HMRC internal manual

Capital Allowances Manual

CA39200 - IBA: additional VAT: writing down allowance

Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to those changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.

A person who has the relevant interest in an industrial building may incur an additional VAT liability in respect of qualifying expenditure. The additional VAT is treated as further qualifying expenditure on the building. You add the additional VAT liability to the residue of qualifying expenditure at the time the additional VAT liability accrues and recalculate the WDA in the same way as you recalculate it when someone buys a used industrial building CA31200. You do this by spreading the new residue of qualifying expenditure over the remainder of the writing down period. The WDA will be higher than before.

Example Terry constructs a workshop for £250,000, brings it into use immediately and claims IBA. The annual WDA is £10,000 (= £250,000 / 25). After 5 years the residue of qualifying expenditure is £200,000 (= £250,000 - £10,000 x 5) and there are 10 years of the 25-year period from first use of the building left. He changes the use of the workshop and incurs an additional VAT liability of £2,000. His WDA then becomes £10,100 (= [£200,000 + £2,000] / 20)