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HMRC internal manual

Capital Allowances Manual

PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: subsequent disposals

CAA01/S38A and S38B, S51A to S51N

Where an AIA has been claimed in respect of an asset and that asset is subsequently disposed of (for example sold or scrapped) the disposal proceeds, if any, must be brought into account (S.61 CAA01).

Where a business asset is disposed of it is fairly common for an on-going business to purchase a replacement asset. However the disposal proceeds must still be taken to the relevant pool and if AIA is claimed in respect of the new expenditure then if there is no balance of unrelieved expenditure in the relevant pool the total disposal receipts will give rise to a balancing charge. Where there is unrelieved expenditure in the pool whether or not there is a balancing charge will depend on the disposal proceed and the balance of unrelieved expenditure. It is not permissible to net off the disposal proceeds against the new qualifying expenditure.


Beautiful Cosmetics Ltd (BC Ltd) buys a new lipstick machine in the year ended 31 March 2012 for £100,000 and sells an old machine for £25,000, the balance of unrelieved expenditure in the main pool b/fwd is NIL. BC Ltd claims £100,000 AIA and has a balancing charge of £25,000.

Next year BC Ltd sells the lipstick machine for £85,000 and buys a bigger machine for £150,000 as business has boomed following the launch of the new range of “glittersticks”. BC Ltd claims £25,000 AIA and £7,200 WDAs (pool value Nil plus new expenditure £150,000 less AIA £25,000 less disposal receipts £85,000 = £40,000 at 18%) and unrelieved expenditure in the pool to carry forward to the next chargeable period of £ 32,800.