Paragraph 30 - At discontinuance
30. In the year of assessment in which occurs the permanent discontinuance of the trade, the allowance ("balancing allowance") equals the whole of the excess of qualifying expenditure over any disposal value which needs to be brought into account.
Example 4
The company mentioned in the preceding example buys some machinery for £10,000 in January, 1993 and ceases to trade in June, 1994.
Shortly after cessation all its machinery and plant is sold in the open market for £8,000. The 1993 assessment falls to be made on the profits of the year ended 31st December, 1992.
The computation is:
| Residue carried forward |
£25,125 |
| 1992 allowances 25% |
6,281 |
| |
18,844 |
| Capital expenditure y/e 31/12/92 |
- |
| Capital expenditure y/e 31/12/93 |
10,000 |
| Qualifying expenditure |
28,844 |
| 1993 allowances 25% |
7,211 |
| |
21,633 |
| Disposal value |
8,000 |
| |
13,633 |
| 1994 balancing allowance |
13,633 |
This example also serves to illustrate that where there is a discontinuance of a trade resulting in one year's profit not forming the basis of any year's assessment (in this case the 1993 profits) capital expenditure in that year nevertheless qualifies for allowances.
Paragraph 31 - Disposal of non-pool items
31. Disposals of machinery or plant other than at cessation of trading do not give rise to a balancing allowance except in the following circumstance. An item of machinery or plant which is provided partly for purposes other than those of the trade is the subject of a separate calculation. Upon the disposal of that item, a balancing allowance (or a balancing charge - see paragraph 32) is thrown up, unless by coincidence the disposal value equals the balance of qualifying expenditure.
Paragraph 32 - When a Balancing Charge arises
32. If the disposal value for any basis period exceeds the qualifying expenditure a balancing charge arises.
Example 5
A trader disposes of his machinery and plant in 1990, perhaps replacing them by leased assets.
The computation, based on accounts for the two years to 31st December, 1990 is:
| |
£ |
| Residue b/forward (say) |
3,200 |
| 1990 allowance 25% |
800 |
| Qualifying expenditure |
2,400 |
| Disposal value (say) |
2,700 |
| |
300 |
| 1991 Balancing charge |
300 |
| Residue carried forward |
NIL |
Paragraph 33 - How a balancing charge is made
33. A balancing charge is made on the trader by means of an assessment on the profits of his trade.
Extending the example in paragraph 32, and assuming the assessable profits are £15,000 and £16,000 respectively, the assessments will be:
1990: £15,000 less Capital Allowances, £800
1991: £16,000 plus balancing charge, £300 = £16,300
Capital allowances guide: paragraphs 34 to 48
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