Change in status of capital allowances

[mahon and co]

Use Annual Investment Allowances where you can not CA's

Hi,

No one ever seems to be free on the self assessment helpline so I thought I'd have a go here...

a) In a previous year I included some software in my capital allowances at 100% business usage. I've now started to use it for a personal project. So should I reduce what's left of its value in the CA pool?

b) My computer which I considered to be a capital allowance a few years ago broke. I didn't fix it but I could probably still sell it for spare parts. Should I keep its value in the pool for this year as if I was still using it?

Cheers, Ian.

In theory yes you should reduce you capital allowances to tak account of private use - unless it is insignificant. Unless your software was enormously expensive the private use is likely to be insignificant.

Your computer is a short life item as far as capital allowances are concerned. If you you can proove you bought it less than 5 years ago then write it out of your general pool.

In theory your assets may remain in single asset pools pretending to be short life assets until they are 5 years old when they get get transfered to the general pool.

Remember to use your AIA (Anual Investment Allowance) to claim 100% of new asset purchases up to the limit of £50,000 before you claim capital allowances. Most small and medium sized businesses are entitled to them.

[jetrimby]

HI the pool system works that UNLESS you get proceeds from a sale or scrappage you continue to get the tax claim year after year, whether an individual item is used or stored or chucked. BUT any item which is disposed of for money goes into the pool reducing the value available for the 20% (as of now) relief. IF the pool goes negative you have a "balancing Charge" ie you will increase profits not decrease them!
Re private use the rules (or Revenue interpretation of rules) has changed for costs generally. If expense is needed in the business then any private use is ignored (cars and vans etc have special rules) I would tend to use this with capital items as well BUT if heavy private use and expensive and lower need for business I would (as done in past under old rules) claim a % as business and % as private. (ditto for VAT)

IF item is taken into private use completely then you should have a disposal value being the deemed market value of the product at that time. (For instance give your child a 3 year old laptop for their use.... what is a 3 year old laptop worth??? £10 ?? therefore normally not something to worry about). IF your screen is a 40 inch wide screen panel which 6 months later goes into the lounge as a TV that is another matter!!!

The AIA relief is just another way of removing value from the pool so yes if something is sold later than it needs to be deducted from the residue of the pool if left (or treated as a balancing charge as mentioned above)

[IanIan]

Yes I've been reading the manual online. Its cool stuff and, dare I say it, if one reads it carefully enough one can pretty much work it out for ones self.

I think its the 'fair practice' stuff that one needs an accountant for - to tell one where the rules are not so rigid. I mean...

If "main" purpose of a cost/equipment is business generally now you should claim 100% as business

...this sounds like one of those fair practice things that I'd not know about.

Anyhow, my previous post was linking to software and how its treated as a special case for capital allowances in that, apparently, even if one stops using it, one doesn't need to give it a disposal value.

This year there is a 100% allowance on first £50,000 of plant so this should not be a problem any more

Even if you use the AIA, the new items still go in the main pool but they go in with a value of 0. If you sell them I believe you'd still have to deduct their disposal values from the main pool.

[jetrimby]

V quick reply to send you in the right direction. UNLESS you elected for short life assets (3 yrs or less) or were delcaring a % of private use the purchase goes into a plant "pool" this pool exists until you cease trade. If you sell (for less than you buy) there is a negative entry into the pool but does not match to the purchse of the specific item So if scrapped nothing you can do about but take the yearly write down

This year there is a 100% allowance on first £50,000 of plant so this should not be a problem any more plus if pool less than £1000 (off memory so could be wrong figure) you can write this off as well.

If "main" purpose of a cost/equipment is business generally now you should claim 100% as business (ignore for vehicles!)

This is why people have to employ accountants !!

[IanIan]

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?

[IanIan]

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

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

[NickFitz]

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]

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.

[vetran]

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]

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?

[xoggoth]

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]

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?

[vetran]

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]

Hi,

No one ever seems to be free on the self assessment helpline so I thought I'd have a go here...

a) In a previous year I included some software in my capital allowances at 100% business usage. I've now started to use it for a personal project. So should I reduce what's left of its value in the CA pool?

b) My computer which I considered to be a capital allowance a few years ago broke. I didn't fix it but I could probably still sell it for spare parts. Should I keep its value in the pool for this year as if I was still using it?

Cheers, Ian.