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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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PMA: Assets used partly for qualifying activity: Allowances and charges

A person may buy an asset partly to use in a qualifying activity and partly for other purposes. An example is a businessman who buys a word processor that he uses to keep his business records and his private financial records. If the person claims AIA or FYA (if one is available for the period) they must reduce the AIA or FYA on a just and reasonable basis taking account of the extent to which the asset is likely to be used for purposes other than those of the qualifying activity. But they must deduct the full AIA or FYA (before the reduction) when they calculate the qualifying expenditure they can add to a pool for WDA.

Example Bruce buys a minibus for £50,000 to use in his business. He does not buy anything else in the chargeable period. This minibus is not a car for Capital Allowance purposes The maximum amount of AIA available for the chargeable period is £250,000 Bruce also plans to use the minibus privately and estimates that the private use will be 20%. The AIA is reduced to £40,000 (= 80% of £50,000). The qualifying expenditure carried to the pool is nil (= £50,000 - £50,000).

Where an asset is acquired partly for purposes other than those of the qualifying activity, or starts to be used in that way before any expenditure is pooled, put the qualifying expenditure into a single asset pool. Similarly, if a disposal value is brought to account because an asset has begun to be used partly for purposes other than those of the qualifying activity CA23240 put an amount equal to the disposal value into a single asset pool.

Calculate the WDA in the normal way and then reduce it on and a just and reasonable basis taking account of the extent of use not for the qualifying activity. It is this reduced WDA that is made to the taxpayer but you deduct the full WDA in calculating the qualifying expenditure to carry forward.

If there is a balancing event calculate a balancing adjustment (a balancing allowance or a balancing charge) in the normal way. Then reduce it on a just and reasonable basis to reflect the degree of non-qualifying activity use (and so the restriction of the allowances) over the period of ownership.

Example In the year ended 31 December 2009. Michael introduces a van which he bought some years earlier for his private use into his business. It has a market value of £40,000. In the year ended 31 December 2009 he uses it 75% for business purposes and 25% privately. In the year ended 31 December 2010 Michael uses the van 50% for business purposes and 50% privately. In the year ended 31 December 2011 Michael sells the van for £32,500. Here are his capital allowance computations: AIA is not available as the example falls within the general exclusions.

Market value of computer year ended 31/12/2009 ( s 13 CAA 2001) £40,000  
     
WDA @ 20% for year ended 31/12/2009 £8,000 restricted to £6000
Pool carried forward at 31 December 2009 £32,000  
WDA @ 20% for year ended 31/12/2010 £6,400 restricted to £3,200
Pool carried forward at 31 December 2010 £25,600  
Sale in year ended 31 December 2011 £32,500  
Balancing charge £6,900 restricted to £4,313

The balancing charge of £6,900 is restricted to £4,313 (= £6,900 x [75% + 50%] / 2) because there was 75% business use in the year ended 31 December 2009 and 50% business use in the year ended 31 December 2010.