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HMRC internal manual

Know-how: Allowances: Calculation of allowances and charges

CAA01/S457 - S458

This is how you calculate allowances and charges for a chargeable period. Start with the pool for that chargeable period. Compare any disposal values brought to account for the chargeable period with it.

If the disposal values are more than the pool the difference is a balancing charge.

If the disposal values are less than the pool and the chargeable period is not the chargeable period in which the trade is discontinued calculate a writing down allowance (WDA). This is how you calculate it. If the chargeable period is a year long the WDA is 25% of the difference between the pool and the disposal values. If the chargeable period is more or less than a year you should proportionately increase or reduce the 25%. For example, if the chargeable period is 18 months the rate of WDA is 37½% (= 25% x18/12). Deduct the WDA from the pool to get the pool to carry forward.

If the chargeable period is the chargeable period in which the trade is discontinued and the pool is more than the disposal values the difference is a balancing allowance.

Example As in the example at CA71100 Doug has a pool of qualifying expenditure for the year ended 24 May 2004 of £35,000.

If he has disposal values of £40,000 in that year, there is a balancing charge of £5,000 (= £40,000 – £35,000).

If he has disposal values of £3,000 and the trade does not end in that year there is a WDA of £8,000 (= 25% x (£35,000 – £3,000)) and a pool to carry forward of £24,000.

If the trade is discontinued in the year ended 24 May 2004 and there are disposal values of £3,000, there is a balancing allowance of £32,000 (= £35,000 – £3,000).