impairment of debtors, provided it is calculated in accordance with UK
GAAP. Again, the reduction in an allowance for trade debtors is taxable
income.
• The following items are disallowable:
v The write-off of a non-trade debt (e.g. a loan to a customer or a former
employee).
G. Capital Allowance
• Following are the plant and machinery pool items:
v Plant and machinery
v Computer – hardware and software
v Cars
v Lorries
v Office equipment
v Air conditioning system
v Alterations to the building for the installation of plant and machinery
• They are available on 20% reducing balance basis.
• They are available according to the accounting period.
• It will not be affected by date of purchase, consider accounting period.
• Incase of disposal, the amount of disposal will be restricted to the lower of,
sales proceeds OR original cost of machinery pool items.
• No capital allowance will be calculated in the year of disposal.
a. Annual Investment Allowance (AIA)
• The AIA is a 100% allowance for the first £50000 of expenditure incurred by
a business on plant and machinery.
• The key rules for the allowance are as follows:
v Available to all businesses regardless of size;
v Available on acquisitions of general plant and machinery and acquisitions
of ‘special rate pool’ items;
v Not available on any type of cars;
v Limited to a maximum of £50000 expenditure incurred in each accounting
period of 12 months in length;
v For long and short accounting periods the £50000 allowance is pro-rated;
v Not available in the accounting period in which the trade ceases.
• Note also that:
v The taxpayer does not have to claim all/any of the AIA if he does not want
to,
v Any unused AIA can not be carried forward or carried back; the benefit of
the allowance is just lost.
• It will therefore be most beneficial for the AIA to be allocated against
expenditure in the following order:
1. Special Pool Assets.
10
2. General Pool Assets.
3. Short Life Assets.
4. Privately Used Assets.
b. Further Allowances Available
• Expenditure on plant and machinery in the main pool not qualifying for AIA
will qualify for Writing Down Allowances (WDA).
• Note that the business can choose the expenditure against which the AIA is
matched.
• Expenditure on plant and machinery in the main pool qualifying for AIA but
falling above the 50000 AIA limit will qualify for further allowances as follows:
Writing Down Allowance (WDA)
Writing Down Allowance (WDA)
• An annual WDA of 20% is given on a reducing balance basis.
• It is given on:
v The unrelieved expenditure in the pool brought forward at the beginning of
the period of account (i.e. tax written down value TMDV).
v Any additions on which the AIA is not available.
v Any additions pre 6th April 2009 and w.e.f. 6th April 2010, not covered by
the AIA.
v After taking account of disposals.
• The TWDV brought forward includes all prior expenditure, less allowances
already claimed.
• Note that the WDA is not available on additions between 6th April 2009 to 5th
April 2010, as these are eligible for the AIA and temporary 40% FYA instead.
First Year Allowance (FYA)
• The relief for FYA is calculated as follows:
v In the period of acquisition, a 100% FYA is given instead of the WDA.
v Unlike the WDA; the FYA is not pro-rated for periods of greater or less
than 12 months.
v FYAs are not given in the final period of trading.
• Two types of FYA are available:
1. Temporary FYA on plant and machinery.
2. FYA on low emission cars.
1. Temporary FYA on plant and machinery
• A temporary FYA of 40% is available for expenditure on main pool items that
are not covered by the AIA.
• The rules are as follows:
v Only applies to expenditure between 6th April 2009 to 5th April 2010.
v Main pool items only.
2. FYA on low emission cars

   

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