Change in status of capital allowances

**vetran** · 23 January 2010, 13:33

IANA but

1. if its incidental use (e.g. doing your football pools on excel) then no if its used mainly for work.

2. Its broke, and can't be fixed economically it has no value. If the spare parts have value that is higher than you would expend stripping them down and selling them then possibly. You were depreciating them over the first year (when teh alloance allowed) weren't you?

**IanIan** · 23 January 2010, 14:51

You were depreciating them over the first year (when teh alloance allowed) weren't you?

Hi veteren, not sure what you mean here. The first year I took 40% of the cost. 2nd year I took 25% of the difference and so on.

So lets say I decide to dispose of the broken computer and say I its value is zero. I think I'd then take its residue pool value and report this as a balancing allowance and wrap the asset up.

But then what if I do manage to sell it for its motherboard or something then I reckon I would have to report this as a balancing charge in a future tax return.

The point I'm getting at is that unless I've thrown away, sold or given an asset to someone else then surely it shouldn't count as disposed - even if its just sitting in a drawer gathering dust?

**xoggoth** · 23 January 2010, 17:54

I really can't imagine HMRC/Companies House searching anyone's attic to see of they still have the remains of an ancient old computer that doesn't work but in theory your last point is correct, unless you actually sell it or take it the dump it isn't disposed of.

The balancing charge is loss on disposal, remaining value after all depreciation to date less anything you actually managed to get for it.

Note that accountants often apply a notional very low depreciation value of about 5% which greatly overstates the current value of even a working old computer and if it doesn't work the current value will be even more overstated. You can revalue assets if your reasons/figures are all stated in the accounts, the loss in value is an expense for accounts purposes. Not sure that affects CT calculation, think you either keep applying the capital allowances or dispose of it entirely.

**IanIan** · 24 January 2010, 20:54

Thanks for your reply.

Something occurred to me... after the computer broke, I took out the hard drive and now use it as a plug-in drive for back ups.

Does this still mean I'm using the computer?

**vetran** · 24 January 2010, 22:24

Why if you took the mats out of a car you scrapped would you still own the car? Though as Xoggy says I wouldn't put it past the HMRC.

100% tax allowance 2000 - 2004

http://www.hmrc.gov.uk/manuals/eimanual/EIM36731.htm

**IanIan** · 25 January 2010, 01:26

Hi,

That's a great analogy although I'm not too sure of the relevance of that link as I purchased the computer in 2005.

Anyhow, there is something else that is confusing me and that is what to do about software and capital allowances...

So I've got a few bits of software that I no longer use because in 08/09 I replaced them with more recent versions. (I'm pretty sure I don't need the old versions to validate the licenses of the newer versions.) I'm not going to sell them or trash them because I quite like having them around. Now it says here...

If you sell an item or no longer use it in the business, you must deduct the sale proceeds (or value) from the value of the pool that the item is in.

a) If I officially 'dispose' of the software, what happens if for some unforeseen reason I start to use it again? Or perhaps just use it now and again? For example, one day I might decide that I'd like to check how something worked in an old version of the software?

b) How do I know what the current value of the old software is? I just had a look around the internet and found a lot of sources (e.g. amazon.co.uk) saying that Visual Studio Standard Upgrade 2005 is no longer available but one store apparently had it for $89. And then I found SQL Server Developer Edition for £17.50. Would anyone really bother paying these prices and aren't they just old adverts?

c) If I haven't sold my software or given it away and I'm no longer using it myself. What is the point of me keeping hold of it?

I hope you can appreciate my confusion - I've never dealt with this before. My uncle accountant was incredulous that I'd be able to re-sell any of this software after a few years and said he'd have had it as an expense in the first place.

There are surely plenty of people on this forum who are or have been in virtually the same situation as this. Any ideas?

Cheers, Ian.

**NickFitz** · 25 January 2010, 05:10

Originally posted by IanIan View Post

There are surely plenty of people on this forum who are or have been in virtually the same situation as this. Any ideas?

You are, with no shadow of a doubt, the most scrupulously diligent person I have ever encountered on this forum.

I can't help, but I had to tell you that

**IanIan** · 25 January 2010, 09:15

Haha! Well to be honest its obsessive compulsive disorder and you picked the right word.

http://en.wikipedia.org/wiki/Scrupulosity

**IanIan** · 28 January 2010, 03:41

This is interesting...

http://www.hmrc.gov.uk/manuals/camanual/CA23420.htm

It says...

A person who has acquired computer software or a right to use computer software has to bring a disposal value to account if a right to use or otherwise deal with the software is granted to another person for a capital sum. This also applies if the grant is for a consideration that would be a capital sum if it were money.

The person is not required to bring a disposal value to account if the software or right begins to be used for purposes other than the qualifying activity or the qualifying activity is permanently discontinued before the right to use or otherwise deal with the software is granted.

Does anyone agree that this basically says that you only need a disposal value for software if you actually sell it?

Change in status of capital allowances