, but it is appropriate to the OP.

Thanks (0)

"Good grief Rickenbacker!"

"Good grief Rickenbacker!" from a Wrangler's TV Advert back in the '70's I believe!

Thanks (0)

Deeply embarassed!

I've clearly annoyed you all. Very sorry, it's just that I'm only an accounting babe, going through the business tax module for my aat. The book doesn't cover negative balances in the capital allowance pool, and I just wondered how to account for it. I take it that instead of a capital allowance there will simply be a 'balancing charge' which will serve to increase trading profits by the sale amount (£9000).

Thanks (0)

No apology

The Adding Machine wrote:

I've clearly annoyed you all. Very sorry, it's just that I'm only an accounting babe, going through the business tax module for my aat. The book doesn't cover negative balances in the capital allowance pool, and I just wondered how to account for it. I take it that instead of a capital allowance there will simply be a 'balancing charge' which will serve to increase trading profits by the sale amount (£9000).

No need to apologise, if everyone already knew the answers, then there would be no Any Answers.

Thanks (1)

Agree with Thisistibi, but ...

... if you are asking for help with an exam question, please say. Most on here are happy to help those starting out, but a basic question from someone who appears to be acting as an accountant will get responses as above.

The TPL figure will be the profit/loss on sale = the difference between sale proceeds and net book value (cost less depreciation to date)

In your case assuming 20% staright line depreciation this will be £900 profit on sale: £9000 less £8100 - (£13,500 - (Yr 1) £2700 - (Yr 2) £2700 = £8100)

Thanks (0)

tax position

Thanks, but it's not just an exam question. I understand the profit and loss treatment but was trying to understand the tax position when the car is sold and there's a negative balance in the pool. Is the £9000 sale proceeds added to the PL figure to increase taxable earnings?

Thanks (0)

Tax comp

The proceeds are put in the accounts in your disposals account (level 3 AAT). The profit/loss on sale is disallowed in the tax computation.

The balancing charge is included in the tax computation to get your tax adjusted profits.

The balancing charge does not hit the accounts.

Thanks (0)

Not as such ...

... see previous post of mine, you add £900 (using my assumptions above, or whatever the profit on sale is) to the P&L account, being profit on sale, but will deduct this in the tax comp and replace with the £9000 balancing charge. 

So yes, it increases taxable earnings by £9000, but on the tax computation, not on the P&L account!

EDIT; thanks monsoon, I had written my answer but the phone went before I posted and you snuck in before I did :o)

Thanks (1)

Thanks. The world makes sense once again.

Thanks (0)

You've got to get up early...

...to beat Monsoon, or so it's been said on the AAT forums ;-)

Thanks (0)

I'm OK ...

... with a little light bondage, but never been in to the full S&M thing, try CD if that's your bag :o)

Thanks (1)

OGA

And there, I'd hoped on AW there'd be no smutty innuendo. What was I thinking? My bad :D

 

PS, yes, I loled.

Thanks (0)

rickenbacker!

That made me laugh, yes was an ad in the seventies can't remember if it was Wranglers or not.....expect " nice one Cyril" along soon!

Thanks (0)