Insurance claim & Capital Allowances

by **joe90** on Wed Jan 18, 2012 4:21 pm

We have a business which had flood damage to P&M and F&F. The items damaged were bought again new and the insurance claim was for the exact cost of these items, i.e. there was no cost to the business. The old items were still in the General Pool for Cap. Alls at tax WDV.
Now, do we have disposals of the old items and additions of the new whereby the proceeds of disposal are credited against pool value b/f, thereby reducing the WDA by 20% of the proceeds, and we claim 100% AIA on the additions? If so we have a net 80% of the cost of the new items as deductible.
Or, given the insurance claim was for the exact cost of the new items, do we have no additions and no disposals? And no entries on the Cap. Alls schedule with just the 20% WDA on the pool to claim?
Which would be the correct treatment in HMRC's view?

by **pawncob** on Wed Jan 18, 2012 5:10 pm

The purpose of insurance is"to put the insured in the same position as they were before the event happened".
There is no cost to the business, so no change in CA position. (Some insurance companies, dealing direct with supplier/installer don't even tell the insured what the settlement was).

by **joe90** on Wed Jan 18, 2012 5:22 pm

Well I can understand that but it doesn't seem quite right. The physical situation is that the old items have been disposed of and new ones have been bought in their place. Suppose the new items were now sold? There would be a big hit against the pool value b/f because they would be sold for much more than the tax WDV - and that would be unfair. Are you sure that going down the disposal and addition route for Capital Allowances is wrong? Or is it a matter of choice/ interpretation?

by **pawncob** on Wed Jan 18, 2012 5:26 pm

If you disposed of the depreciated "old" plant there'd be a huge balancing charge, offset against this years AIA, so what's the difference?

by **section 44** on Wed Jan 18, 2012 5:27 pm

"Fairness", always interesting when this subjective viewpoint rears its head here. Presumably old for new insurance is fair, right?

by **joe90** on Wed Jan 18, 2012 5:41 pm

No, the pool value b/f exceeds the insurance proceeds, so the proceeds are just credited against the pool value and no balancing charge arises. The WDA is reduced as a result - by 20% of the proceeds value. But we then claim 100% of the cost of the new assets as AIA, thereby getting a net 80% of the proceeds value as tax deductible. This then leaves the new assets in the pool at today's value not the WDV after many years, which would give a correct balancing charge/ allowance on sale if that occurred.