Capital allowances when selling an asset

Our team of experts tell you how to account to HMRC for any business assets you dispose of

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

Do you need to report assets which you claimed capital allowances for?

As part of your Self Assessment tax return, you might be expected to report any assets which you dispose of (this means sell, transfer or give away) if you claimed capital allowances on the asset. If you have given the asset to a charity or community amateur sports club, you don’t need to report the asset disposal to HMRC.

What counts as asset disposal?

If you do any of the following with the asset, it is considered to be asset disposal as far as HMRC is concerned:

  • Sell the asset
  • Give it as a gift or transfer it to someone else
  • Keep it but no longer use it as an asset in your business
  • Get compensation for it, for example, if it is destroyed in a fire and you receive an insurance pay-out for it
  • Swap it for something else
  • Use it outside your business where you haven’t before

How do you work out the value?

You usually report the value you sold it for to HMRC. If you didn’t sell it (because you gave it away, swapped it or somehow transferred it in some other way) or if you sold it for less than it was worth to someone connected to you, you would use the market value instead. By market value, HMRC means the amount you would expect to get for it if you sold it. If a ‘connected person’ sold it to you for less than it cost them, the value is how much it cost them.

By connected person, HMRC is referring to the following connections:

  • Your husband, wife or civil partner and their relatives
  • Your relatives and their spouses or civil partners
  • Your business partners and their spouses, civil partners and relatives.

Your business is considered to be connected to another company if any of the following circumstances apply:

  • You control both of the companies
  • You are connected with a person who controls the other company
  • You are part of a group which controls both companies

What is a ‘balancing charge’?

If you originally claimed 100% of the item, you need to add the full value to your profits in your Self Assessment tax return if both of the following conditions apply:

  • If you originally claimed 100% under the Annual Investment Allowance (AIA) or first year allowances
  • You have nothing in the rate pool your item qualifies for.

This is known as a ‘balancing charge’.

If you do have a balance in the rate pool your item qualifies for, you need to deduct the full value of the item from that pool if you originally claimed 100% of the item and you have a balance in that pool. Add the difference to your profits in your Self Assessment tax return if the value of the item is more than the amount in your pool – this is also known as a ‘balancing charge’. If there is still a balance left in your pool you can claim ‘writing down allowances’ on it – this means you are deducting a percentage of the value of an item from your profits each year.

If you originally used your writing down allowances when you bought the item, you deduct the value from the pool the item was originally added to. Whatever is left is the amount you can use to work out your next writing down allowances. If the item is in a single asset pool, any amount that is left can be claimed as a capital allowance – this is known as a ‘balancing allowance’. If the value you deduct is greater than the balance in the pool, you need to add the difference to your profit – this is also a ‘balancing charge’.

You will only be entitled to get a balancing allowance in your main or special rate pool when you close your business down but you can get a balancing charge in any pool in any year.

If you sell the item for more than it cost you, you are only able to deduct the original cost of the item. If it was sold to you by a connected person for less than it originally cost them, you need to deduct the lower amount of how much it cost them or how much you sell the item for. You then need to add the difference to your profits in your Self Assessment tax return if the value of the item is more than the amount in your pool – this is also a balancing charge.

What happens if you close your business?

Instead of claiming capital allowances, you need to enter a balancing charge or a balancing allowance for the year you close your business.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

This page was last updated on 25/10/2018.

Start Your Claim Today!

Call our experts

Let’s get started on your tax rebate or self-assessment return