Tag Archives: allowance

Capital Allowances Act: Balancing Charges and Allowances

Posted on December 2, 2011 by admin| Leave a comment

Under Section 55 of the Capital Allowances Act 2001, persons might be entitled to balancing allowances and liable for balancing charges when a long-life asset is sold. These are computed separately for each pool of qualifying expenditure. If the qualifying expenditure is less than the amount received on disposal of the asset, the person is entitled to a writing-down or balancing allowance.

On the other hand, if the amount received on disposal is more than the qualifying expenditure, the person is liable for a balancing charge to the extent of the excess of disposal receipts over qualifying expenditure. In effect, the person will have to pay tax avoided earlier through capital allowance claims.

There rules and provisos that increase or reduce the claims and charges.

When the asset disposed off is an industrial or agricultural building or hotel, the buyer and seller can negotiate the value of the plant and machinery that forms part of the building. If the value is agreed at a low amount, the seller will gain in tax terms. On the other hand, if the value is agreed at a high amount, the buyer can claim capital allowances on that value.

It is standard practice to look at the capital allowances claimed on such plant and machinery when property is disposed off. The seller declares the value of the Capital Allowances claimed, in what form they were claimed, to what the allowances relate and what the written down value of the allowances is. Based on these, the seller and buyer negotiate the value.

The seller might be able to get a higher price for the property by allowing the buyer the opportunity to claim higher capital allowances. Whatever is agreed upon can be included in an Election Notice under Section 198 of the Act. We will look at this section in a separate article.

For more information visit the authors site Private Pension or Private Pensions

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Apportionment of Sale Price for Capital Allowance Purposes

Posted on December 2, 2011 by admin| Leave a comment

In certain circumstances one sale price will have to be apportioned between distinct assets that are covered under one sale contract with a common price. For example:
? You might sell land with an attached asset that is eligible for capital allowance claims. In such a case, the price attributable to the attached asset needs to be clear to enable claiming capital allowances for that asset.
? You might sell plant and machinery items that belong to different asset pools and hence need to be accounted separately

The general rule is that the apportionment should be done in a just and reasonable manner. However, the seller and buyer have opposing pulls in fixing the price of assets that are eligible for capital allowances.

The buyer would like to see it fixed at a high value so that the person can claim maximum capital allowances. The seller, on the other hand, would like to apportion a low value to the asset so that there will be no surplus over the written down value (original expenditure minus capital allowances claimed so far).

Where an asset is sold at a price over the written down value, tax authorities will consider excessive capital allowances to have been given and add back the excess to current taxable income. The taxpayer will thus be forced to bear additional tax burden.

Because the buyer and seller have to use the same apportionment, a negotiation process usually follows. However, if the result of the negotiation appears to be designed to avoid tax with no reasonable basis, tax authorities might not accept the apportionment. Instead, they might open an enquiry in consultation with the concerned District Valuer.

Where buyer and seller has not entered into any agreement for apportionment of the sale price, the buyer can do the apportionment in consultation with the District Valuer.

The price apportioned to the asset eligible for capital allowances cannot exceed:
? The amount on which the seller could have claimed capital allowances
? The total sale price

Provided that the sale contract has been made at “arm’s length” leading to the assumption that is has not been fixed to avoid tax, and the above provisions have been followed, apportionment of the sale price will not normally be rejected.

Similar provisions apply in the case of a lease transaction with the lessee paying a premium and using the asset for a qualifying activity.

For more information visit the authors siteSelling Pensions or Sell Pensions

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Capital Allowance Allows You to Write off the Cost of Long Life Assets

Posted on December 2, 2011 by admin| Leave a comment

Capital allowance replaced the “wear and tear” allowance that was allowed originally. The term “wear and tear” probably expresses the idea behind the allowance better. What capital allowance does is to allow you to write off the cost of long-life assets over their useful lives.

For non-accountants, the distinction between ordinary expenses (such as raw material purchases) and expenditure on long-life assets (such as plant and machinery) might appear a little confusing. Both are business expenses and yet one of them is allowed to be deducted from current year’s income while the other is not.

The reason for the different treatment is that while the raw material is typically consumed in the year of purchase, the asset is used over a number of years. Hence, the cost of the latter is spread over these years of useful life. Each year, you can deduct a percentage of the value of the asset so that the full value (minus any scrap value at the end of the period) is written off by the time the asset needs to be replaced.

It is this yearly percentage that we call capital allowance (or wear and tear allowance). In most countries, this write-off is called depreciation while in UK it is called capital allowance.

Capital allowance as outlined above is comparatively easy to understand and even to compute. However, the computation becomes extremely complicated when the asset is a building. A building as such is considered to be an asset with an “indefinite” life and no capital allowance is allowed on buildings.

However, certain fixtures of the building such as air conditioners, lifts and many others are considered “plant and machinery” and capital allowances can be claimed on these. The problem is that it is difficult to value these fixtures separately when you purchase a building with all the fixtures included. Tax authorities do not take kindly to any over-valuation of the fixtures while under-valuation means that you will get tax reductions less than what you are entitled to.

For claiming capital allowances on property, you need more than accounting and taxation expertise. You also need valuation expertise to ensure that the fixtures of the building are valued correctly. Portal Tax Claims LLP works with your accountants and tax consultants to ensure that you get the full benefits you are entitled to.

For more information visit the authors site Private Pension or Private Pensions

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Business Premises Renovation Allowance

Posted on December 2, 2011 by admin| Leave a comment

Business Premises Renovation Allowance (BPRA) is a tax allowance provided by HMRC in UK to provide an incentive to renovate derelict or unused properties and bring them back into use. Provided the business premises thus converted or renovated is in a disadvantaged area, 100% of the qualifying expenditure can be claimed as capital allowance. BPRA will be in effect only for a period of five years from April 11, 2007 to April 10, 2012 and the expenditure must be incurred during this period.

A disadvantaged area is any area included in The Assisted Areas Order 2007 or Northern Ireland. Areas such as North Cornwall and Isles of Scilly in England and Swansea and Pembrokeshire in Wales are included in the 2007 order. Just enter the area’s postcode at Postcode Database of Assisted Areas website to check whether it qualifies.

To qualify for BPRA, the expenditure must be incurred:
? To convert or renovate a commercial building or structure situated in a disadvantaged area into a “qualifying” business premises
? To repair qualifying business premises
? Specifically in order to claim BPRA

Qualifying business premises are commercial buildings that are presently unused and have not been used during one year preceding the incurrence of the expenditure. The last use must also not have been as a dwelling. Expenditure for conversion, renovation and repairs of such a building will qualify for BPRA provided it is used or let out for a “relevant trade,” i.e. for:
? Fisheries and aquaculture,
? Shipbuilding,
? Coal industry,
? Steel industry,
? Synthetic fibres,
? Primary production of certain agricultural products, and
? Manufacture or marketing of products which imitate or substitute for milk and milk products.

Any expenditure for acquiring land, extending the building or developing land next to the building does not qualify, however.

For more information visit the authors site Private Pension or Private Pensions

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