Balancing allowance

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I am helping a friend to complete his 2022/23 Tax Return. He is a sole trader and has claimed capital allowances (restricted to 6%) on a motor car with personal use deducted. He sold the car and a large balancing allowance has resulted. Can he claim this balancing allowance (with personal use deducted) or is it also restricted?

Replies (9)

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By Ruddles
04th Dec 2023 15:12

The 6% "restriction" simply dictates the rate of WDA, and therefore the timing of allowances. No adjustment (other than for private use) needs to be made to the balancing adjustment.

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By solidair123
04th Dec 2023 15:26

Because only 6% WDA has been claimed, a large balancing allowance was very likely going to arise. I cannot understand the logic. Am I missing something?

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Replying to solidair123:
By Ruddles
04th Dec 2023 15:56

Who ever said that tax was logical?

Ignoring the impact of FYAs, private use adjustments etc, one might argue that it is logical to apply a smaller WDA to items that are going to last a long time, eg integral features. It might also be logical to apply a lower WDA to certain assets, eg cars, to incentivise investment in lower-polluting vehicles. At the end of the day, though, one should obtain allowances equal to the net cost of the asset. The combination of WDA/balancing adjustment merely dictates the timing.

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By solidair123
04th Dec 2023 16:01

Many thanks for your explanations.

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By CJaneH
04th Dec 2023 16:17

One thing that is missed in explainations of the budget with changes in capital allowance rates it does not alter the total eventually claimed, only the timimg of the claims.

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By Sandnickel
04th Dec 2023 20:06

There is no balancing allowance in a special rate pool until the business ceases (or the pool is £1000 or less). You continue to have a WDA of 6%.

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Replying to Sandnickel:
By Ruddles
04th Dec 2023 20:42

Sandnickel wrote:

There is no balancing allowance in a special rate pool until the business ceases (or the pool is £1000 or less). You continue to have a WDA of 6%.


Er … CA2001 ss206 and 65(2)?

You aren’t wrong but you should perhaps read the question again.

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Replying to Ruddles:
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By possep
05th Dec 2023 07:08

Agreed - Single asset pool as private use so balancing allowance net of PU.

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By sammerchant
07th Dec 2023 13:35

Before you claim the Balancing Allowance, do make sure that the 'sale' was either to an unconnected party or if not, at market value. HMRC are aware of this legislation being taken advantage of in the computations.

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