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A short life but a gay one

4th Feb 2013
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Use the short-life asset election to maximise the capital allowances available on the purchases of plant and machinery.

Without an election all equipment is taken into one pool and proceeds are deducted from the pooled cost when any items from the pool are sold. Under a short-life election each asset (excluding cars) is accounted for separately so when it is sold or scrapped any residual value is offset against profits for tax purposes.

Short-life assets and capital allowances

For any asset that you intend to keep for no more than four years after the end of the accounting period in which you bought it, or that you expect will wear out or break within that period, you can make an election for it to be treated individually for capital allowance purposes as a 'short-life asset'. This type of asset qualifies for the annual investment allowance (AIA), so you would normally only make a short-life election if your AIA is used up.

Legislation was introduced after Budget 2011 to increase the period over which expenditure on plant or machinery can be given 'short life asset' treatment from the current four years to eight years.

This change will have effect for expenditure on plant and/or machinery incurred:

  • on or after 1 April 2011 for business within the charge to corporation tax
  • on or after 6 April 2011 for business within the charge to income tax

See the usual helpful stuff below:

http://www.hmrc.gov.uk/manuals/camanual/ca23640.htm

What is NOT a short-life asset can be found here:

http://www.hmrc.gov.uk/manuals/camanual/CA23620.htm

Click here to download a PDF of this tax tip

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