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Capital allowance query

Balancing charge

A little help with the following please:

£250,000 of 'general pool' assets purchased in 2017-18.

£200,000 eligible for AIA and the remainder eligible for 18% WDA due to the cap on AIA expenditure.

The b/fwd wdv of the general pool is NIL. The client has sold assets and received £100,000 for these.

My response to my colleague who queried this is that the client will have £200k of AIA and a £50k balancing charge (this agrees to the computation). My colleague has said that she doesn't agree as your are in effect getting 100% relief for the non-AIA additions instead of 18% WDA's.

Any HMRC examples, guidance etc. that you could point me in the direction of would be appreciated.

Thanks

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By ms998
17th Oct 2018 14:08

This is what alphatax does

Expenditure qualifying for WDA at 18% pa 250,000
Annual investment allowance (200,000)
Disposal value (100,000)
Balancing charge 50,000

This agrees with your first statement.

I can't however find anything in manual to support it.

Thanks (1)
By Ruddles
17th Oct 2018 14:29

Your colleague is wrong. And you don't need guidance - just read the legislation.

An alternative calculation would of course be to restrict the AIA claim to £150k, with exactly the same outcome.

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to Ruddles
17th Oct 2018 15:52

Yes I agree and I think that in this case it would be beneficial to restrict the AIA to the requisite amount to eradicate the balancing charge.

My colleague is unfortunately very much accounts based and was asked to adjust a computation. This is like asking me to read Japanese. I hoped giving her an example or guidance (As supplied by Ste99) would assist her in future as she struggles with this area in particular.

Thank you for your assistance.

Thanks (0)
By Ruddles
17th Oct 2018 14:56

Further, what does your colleague think the calculation should look like? Something like this, perhaps?

Adds £250k
AIA £200k
WDA £9k

Proceeds of £100k then give you a balancing charge of £59k. Question - the net allowances are:

a) greater than in your calculation; or
b) smaller than in your calculation; or
c) the same as in your calculation?

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