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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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Plant and Machinery Allowances (PMA): cars: expenditure incurred before April 2009 - used partly for a non-qualifying purpose, partial depreciation subsidy

CAA01/S77 - S78

The single asset pool does not end when a car costing more than £12,000 begins to be used partly for a non-qualifying activity. When such a car begins to be used partly for a non-qualifying activity you should calculate the WDAs in the normal way, restrict them to £3,000 and then reduce them on a just and reasonable basis. Balancing allowances and balancing charges are also reduced on a just and reasonable basis. You deduct the full WDA before the reduction when you calculate the written down value carried forward.

Example

As in the example at CA23520 Geronimo buys a Cadillac for £36,000. He uses it 25% for a non-qualifying activity and 75% for business purposes. The annual WDA of £3,000 is restricted to £2,250 (= 75% of £3,000).

Where there is a blatant incongruity between the type of car and the size and nature of the business, it may be possible to use the case of* G H Chambers (Northiam Farms) Ltd v Watmough 36TC711 *to restrict the allowances on the grounds of personal choice. Both writing down and balancing allowances can be restricted on personal choice grounds.

A personal choice restriction can be made as well as any other restrictions such as a private use restriction.

Example

Pedro the fisherman buys a Rolls Royce for £150,000 and claims capital allowances. It is finally agreed that the business use is 15%.

The WDAs are restricted to £3,000 in the normal way. Because the business use is only 15%, the allowances are then reduced to £450, that is, 15% x £3,000 (see CA27005).

If it is decided that a personal choice restriction of 50% should be made, the allowances due will then be reduced to £225, that is, 50% x £450.

When you decide whether a personal choice restriction should be made, you should take into account the size and type of the car, the nature of the business and the extent of business use. They should also consider how the cost of the car compares with the business turnover and profits.

If the business use of the car is substantial, no restriction should be made on the grounds of personal choice.

If the person who buys a car costing more than £12,000 receives a partial depreciation subsidy, that is a payment to cover part of the depreciation of the car, the £3,000 restriction should be applied in the normal way. The restricted WDA should then be reduced on a just and reasonable basis provided that the subsidy is not taxable as an income receipt. The full WDA, that is the WDA before the just and reasonable reduction, should be deducted when you calculate the written down value carried forward.