Is it time to reconsider short life assets?

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Following the significant changes to capital allowances introduced in Finance Act 2008, it may now be worthwhile reconsidering the availability of short-life asset treatment for qualifying expenditure on relevant assets. 

Claiming short-life assets have often been discounted due to the potential complexity of identifying relevant assets and the ability to track the disposal of assets. However, with the reduction in rates for general plant and machinery from 25% to 20% per annum on a reducing balance basis, from 1 April 2008, the period over which approximately 90% of qualifying expenditure is now written off for tax purposes increases from 7 years to 11 years. With short-life asset treatment, a disposal within the 4 year period will allow the full cost of an asset to be written off for...

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By joneser
30th Jun 2009 17:07

If total expenditure in the accounting period is less than £50,000, is it not better to include the items in the pool and claim Annual Investment Allowance, thereby gaining 100% relief in the year of acquisition?

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08th Jul 2009 22:16

Am I missing something here, but if your write off under AIA, then that amount is relieved at whatever CT rate your company pays. OK. But if you capitalize, you can 50% of value at CT rate, in say year 1, then in year 2, say you sell assets, or return as not required and get for ease sake, same value as you paid, you then remove this from pool at lower of cost/nrv, which in affect decreases the allowance by 100% of that value.

Yr 1 So first year say FYA 50% of £10000 = £5000 x CT rate 21% = 1050

B/F was £50000 so you would write down at 20% = £10K and this would be relievd at 21% CT = 2100

Yr 2 C/D £45000 [ £50-10+5[bal after 50%fya] ] less disposal of £10K[at cost] = £35K x 20% = £7000 relieved at 21%= 1470

Total allowance over 2 years = 4620
Without the asset being capitalized - yr 1 = £2100 +1680 = 3780 plus the £2100 AIA = 5880

So you gain extra allowance of £1260 by combining the two.

If you write off under AIA its £10000 x 21% = 2100

Am i being stupid here, but is this the whole point of Short life asset, as the disposal gets lost in the main pool and you loose out - or this late in the day, i am missing something in my calculations. You take 50% in year one, which halves the value, then in year two you dispose of the full cost, loosing 20% of this, so a gain of £10K x50% =£5000, then a loss of £10K x 20% = £2000, net £3000 x 21% = £630.00 allowance obtained overall.

Under AIA you get £2100.00. A lot more overall.

Can anyone explain to me where I am going wrong, or is that one of the pitfalls of disposals where the sale figure or return figure is the same, ie where you return a piece of plant for a full refund of cost.



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