View the related Tax Guidance about Balancing charge
Capital allowances computations
Capital allowances computationsPlant and machinery allowancesThree types of allowance are available for expenditure on plant and machinery:•the annual investment allowance (AIA), which currently provides a 100% allowance for the first £1,000,000 of expenditure per year, see the Annual investment allowance (AIA) guidance note•first year allowances (FYAs), which also provide a 100% allowance for expenditure, but restricted to particular types of plant and machinery this includes full-expensing on new plant and machinery by companies, see the First year allowances guidance note, and•writing down allowances, which provide a percentage allowance of 18% or 6% per year (18% or 8% prior to April 2019)There is also a temporary super-deduction of 130% and FYA of 50% on qualifying new plant and machinery acquired between 1 April 2021 and 31 March 2023. For more details, see the Super-deduction and special rate first year allowance guidance note.In addition, balancing allowances and balancing charges may arise in some circumstances where assets are disposed of or the business ceases.To compute writing down allowances, balancing allowances and balancing charges, expenditure is ‘pooled’. The different types of pools are:•the main rate or general pool ― includes most types of plant and machinery where not included in other pools•special rate pool ― mainly integral features, see the Special rate pool and long life assets guidance note•single asset pools when there has been a short-life asset election, see the Short-life assets guidance note•single asset pools when assets are used by unincorporated businesses both for
Capital allowances for sole traders and partnerships
Capital allowances for sole traders and partnershipsSome aspects of capital allowances only apply to sole traders and partnerships, these are as follows:•private use of assets which qualify for capital allowances eg cars•capital allowances on know-how•capital allowances on patentsEach of these is detailed further below.Private use adjustmentsSole traders or partnerships may use assets for both business and private purposes. For example, it is common for a sole trader to have a car which is used mainly for business, but at the weekends or in the evenings, used for private purposes. If all the costs of running the car are paid for by the business, the tax computations must be adjusted to take account of the private use. Therefore, motor expenses in the profit and loss account are reduced for the private element of those costs.Likewise when considering the capital allowance computations, the capital allowance must be reduced by the private element. The private element is normally given as a percentage which is then applied to the computations. In practice, the private usage may need to be agreed with HMRC.This is only applicable where the car is owned by the sole trader or partnership. It is necessary to consider whether this is the case, or whether the car is in fact leased. See the Capital allowances on cars guidance note for further information.Private use adjustments never apply to companies. The director of the company might use a company car for their private purposes. However, this will not affect
Entitlement to plant and machinery allowances
Entitlement to plant and machinery allowancesGeneral ruleThe general rule is that capital allowances are available for ‘qualifying expenditure’ incurred by a person carrying on a ‘qualifying activity’. ‘Person’ includes both companies and individuals. Qualifying expenditure for capital allowances‘Qualifying expenditure’ is capital expenditure incurred on plant or machinery that is wholly or partly used in the qualifying activity carried on by the person incurring the expenditure. The person incurring the expenditure must also own the asset as a result of incurring the cost of it. Details of what constitutes a qualifying activity can be found in the Capital allowances ― introduction guidance note. SubsidiesExpenditure which is covered by a subsidy is not qualifying expenditure. However, subsidies made by private entities will be qualifying expenditure where the donor cannot claim capital allowances on the expenditure. See ‘Contributions to expenditure’ below. GiftsQualifying expenditure includes deemed expenditure on plant or machinery which has been received as a gift. The recipient is treated as having incurred expenditure equivalent to the market value of the plant or machinery on the date the recipient brings it into use for a qualifying activity. Ownership for capital allowancesGenerally, capital allowances will only be available where the person incurring (or deemed to have incurred) the expenditure
Research and development tax relief ― capital expenditure
Research and development tax relief ― capital expenditureThis guidance note provides information on the relief available for capital expenditure on research and development (R&D). The Research and development (R&D) relief - overview guidance note provides an overview of R&D reliefs for revenue expenditure. The guidance note Capital vs revenue expenditure provides information on whether expenditure is capital or revenue in nature.It is important to note that, although R&D tax relief for revenue expenditure is not available to unincorporated businesses or individual hobbyist inventors, only to companies, the RDAs for capital expenditure are available for companies and unincorporated businesses, provided they are carrying on a trade.See also Simon’s Taxes B3.7 for further details.Relief for capital expenditureWhat is qualifying expenditure for RDAs?R&D for these purposes is defined as activities that fall to be treated as such in accordance with GAAP and that satisfy the conditions set out in the guidelines issued by the Business, Energy and Industrial Strategy (BEIS) (formerly the Department of Trade and Industry). Essentially, R&D that qualifies for the tax relief for revenue expenditure will also be R&D for capital allowances purposes (see the Definition of research and development guidance note for further details). In addition, R&D for capital allowances purposes also includes oil and gas exploration and appraisal. Expenditure on R&D will qualify for RDAs where it is capital in nature, undertaken directly by the company or on its behalf and incurred in relation to an existing or future trade. Where R&D is carried out on behalf
Weekly tax highlights ― 25 March 2024
Weekly tax highlights ― 25 March 2024Direct taxesNational Insurance Contributions (Reduction in Rates) Act 2024The National Insurance Contributions (Reduction in Rates) Act 2024 received Royal Assent on 20 March 2024.Originally introduced to Parliament on 7 March 2024 (the day after Spring Budget 2024) as the National Insurance Contributions (Reduction in Rates) (No 2) Bill, the legislation was fast-tracked through the Parliamentary process without amendment.The Act makes the following changes with effect from 6 April 2024:•reduces the main primary rate of Class 1 NICs to 8% (from 10%, which had applied since 6 January 2024), and•reduces the main Class 4 rate to 6% (from 9%, superseding the previous cut to 8% which otherwise would have applied from 6 April 2024)The annual maxima calculations are also adjusted accordingly.Social Security (Class 2 National Insurance Contributions) (Consequential Amendments and Savings) Regulations, SI 2024/377The Regulations make various changes as a consequence of the removal of the requirement to pay Class 2 NICs from 6 April 2024, including the following:•with effect from the tax year 2022–23, a self-employed earner who files their self-assessment tax return late will be treated for benefits purposes as having paid Class 2 NICs late. HMRC says that this ‘aligns with the rules for self-employed earners who, prior to 6 April 2024, were liable to pay Class 2 NICs and paid their contributions late’. Also with effect from that tax year, those who are treated as having paid Class 2 contributions will be subject to a ‘residence and
Transfer of business premises
Transfer of business premisesThis guidance note provides an overview of the key factors to take into account on the transfer of premises used for business purposes as part of a trade and asset sale. A wide range of potential tax implications need to be considered and the final treatment will depend upon a number of influencing factors such as the value of the property, the nature or use of the property, the capital allowances history and the availability of any reliefs for example. Links to more detailed commentary on these issues are provided below.For guidance on the tax implications of selling a business whilst retaining the business premises, see the Tax implications of trade and asset sale guidance note.Capital allowances ― fixturesBuildings usually contain items which are attached or placed permanently in the building, which are referred to as fixtures in the tax legislation. When the building is sold, such assets are also sold given that they cannot easily be removed. Examples of fixtures include:•lifts and escalators•heating, lighting and electrical systems•alarm systems•sanitary appliances, and hot and cold water systems•telephone and data installationsWhere fixtures change hands, an adjustment is needed to split the allowances between buyer and seller. The availability of capital allowances on these assets for the purchaser of the building will depend on whether the seller could have claimed capital allowances, the original cost of the fixtures and what disposal value has been brought into account on any previous disposal. In most cases,
Foreign land and property income
Foreign land and property incomeSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.This guidance note covers, in outline, the UK tax consequences of deriving income from land or property overseas.It looks at the interaction with overseas taxes, and considers the UK tax treatment of let property, overseas farms, woodlands, and the use of companies to hold foreign holiday property. Furnished holiday lets situated abroad are covered in the Furnished holiday lets guidance note although it should be noted that the furnished holiday let tax regime will be abolished from April 2025. This guidance note does not cover capital gains, VAT or inheritance tax, except incidentally.For more on capital gains tax, see the Disposal of land ― individuals and Assignment and grant of leases for capital gains tax guidance notes.Property held in trust is outside the scope of this guidance note. For information on this, see Simon’s Taxes I5.12. This guidance note also does not extend to remittance users, see the Remittance basis ― overview guidance note for more detail.Hotels and guesthouses are treated as foreign businesses, see the Setting up overseas ― sole traders and partners and Introduction to setting up
Corporation tax return ― compliance toolkit
Corporation tax return ― compliance toolkitApproach when preparing a corporation tax returnTax law has become increasingly complex in recent years and there is often a myriad of issues to keep in mind when preparing the corporation tax return. Coupled with this, the tax compliance process is typically highly pressured because of the somewhat competing priorities of having to finalise the tax return quickly but at the same time accurately and to a high standard. This toolkit is aimed at supporting tax advisers that prepare or review corporation tax returns in delivering high-quality and accurate returns by providing guidance on the most common areas in a set of financial statements that give rise to tax adjustments. The toolkit focuses on the issues typically encountered by a UK trading company, but many of the issues will also be relevant to non-trading companies such as property investment companies or holding companies. The accounting areas discussed below follow the typical order of a standard set of financial statements. The list is not exhaustive, but covers the more frequently encountered tax issues in reviewing a set of financial statements and preparing the tax return. An explanation of the relevant issue for each area is provided, together with practical points to be aware of and links to additional information so that more detailed research can be carried out. Initial considerations when starting the corporation tax compliance reviewThere are several sources of information which can prove extremely useful when starting the compliance review process. These can
Weekly tax highlights ― 15 April 2024
Weekly tax highlights ― 15 April 2024Direct taxesPAYE and NICs guides updatedHMRC has updated the 2024–25 version of its CWG2 employer guide to PAYE and NICs to note the following:•tax-free lump sums over £30,000 paid to employees who cannot work due to disability, injury or ill health no longer need to be reported to HMRC (also reflected in the 2023–24 edition)•the new rules around delayed reporting of salary advances•NICs rates from 6 April 2024HMRC has also published the 2024–25 edition of its guide CA44: National Insurance for company directors.New guidance on pension lump-sum allowancesHMRC has published the following new guidance which explains in straightforward terms how the individual lump sum allowance and lump sum death benefit allowance work from 6 April 2024, following abolition of the lifetime allowance:•find out the rules around Individual lump sum allowances•how to tell HMRC about a lump sum death benefit chargeHMRC has also updated its guidance ‘Protect your pension lifetime allowance’ to reflect the deadlines for applying for fixed protection 2016
Introduction to year-end tax planning for companies
Introduction to year-end tax planning for companiesIntroductionThis guidance note considers various aspects of year-end tax planning for large companies or groups. It is recommended that it is read in conjunction with the Chargeable gains planning, Group companies and Year-end tax planning ― international issues guidance notes so that as many relevant factors as possible are considered. See also ‘Key issues for in-house tax teams: a checklist’, by Chris Holmes, Mark Ellis, and James Egert, in Tax Journal, Issue 1511, 14 (27 November 2020).Other matters which could be relevant, depending upon the tax profile of the company, are:•whether deductions for expenditure on intangible fixed assets (IFAs) are being maximised ― see the What is an intangible fixed asset? guidance note•whether deductions for loan relationships are being maximised ― refer to the What is a loan relationship? and Taxation of loan relationships guidance notes•real estate investment trusts (REITs) ― for the advantages and disadvantages of this regime to companies in the property sector, see the Real estate investment trusts (REITs) guidance note•review of time limits for claims and elections ― see Simon’s Taxes D1.1345When undertaking any planning exercise, companies and their advisers should consider whether any relevant anti-avoidance provisions, Disclosure of Tax Avoidance Schemes and the General anti-abuse rule are likely to apply. See the Disclosure of tax avoidance schemes (DOTAS) ― overview and General anti-abuse rule (UK GAAR) guidance notes respectively. Commercial considerationsAny tax planning exercise should include modelling all changes to income and expenditure to
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