Paragraph 17 - Rate of Allowance
17. Subject to the following 2 paragraphs, the allowance to be granted is 25% of the amount by which qualifying expenditure (paragraph 18) exceeds any disposal value which needs to be brought into account (paragraph 22 et seq.). However, if the trade has been carried on for part only of the year of assessment, a proportionately reduced percentage is granted. For example, if a trader commences trade on 1 July his allowance for that year of assessment is one-half of 25%. The year for which the allowance is granted is determined by the basis period in which the expenditure is incurred. (See paragraphs 40 - 42).
Paragraph 18 - Qualifying expenditure: Definition Pooling
18. A trader's qualifying expenditure is the aggregate of:
- a. any residue of capital expenditure brought forward from the preceding year of assessment (after deducting any allowances made for that year of assessment) and
- b. capital expenditure incurred in the basis period (see paragraphs 40 - 42) or previously (see paragraph 43) but excluding expenditure which has qualified for a previous basis period
Example 1
A trader commences business on 1 July, 1990 and makes up accounts for the year ended 30 June, 1991. He incurs capital expenditure on the provision of plant and machinery wholly and exclusively for the purposes of the trade as follows (there being no disposals):
£2,800 on 1 August, 1990
£5,000 on 13 November, 1990
£10,000 on 20 February, 1991
The basis periods (see paragraphs 40 - 42) of the assessments and the amounts of qualifying expenditure are:
| Year of Assessment |
Basis Period |
Qualifying Expenditure |
| 1990 |
1st July, 1990 to 31st December, 1990 |
£7,800 |
| 1991 |
One year from 1st July, 1990 |
£10,000 |
| 1992 |
Year ended 30th June, 1991 |
NIL |
The allowances are calculated as below:
| |
£ |
| Capital expenditure 1/7/90 - 31/12/90 |
7,800 |
| Qualifying expenditure |
7,800 |
| 1990 allowances 25% X 6/12 |
975 |
| |
6,825 |
| Capital expenditure 1/7/90 - 30/6/91 |
10,000 |
| |
16,825 |
| 1991 allowances 25% |
4,207 |
| |
12,618 |
| Capital expenditure y/e 30/6/91 |
Nil |
| Qualifying expenditure |
12,618 |
| 1992 allowances 25% |
3,155 |
| Residue carried forward |
9,463 |
This example illustrates that where 2 basis periods overlap the period common to both is deemed to fall in the first period only.
It also emphasises the point that allowances are restricted by reference to the length of time the trade is carried on during the year, not by reference to the length of time the equipment is owned or used.
Example 2
A hotelier who has been in business for many years submits accounts for the year ended 31 December, 1990, being the basis of his 1991 assessment.
In the accounting year he replaced his car (agreed private use one-third) for £8,400. He received £2,200 in part exchange for his old car, the residual value of which was £2,560.
The 1991 capital allowances in respect of the motor car total £1,640, as follows:
| |
|
Non-allowable 1/3 |
Allowable 2/3 |
| |
£ |
£ |
£ |
| Residue brought forward |
2,560 |
|
|
| Sold for |
2,200 |
|
|
| Balancing allowance |
360 |
120 |
240 |
| Cost in 1990 |
8,400 |
|
|
| 1991 allowances 25% |
2,100 |
700 |
1,400 |
| Residue c/forward |
6,300 |
|
|
This example also illustrates how, in the particular situation described, a balancing allowance can be thrown up.
In the case of pooled expenditure, see the next section, a balancing allowance can only arise on cessation of the trade.
Paragraph 19-20 - Pooling
19. When calculating capital allowances the costs of all items of machinery or plant are added together without distinguishing individual items. This is known as "pooling" and the total expenditure is referred to as the "pool".
20. The only items that cannot be pooled are:
Machinery or plant provided partly for purposes other than those of the trade (because the private element must be identified).
Glasshouses (for the reasons explained in paragraphs 35 to 37).
Capital allowances guide: paragraphs 21 to 29
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