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HMRC internal manual

Capital Allowances Manual

PMA: Fixtures: Disposal values and avoidance cases

CAA01/S197

There is legislation that prevents the acceleration of allowances by arrangements such as the creation of a balancing allowance through the sale of a fixture for a nominal amount. Where it applies the notional written down value is substituted for the disposal value in the seller’s capital allowance computations. The buyer’s expenditure qualifying for capital allowances is the actual price paid even though the seller’s disposal value is increased.

If, after the fixtures legislation has treated a fixture as belonging to a person:

  • there is a disposal event,
  • the amount of the disposal value is less than the notional written down of the asset, and
  • the disposal event is comprised in, or occurs in pursuance of, any scheme or arrangement which has the obtaining of a tax advantage as its main purpose, or one of its main purposes,

the disposal value is the notional written down value and not the sale price etc.

Notional written down value is not substituted for the sale price in the buyer’s capital allowance computations. They are based on the actual price paid.

This is how you calculate the notional written down value. You write down the cost of the fixture at 25% a year, or 6% a year if the fixture is a long life asset, on the reducing balance basis from the chargeable period in which the fixture was acquired to the end ofthe last chargeable period before the chargeable period in which the disposal event takes place. If a first year allowance would have been available, you deduct the maximum first year allowance for the first chargeable period and writing down allowance for each subsequent chargeable period.

The balance to carry forward at the end of the last chargeable period before the chargeable period in which the disposal event takes place is the notional written down value.

Example Dooley Plc draws up accounts to 31 December each year. It buys a fixture for £100,000 in March 2007 and sells it to Petty Ltd for £20,000 in the year ended 31 December 2010. The disposal value is not £20,000. It is the notional written down value of £42,187 calculated like this:

Cost in 2007 £100,000  
     
WDA at 25% for 2007 £25,000  
Carried forward to 2008 £75,000  
WDA at 25% for 2008 £18,750  
Carried forward to 2009 £56,250  
WDA at 25% for 2009 £14,063  
Balance carried forward at 31 12 2010 £42,187  

Petty Ltd’s qualifying expenditure is the £20,000 that it paid Dooley Plc even though Dooley Plc’s disposal value is £42,187.