Capital Allowances for created assets?

Posted by damon365 PM | on Tue, 17/01/2012 - 16:18 874 8 comments | report

Are WDAs and AIAs applicable to made or created assets? All of the HMRC literature seems to suggest that the Allowances are available on 'expenditure' yet assets can be brought into being from methods other than purchase.

If Capital Allowances are not available on created assets how are those assets correctly treated for the purposes of Corporation Tax?

We have seen the Capital Allowances are applicable to website development when it is considered capital expenditure (http://www.accountingweb.co.uk/anyanswers/web-site-development-costs) however I am unsure if this still applies if the website was developed in-house and is still considered to be a fixed asset.

Any thoughts?

p.s. My first post so be gentle with me if I'm being dim!

Comments

Expenditure

George Attazder | Tue, 17/01/2012 - 16:37 | Permalink

Are you saying that your website just magically appeared "in-house" and that no costs were involved? How much would you get for it if you sold it in a bargain at arm's length?

No don't mean that it

damon365 | Tue, 17/01/2012 - 17:15 | Permalink

No don't mean that it magically appeared (although it would be good if more things did)... I mean it was developed by the company itself rather than paying a 3rd party. It was valued at £450 on the basis that this seemed to be an amount that it would realistically cost the company should it have paid someone else.

Do I assume then that I need not fret about the HMRC use of the phrase expenditure then and I can consider its value as realised at point of sale? Therefore Capital Allowances are applicable and I can rest easy?

No

George Attazder | Tue, 17/01/2012 - 17:34 | Permalink

You can only claim capital allowances on actual or deemed expenditure. Deemed expenditure (usually @ market value) only occurs if an asset previously used otherwise than by the business or one obtained by gift is brought into use in the business. AIA isn't then available though.

You're just seem to be trying to use a notional figure though.

My point was that you've probably already incurred actual expenditure and had relief for it. Was the person that did the development not a paid employee?

My subsidiary point was that, as the only potential substitute (and only in very restricted circumstances) is market value, you need to be looking at something that you could conceivably sell to someone else, and I suspect your website is unique to you.

Moreover, if you'd actually spent £450, then unless it satisfied the requirements for capitalisation of UITF29, then you'd be writing it off as revenue anyway. You can't get relief for notional revenue exenditure either.

Thanks!

damon365 | Tue, 17/01/2012 - 18:19 | Permalink

Thank you for your replies and clarifications. I guess we were looking for confirmation of what was considered "deemed expenditure". The website was produced by volunteer staff (so not paid - mainly because there wasn't perceived to be sufficient capital to pay them), therefore we hadn't already received relief. We had assumed it was an enduring asset (thus satisfying capitalisation requirements of UITF 29) and therefore we should capitalise rather than charge to P&L, but as you say they didn't actually spend the £450. We had assumed that it was deemed expenditure because if the business were sold the website and unique programming would form a large part of the value. We are fast learning the perils of very small turnover businesses and associated thinking! Sorry for creating confusion. I suspect as you say we were asking for relief for notional revenue expenditure, which as you clearly state can't be done. Ah well. Thanks for your answers and replying so fast!

I can see the problem comes

damon365 | Tue, 17/01/2012 - 18:25 | Permalink

I can see the problem comes down to whether or not the created website has a readily ascertainable market value.

FRS10
"Internally developed intangible assets may be capitalised only if they have a “readily ascertainable market value”."

George - deemed expenditure?

MJShone | Wed, 18/01/2012 - 12:37 | Permalink

George - I'm researching something and you've given me some hope. I have a client who was given a house by ex husband as part of divorce. Lots of work done to house by ex husband but pre-divorce. Ex wife is now using as furnished holiday let. My initial reaction was that ex wife did not incur expenditure (unless I can sustain an argument that money came out of joint account) so cannot claim the capital allowances on it when brought into use in business. Is there legislation/case law that says wife can claim CAs on husband's expenditure on asset given to ex-wife?

It's not a gift 1 thanks

George Attazder | Wed, 18/01/2012 - 17:08 | Permalink

I gift is a gratuitous endowment. Her husband gave her the asset, because she was entitled to a proportion of the assets. What was hers was hers and what was his was hers!

Since she ended up with the asset, we must deduce that when he was spending all that money, he was quite clearly spending her money.

The two relevant sections of CAA2001 are S.13 and S.14. In my view S.14 doesn't apply, because it's not a true gift.

Thanks George

MJShone | Thu, 19/01/2012 - 08:36 | Permalink

How thick am I being? My only excuse is that it's January!