Capital allowances exam technique checklist
This handy checklist covers the method you should use when practicing capital allowances questions in an exam setting.
1. Are you dealing with a company or an unincorporated trader?
This is relevant because:
- Unincorporated traders calculate allowances for each accounting period but companies use their Chargeable Accounting Period (CAP), which cannot exceed 12 months.
- Unincorporated traders will need private use adjustments (for proprietor using an asset), but a company will never have private use adjustments.
- If a company has associates you will need to adjust the long life asset de minimis limit of £100,000 and may have to adjust the AIA to share it between the companies.
2. What is the length of period covered by the computation?
- Adjust the available AIA, WDAs and the long life asset de minimis accordingly – these are all annual figures.
- Never adjust the FYA rate – it is given because you have bought a qualifying asset.
3. Consider each asset addition in the period:
- Does the expenditure qualify as plant and machinery?
- If so, what's the best rate available for each asset (excluding AIA)?
- Does an asset need to be shown in its own pool due to private use by the owner of an unincorporated trade?
- Allocate the AIA to those assets with lowest allowances (excluding cars).
4. Consider each asset disposal in the period:
- Which pool does the asset belong to?
- Deduct the lower of proceeds received and original cost.
Total the qualifying expenditure for each column.
5. Deduct WDAs, FYA, AIA at the relevant rates:
- Ensure you take account of the length of the period at the point of calculating WDAs.
- Claim the small pools allowance if the main pool or special rate pool qualifying expenditure is less than £1,000 (scaled up or down for long/short periods).
- Use balancing adjustments if an individual asset which is not pooled is disposed of, if the trade is ceasing, or if there is negative qualifying expenditure in a pool.
- If an asset is not pooled due to private use, reduce the qualifying expenditure by the full allowance available for the period but restrict the allowance claimed as an adjustment to trade profits at the end of this process.
6. Close off each pool by calculating TWDV carried forward:
- The AIA and FYA columns should always have a nil balance carried forward.
7. Total the allowances available for the period:
- Balancing charges should be netted against allowances.
- Restrict for private use by owner of an unincorporated trade if necessary.
8. Points to watch out for:
- Prioritise the AIA allocation to integral features and long life assets where possible.
- Cars – all rates based on CO2 but note that they won't be able to get AIA.
- Long life assets – add to the special rate pool if total expenditure on long-life assets in the period exceeds the de minimis limit.