HMRC internal manual

Capital Allowances Manual

PMA: WDA & balancing adjustments: Rate of WDA

CAA01/S56

A summary of current WDA rates can be found on ‘Work out your capital allowances - rates and pools’, gov.uk.

Before 1/6 April 2008

Prior to FA 2008 the annual rate of WDA was normally 25%. Lower rates of WDA applied in respect of overseas leasing (10% subject to Revenue & Customs Brief 40/07) for overseas leasing CA24000 and long life assets (LLAs) (6%) CA23700.

On and after 1/6 April 2008

Main rate

The main rate of WDA was reduced to

  • 20% with effect from 1/6 April 2008 (FA2008)
  • 18% with effect from 1/6 April 2012 (FA2012)

There are exceptions for -

  • small pools of P&M expenditure (either in the main pool or in the special rate pool - see below). Where the amount is £1,000 or less CA23225 that amount may be written-off as the WDA for that chargeable period
  • expenditure incurred wholly for the purposes of a North Sea ring fence trade, taxable under CTA2010/S330(1)(supplementary charge in respect of ring fence trades) where the WDA is 25%.

Special rate

The special rate of WDA was 10% when first introduced on 1/6 April 2008 (FA2008). It was reduced to

  • 8% from 1/6 April 2012 (FA2011)
  • 6% from 1/6 April 2019 (FA2018)

Where the amount in the special rate pool is £1,000 or less CA23225 that amount may be written off as the WDA for that chargeable period (small pools allowance).

Hybrid rate

When a business’s chargeable period spans the date the WDA rate is changes, a hybrid rate is used to calculate the rate of WDA for that transitional period.

FA2019 changes

For a business whose chargeable period spans 1 April 2019 (CT) or 6 April 2019(IT), a hybrid rate will be applicable to the special rate pool.  

The hybrid rate is arrived at by calculating the proportion of the chargeable period falling before the change date, and the proportion falling after it, calculating the rate for each portion and then adding the two percentages together.

The apportionment must be calculated in days.

Example

A business draws up accounts for the period 1 January 2019 to 31 December 2019. It has no new expenditure but has carried forward £20,000 in the special rate pool. Because of the change in writing down allowance it must apply a hybrid rate. This is calculated as follows (Note the apportionment must be made in days: There are 365 days in 2019.)

The hybrid rate will be:

[95/365 days before 6 April 2019 @ 8%] + [270/365 days on and after 6 April 2019 @ 6%=] = 6.53%

The maximum writing down allowance is £20,000 x 6.53% = £1,306.

Note that if the hybrid rate would be a figure with more than two decimal places, as in the above example, it is to be rounded up to the nearest second decimal place.

Long or short chargeable periods - general

Reduce or increase the appropriate rate proportionately if the chargeable period is less or more than a year. You should also reduce the rate proportionately if the qualifying activity has been carried on for part only of the chargeable period.

General

The taxpayer may claim less than the full amount of a WDA.