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Where Taxpayers and Advisers Meet

Balancing Allowances

Wex
Posts: 3
Joined: Wed Nov 07, 2018 12:29 pm

Balancing Allowances

Postby Wex » Wed Nov 07, 2018 1:06 pm

Sorry in advance for the length of this post. I am trying to ensure I treat Balancing Allowances for cars correctly when I close my business later this year. As a sole trader, I have claimed Capital Allowances in separate pools for cars over the years with varying levels of restriction for Business Use ranging from 50% to the current 20%. I changed cars (Range Rovers) last year and have treated as follows (figures not actual).

Traded-in Car 1 for £20,000 against WDV of £30,000 and bought Car 2 costing £65,000 leaving balances of £10,000 and £65,000 which attracted Capital Allowances at 8% (over CO2 limits) of £800 and £5200. I restricted the claims to £160 and £1040 (20% Business Use).

This year (my final year), I intend to treat as follows:
On balances brought forward of £9,200 and £59,800, I will reduce Car 2 to £11,800 (£48,000 value retained by me), reduce for 20% Business use to £1,240 for Car 1 and £2,360 for Car 2 which will be claimed as Balancing Allowances.

Does that seem correct?

bd6759
Posts: 2890
Joined: Sat Feb 01, 2014 3:26 pm

Re: Balancing Allowances

Postby bd6759 » Wed Nov 07, 2018 6:01 pm

You cant claim any allowances after you have disposed of an asset in a single asset pool. By its very nature the pool will be empty.

Year 1

Car 1
WDV £30,000
Disposal £20,000
Bal Allce £10,000. Restrict to BU 20% = £2000.
(WDV 0)

Car 2
Bought £65,000
WDA 8% = £5,200. restrict to 20% = £1040.
WDV £59,800

======

Year 2 (final year)

WDV £59,800
Disposal £48,000
Bal Allce £11,800. Restrict to 20% = £2360
(WDV 0)


If you bought car 2 a short while before the business ceased HMRC may want to restrict the allowance further (but since it is a small amount they probably wont worry about it).

Wex
Posts: 3
Joined: Wed Nov 07, 2018 12:29 pm

Re: Balancing Allowances

Postby Wex » Wed Nov 07, 2018 6:20 pm

Many thanks.

Car 2 was bought 21 months before business closure.

My reading of the HMRC website was that, as cars were in single asset pools (also used outside of business), a Balancing Allowance could only be claimed on cessation and WDA should still be claimed up until that point (presumably no matter how long). But thanks for correcting. The new calculations bring out a better result overall, although both look rather generous which was why I queried as I don't want to fall foul of HMRC in my final year.

bd6759
Posts: 2890
Joined: Sat Feb 01, 2014 3:26 pm

Re: Balancing Allowances

Postby bd6759 » Wed Nov 07, 2018 8:12 pm

I suspect the guidance you are looking refers to a special rate pool rather than a single asset pool, and is confined to companies.

If you post a link, I can check that.

Wex
Posts: 3
Joined: Wed Nov 07, 2018 12:29 pm

Re: Balancing Allowances

Postby Wex » Wed Nov 07, 2018 8:39 pm

Having read HS252 guidance again, I can see that you are absolutely correct. I'm not sure if I was reading a different document before (stupidly didn't note what it was) or if I just didn't read far enough in the following two sentences in HS252:

"You only get a balancing allowance in the main or special rate pool when you stop your business. You can get a balancing allowance in a single asset pool when you sell or dispose of the asset that is in it."

So, you need to wait until cessation for Main and Special Rate asset pools but not for single asset pools. Clarity has broken out!

Many thanks for your help.


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