Tx notes fa22 Final

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(c)
On disposal of the asset, a balancing adjustment is computed by deducting sale proceeds 
from the TWDV (there is a balancing charge if sale proceeds exceed TWDV, and a balancing 
allowance if sale proceeds are less than TWDV). Having computed the balancing adjustment, 
the amount assessed or allowed is then reduced to the business proportion. A balancing 
allowance is then added in to the capital allowances of the period whereas a balancing charge 
will reduce the capital allowances. If a balancing charge exceeds the allowances available then 
the net balancing charge is added to the adjusted trading profit of the period.
(d)
Private use by an employee of an asset owned by the business (again typically a car) has no 
e
ff
ect on the business’s entitlement to capital allowances. This is why the private use of an 
asset is irrelevant for companies, as directors are treated as employees for this purpose. 
Instead, there will normally be an employment income assessment as a benefit charge on the 
employee or director (see chapter 9).
 
Example 2 
Jane prepares accounts to 31 December. At 1 January 2022 the TWDVs brought forward are as 
follows:
The following transactions took place during the year ended 31 December 2022:
10 May 2022
Purchased plant for £6,600
25 June 2022
Purchased a motor car for £10,600 CO
2
emissions of 40g/km to be used by 
an employee who will use it 80% for business purposes
15 October 2022
Sold the motor car used privately by Jane for £9,400
16 October 2022
Purchased a motor car for £16,000 CO2 emissions of 80g/km (used 30% for 
private purposes by Jane)
Calculate Jane’s capital allowances for the year ended 31 December 2022. 
5.2. Short-life assets 
(a)
An election can be made to omit short life assets from the main pool and include them in their 
own individual column. This is known as a “depooling” election. 
(b)
This allows the acceleration of capital allowances on short-life plant and machinery where they 
are sold at a low residual value or scrapped within 8 years following the end of the accounting 
period in which it was acquired.
(c)
Any plant and machinery that would normally go to the main pool, except cars, can be treated 
as a short-life asset.
(d)
Capital allowances on each short-life asset are calculated separately.
(e)
On disposal within 8 years of the end of the accounting period in which the acquisition took 
place a balancing allowance or charge arises, which would not occur if the item was pooled. 
Clearly the election would only be worthwhile if a balancing allowance was anticipated.
£
Main Pool
21,200
Motor car (35g/km) (used 30% for private purposes by Jane)
13,600

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