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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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ABA: writing down allowances

Agricultural buildings allowance was phased out by FA2008.

There is no ABA for the financial year beginning 1 April 2011 / tax year 2011/12 onwards.

CAA01/S372 - S379

CAA01/S372 - S379, FA08/S82

Writing down allowances on an agricultural building are given during a writing down period of 25 years. They may not be given after the end of that period even if there is still some expenditure which has not been written off. The person who has the relevant interest in the related agricultural land may claim the WDA.

System before FA 2008

The annual rate of writing down allowance is 4% of the qualifying expenditure for the person who constructed the building or bought it unused. If the chargeable period is more or less than a year, the writing down allowance is proportionately increased or reduced. For example, if the chargeable period is 9 months the allowance is 9/12th.

The writing down allowance need not be claimed or a reduced amount may be claimed. If the allowance is not claimed in full or it is not claimed and there is no subsequent transfer of the relevant interest the qualifying expenditure will never be fully written off because ABA can only be made during the 25-year writing down period. However following the Finance Act 2008 changes it is unlikely that businesses will not claim ABA or claim ABA in reduced amounts.

Where the person who incurred the construction expenditure claims ABA, the writing down period is the 25-year period that begins on the first day of the chargeable period in which the construction expenditure was incurred.

Where a person who bought the agricultural building unused claims ABA the writing down period is the 25-year period that begins on the first day of the chargeable period in which the person bought the building.

Once the building has been brought into use for the purposes of husbandry ABA continues until the end of the writing down period whatever the building is used for in later years.

Example: John is a farmer. He builds a cottage for his cowman. The cowman moves into the cottage so the first use is for the purposes of husbandry and ABA is due. The cowman decides to move into the village and John begins to use the cottage for holiday lettings. The cottage qualifies for ABA while John is using it for holiday lettings because its first use was for the purposes of husbandry.

If writing down allowances are made before the agricultural building is brought into use, they are withdrawn if:

  • the person who claimed them sells the relevant interest before the building is brought into use, or
  • the first use of the building is not for the purposes of husbandry.

The annual writing down allowance for a chargeable period after one in which there has been a balancing event CA41200 is calculated like this. Work out the length of the period from the balancing event to the end of the writing down period. Divide the residue of qualifying expenditure CA41300 immediately after the balancing event by the length of the period to get the annual writing down allowance.

Example: Paul is a farmer. He builds a cottage for £100,000 and claims ABA. Paul’s annual WDA is £4,000 (= £100,000 / 25). He claims WDA each year. After 15 years when the residue of expenditure is £40,000 he sells the farm to Harry. The part of the sale price that relates to the cottage is £30,000. Paul and Harry make an election to treat the sale as a balancing event. After the balancing event the residue of expenditure in relation to the cottage is £30,000. The period from the balancing event to the end of the writing down period is 10 years. Harry’s annual writing down allowance is £3,000 (= £30,000 / 10).

A writing down allowance may not exceed the residue of qualifying expenditure CA41300 at the beginning of the chargeable period. If the residue at the beginning of the last chargeable period in the 25 year writing down period is more than the writing down allowance for that period, calculate what the residue would have been if writing down allowances had been made for all previous chargeable periods. If that residue is more than the writing down allowance give an increased writing down allowance for the last chargeable period to use up the residue

FA2008 changes

FA2008 phased out ABAs by giving part only of a WDA each year. The WDA is calculated in the normal way but then a percentage of it is allowed. These are the percentages.

Financial year beginning1 April 2007 and earlier financial years Tax year 2007-08 and earlier tax years 100%
     
Financial year beginning1 April 2008 Tax year 2008-09 75%
Financial year beginning1 April 2009 Tax year 2009-10 50%
Financial year beginning1 April 2010 Tax year 2010-11 25%
Financial year beginning1 April 2011 and later financial years Tax year 2011-12 and later tax years 0%

From 1 April (CT) /6 April (IT) 2011 onwards there are no ABA WDAs.

You may have a case where the chargeable period is not the financial year or tax year. If so you calculate an apportioned WDA for each financial year or tax year in which the chargeable period partly falls and then add the apportioned WDAs together to get the WDA for the chargeable period.

This is how you calculate the apportioned WDA for part of a chargeable period.

The relevant days in a chargeable period are the days in that period when a person was entitled to the relevant interest in an agricultural building. For example, if a person who draws up their accounts to 31 December each year sells the agricultural building on 31 March the relevant days are the period 1 January to 31 March.

If a person disposes of the relevant interest part of the way through a chargeable period you should work out the number of relevant days in the chargeable period that fall within a financial year or tax year (RDCPY) and the number of relevant days in the chargeable period (RDCP). P is the percentage in the table above for the financial year or tax year. WDA is the WDA that would have been made before the FA2008 amendments. The apportioned WDA for the part of the chargeable period is P x WDA x RDCPY/RDCP.

You deduct the full amount of the WDA and not the restricted amount actually given when you calculate the residue of qualifying expenditure.

Example: Pat owns a farm. She draws up her accounts to 5 October each year. In March 2000 she builds a barn for £100,000 on her farm. Pat claims ABA on the barn. The annual WDA is £4,000. Pat’s WDA for her accounts year ended 5 October 2008 is £3,500 (183/366 x £4,000 x 100% plus 183/366 x £4,000 x 75%).

If Pat transfers the relevant interest in the barn to Graham on 5 January 2009 her WDA for her accounts year ended 5 October 2009 is £750 (92/365 x £4,000 x 75%).

Assuming Graham also prepared accounts to 5 October his WDA for the year ended 5 October 2009 would be £1.750 (91/365 x £4,000 x 75% plus 183/365 x £4,000 x 50%).

If Graham prepared accounts to 5 April his WDA for the year ended 5 April 2009 would be £750 (91/365 x £4,000 x75%).