ACCA – Skills Level

Paper F6 (UK)
Taxation
Capital Allowances
Capital Allowances
• Also known as tax depreciation
• Replace accounting depreciation, a disallowed expense
• Provide tax relief against trading profits in respect of
expenditure on qualifying plant and machinery
• Plant: assets that perform active function in the
business e.g. equipment, furniture etc
• Machinery will include vehicles, computers,
installations
• Cap allowances now also available on integral building
features e.g. escalators, heating & cooling systems
• If business is VAT registered and input VAT recoverable
on asset then allowance given on VAT exclusive cost
Capital Allowances Computation
• Computation prepared for accounting period of
business, not tax year
• Total allowances then deducted from trading profit
adjustment of the accounting period
• 3 types of cap allowances available:
1. Annual Investment Allowance (AIA)
- 100% for first £200,000 of qualifying expenditure
- if period other than 12 months, time apportioned
- on all p&m except motor cars
- expenditure in excess of AIA qualifies for WDA
2. Writing Down Allowance (WDA)
- cost of p&m that does not qualify for AIA is
allocated to a pool for WDA of 18% or Special
Rate Pool of 8%
- allowance given on a reducing balance basis
- if period other than 12 months, time apportioned

3. First Year Allowance (FYA)

- for new cars with CO2 emissions up to 75 g/km
- 100% FYA, essentially a full tax relief
- FYA never time apportioned
Example 1
Massa commenced to trade on 1 July 2014 and prepared
accounts to 31 Dec 2014 and to 31 Dec thereafter. Massa made
the following acquisitions of main pool assets:

Accounting period to 31 Dec 2014 £

1 Jul 14 Wheel balancing machine 220,000
20 Oct 14 Computer equipment 80,000

Accounting year ended 31 Dec 2015 £

19 Oct 15 Machinery 30,000

Prepare Massa’s cap allowances computations for period ended

31 Dec 14 and year ended 31 Dec 15
6 month period to 31 December 2014 Main Pool Allowances
Additions (AIA)
1 July 2014 Plant 220,000
20 Oct 2014 Computers 80,000
300,000
AIA (max 6/12 x 200,000) (100,000) 200,000 100,000
WDA (max 6/12 x 18% x 200,000) (18,000) 18,000
Total Allowances 118,000
Tax Written Down Value (TWDV) c/f 182,000
Year Ended 31 December 2015
TWDV b/f 182,000
19 October 2015 30,000
AIA (30,000) 30,000
WDA (18% x 182000) (32,760) 32,760
Total Allowances 62,760
TWDV c/f 149,240
Special Rate Pool
• Integral features of a building
– Lifts and escalators
– Lighting systems
– Cold water systems
– Space or water heating systems
– Ventilation, air cooling or purification systems
• Thermal insulation of buildings
• Long life assets (economic working life of 25 years+
with total expenditure exceeding £100,000)
• Cars with CO2 emissions over 130 g/km (do not
qualify for AIA)
Example 2
Vettel prepares accounts to 5 April. The WDV of the main pool
at 6 April 2014 is £40,000. The following transactions took place
during the year ended 5 April 2015:

4 May 2014 Purchased plant for £50,000

30 Jun 2014 Purchased a motor car for £11,200 CO2 of 120g/km
6 Jul 2014 Purchased a motor car for £14,100 CO2 of 170g/km
15 Mar 2015 Purchased a motor car for £14,400 CO2 of 65g/km

Calculate the capital allowances for Vettel for the year ended 5
April 2015.
Accounting period to 5 April 2015
Main Pool Sp Rate Pool Allowances
£ £ £
WDV b/f 40,000
Additions qualifying for AIA
Plant 50,000
AIA (50,000) 50,000
Other additions
Motor car (120g/km) 11,200
Motor car (170 g/km) 14,100
51,200 14,100
WDA @ 18% (9,216) 9,216
WDA @ 8% (1,128) 1,128
Additions qualifying for 100% FYA
Motor car (65g/km) 14,400
FYA @ 100% (14,400) 14,400
74,744
WDV c/f 41,984 12,972
Example 3 (homework)
Kenny prepares accounts to 5 April. As at 6 April 2014 the WDV
brought forward on the main pool was £22,000. The following
transactions occurred in the year ended 5 April 2015.

22 July 2014 Purchased machinery £45,000

13 Nov2014 Purchased a long life asset £230,000
25 Feb 2015 Purchased a motor car CO2
emissions of 125g/km £8,000

Calculate Kenny’s capital allowances for year ended 5 April 2015