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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car Mechanics and auto technician employees: Capital Allowances

The rules regarding capital allowances apply to car mechanics as they apply to office holders and employees generally, see EIM36500 onwards. Additionally relief may be due under S336 ITEPA 2003.

When considering claims the position is as follows:

Flat rate expenses

Where Flat Rate Expenses (FRE) applies (see EIM32700 onwards), they will be entitled to the applicable rate. Please refer to the table at EIM32712.

S336 ITEPA 2003

Where the expenses exceed that figure but are still “insubstantial expenditure on things like tools” a deduction will be allowable under S336 ITEPA 2003 (see EIM31620 onwards) if the guidance at EIM36510 applies.

Capital Allowances

Where the expenses satisfy the 2 year test (see CA21100), the expenditure will qualify for plant and machinery allowances (PMA’s). The main test for PMA’s is that the expenditure is incurred wholly or partly for the purposes of the qualifying activity and that the person owns the plant and machinery as a result of incurring that expenditure. However when considering claims by persons whose qualifying activity consists of an employment or office there is a further restriction. This is that expenditure is only qualifying expenditure if the items are “necessarily provided for use in the performance of the duties” (see EIM36540).

The possible grounds for refusing a claim to capital allowances are:

  • The money was not spent at all
  • The expense was not necessary (usually, because the employer provided, or would have provided, what was needed).
  • The item is not being used in the performance of the duties.

With effect from 6 April 2008, there are the following significant changes to the CA’s code:

  • Annual Investment Allowance (EIM36605 and CA23280 onwards) - It is a 100% first year allowance for business expenditure on almost all plant or machinery (apart from cars). The current AIA annual amount of £250,000 applies to expenditure incurred on or after 1 January 2013 for a period of two years. (Between 1/6 April 2008 and 31 March/5 April 2010 the AIA annual amount was £50,000. Between 1/6 April 2010 and 31 March/5 April 2012 the AIA annual amount was £100,000. Between 1/6 April 2012 and 31 December 2012 the AIA annual amount was £25,000.) However the AIA only applies to actual expenditure incurred in the chargeable period. It does not apply to “historic” expenditure or to assets acquired for a non-qualifying purpose (for example, assets acquired when the employee was self-employed, or assets acquired as gifts) that start to be used for a qualifying purpose: see CA 23084 final paragraph.
  • Small pools allowance (EIM36695 and CA23225) - A person may either claim a small pools writing down allowance (WDA) (if the amount in the pool does not exceed the limit of £1,000) or the normal WDA. He cannot claim both normal WDAs and the small pools WDA in respect of the same pool in the same chargeable period. It seems likely, that this allowance may be appropriate in a number of motor mechanics claims.
  • WDA can still be claimed in the same (see EIM36650)

Time Limits for claims

The time limit for making claims is the first anniversary of 31 January following the year of assessment (see CA11120 & EIM36870).

However claims which are made in correspondence, or on form P87, may be accepted if they are received at a time when the employee is still within the time limit for requesting a SA Return (EIM36870).

Time limits for relief under S336 - the SA provisions and error and mistake provisions apply.

Claims including the purchase of expensive tool boxes

The cost of the equipment is not relevant to the “necessarily” test. Do not argue that an employee who chose to purchase an expensive item could have made do with a cheaper version.