Taxation (UK) · Chargeable gains for companies

Capital Allowances Interaction with Company Disposals in TX-UK

Updated 11 October 2026 · Fact-checked

When a company sells plant and machinery, the proceeds, limited to cost, go into the capital allowances pool, not a gain computation. Any balancing adjustment is a trading item. A chargeable gain arises only if the asset sells for more than cost, and the chattels rules may exempt or limit it. Buildings with SBA work differently.

Understand Capital Allowances Interaction with Company Disposals

A company can get tax relief on the cost of assets in two ways. Capital allowances give relief for plant and machinery and for qualifying structures and buildings. A capital loss gives relief when a chargeable asset is sold for less than cost. The rules stop you getting both reliefs on the same cost.

For plant and machinery, the disposal is dealt with in the capital allowances computation. You deduct the disposal proceeds from the pool, limited to original cost. If the pool balance is negative after the deduction, a balancing charge arises, whether or not the trade continues. The pool is then nil, so no writing down allowance arises for that period.

In the main pool and the special rate pool, a balancing allowance arises only when the trade ceases and a balance is left after the proceeds are deducted. If the trade continues, a positive balance is carried forward and receives writing down allowance. Single-asset pools are different. For example, a short life asset election gives a balancing allowance or charge on disposal within the permitted period even though the trade continues. An unincorporated trader's asset with private use is also a single-asset pool, but that does not apply to a company. Balancing adjustments are trading profit items, not chargeable gains.

The limit to cost matters when an asset sells for more than it cost. Only cost is deducted in the pool. The excess over cost is not a trading item. It is a possible chargeable gain, but the chattels rules apply first. Plant is normally a tangible movable asset, so it is a chattel.

A chattel sold for £6,000 or less is exempt.
If proceeds are over £6,000, the gain cannot exceed 5/3 × (proceeds − £6,000).
A wasting chattel (predicted life of 50 years or less) is normally exempt. That exemption does not apply to plant used in the trade on which capital allowances were or could have been claimed. Read the question: if it tells you the asset is exempt, follow it.

Most plant is sold for less than cost, so most plant disposals give no gain at all. Because the cost was already relieved through allowances, there is no separate capital loss either.

The annual investment allowance (AIA) gives 100% relief on up to £1,000,000 of qualifying expenditure. Enhanced allowances for companies give a 100% first year allowance on main pool expenditure and a 50% first year allowance on special rate pool expenditure. An asset that received AIA has no tax written down value left from that expenditure. On disposal, the proceeds, limited to cost, are still deducted from the pool. If the pool balance is too small to absorb them, the negative balance is a balancing charge.

The structures and buildings allowance (SBA) is a 3% straight-line allowance on qualifying cost. It works differently from plant on a sale. The seller does not have a balancing adjustment. The buyer continues to claim the allowances over the remaining period, based on the original qualifying cost. For the seller's gain or loss, the SBA claimed reduces the allowable cost, which increases the gain (or reduces the loss). Plant and machinery is the more common exam focus, so be sure of the plant rules first.

Key rules to remember

Plant and machinery disposal: Pool proceeds deducted = lower of sale proceeds and original cost; A balancing charge or allowance is a trading profit item, not a gain. After a balancing charge the pool is nil, so there is no writing down allowance.
Gain on plant sold above cost: Chargeable gain = Proceeds − Cost (less any incidental costs and enhancement allowed under normal rules), then apply the chattels rules; Only arises where proceeds exceed cost. A chattel sold for £6,000 or less is exempt. Above £6,000 the gain is capped at 5/3 × (proceeds − £6,000). A wasting chattel is normally exempt, but not plant used in the trade that qualified for capital allowances.
Capital allowance rates: Main pool 18%; special rate pool 6%; AIA 100% up to £1,000,000; Rates are given in the exam. Know which pool an asset belongs to.
Enhanced allowances for companies: Main pool FYA 100%; special rate pool FYA 50%; Available to companies on qualifying new expenditure. The special rate FYA leaves the remaining balance in the special rate pool.
Structures and buildings allowance: SBA = 3% × qualifying cost, each year (straight line); The seller has no balancing adjustment. The buyer continues the allowances over the remaining period on the original qualifying cost. SBA claimed reduces the seller's allowable cost, which increases the gain.
Balancing adjustment: Pool tax written down value − proceeds (limited to cost): positive = balancing allowance (main and special rate pools only if the trade ceases), negative = balancing charge; A negative result is a balancing charge whether or not the trade continues, and leaves the pool nil with no writing down allowance. A positive balance in the main or special rate pool is a balancing allowance only when the trade ceases. Otherwise it is carried forward and receives writing down allowance. Single-asset pools, such as a short life asset, are an exception.

How to solve Capital Allowances Interaction with Company Disposals questions

Use this order for any question that mixes disposals with capital allowances for a company.

1Identify the asset type: plant and machinery, a car, or a building with SBA.
2For plant, work out which pool it belongs to and whether AIA or a first year allowance was claimed. Check for a short life asset election.
3Compare proceeds with original cost. Deduct the lower of the two in the pool computation.
4Look at the pool balance after the deduction. A negative balance is a balancing charge, whether or not the trade continues, and the pool is then nil with no writing down allowance. A positive balance is carried forward and receives writing down allowance, unless the trade has ceased, when it is a balancing allowance. A short life asset election is the exception.
5If proceeds exceed cost, test the excess for a chargeable gain under the chattels rules. Proceeds of £6,000 or less are exempt. Above £6,000 the gain is capped at 5/3 × (proceeds − £6,000). Plant used in the trade that qualified for allowances is not exempt as a wasting chattel.
6For a building, add back the SBA claimed by reducing the seller's allowable cost, which increases the gain. Note the buyer continues the allowances over the remaining period on the original qualifying cost.
7Add the allowance or charge to the adjusted trading profit and the gain to chargeable gains, then summarise the effect on taxable total profits.

Quickest way: Cost cap check

When to use it: Use this in objective test questions and as the first step in a written computation.

Ask: was the asset sold for more than cost? If no, there is no gain. Use the proceeds in the pool.
If yes, the pool gets cost only. The excess is a possible gain, subject to the chattels rules.
If the asset is a building with SBA, ignore balancing adjustments. SBA claimed reduces the seller's allowable cost, so the gain is higher.
Deduct the proceeds from the pool. A negative balance is a balancing charge and leaves the pool nil. A positive balance is carried forward, unless the trade has ceased, when it is a balancing allowance.

Common mistakes in Capital Allowances Interaction with Company Disposals

Computing a chargeable gain on every plant disposal.
Students treat plant like land or shares.
Fix: Only compute a gain where proceeds exceed cost. Then check the chattels rules: £6,000 or less is exempt, and above that the gain is capped at 5/3 × (proceeds − £6,000). Otherwise use the capital allowances pool.
Deducting full sale proceeds from the pool when they exceed cost.
The cap at cost is forgotten.
Fix: Deduct the lower of proceeds and cost. Put the excess in the gains computation.
Claiming a capital loss on plant sold for less than cost.
Students mix up the loss with a balancing allowance.
Fix: The loss is relieved through the pool or a balancing allowance as a trading item. There is no capital loss.
Applying a balancing adjustment to a building with SBA.
Students copy the plant rules.
Fix: SBA has no balancing adjustment for the seller. The buyer continues the allowances over the remaining period on the original qualifying cost. For the seller, SBA claimed reduces the allowable cost, which increases the gain.
Giving a balancing allowance on every disposal where the trade continues, or claiming writing down allowance after a balancing charge.
Students forget that main and special rate pools only give a balancing allowance on cessation, and that the pool is nil after a balancing charge.
Fix: For the main and special rate pools, carry a positive balance forward while the trade continues. After a balancing charge the pool is nil, so no writing down allowance arises. Check for a short life asset election, which is a single-asset pool.
Forgetting the AIA limit of £1,000,000 or applying the wrong rate to the balance.
Several allowance types are in one question.
Fix: Apply AIA first, then FYA or WDA on remaining expenditure. Main pool WDA is 18% and special rate pool is 6%.

Worked examples

Example 1

Bryn Ltd sells a machine for £12,000 that cost £9,000 and was bought in an earlier period with AIA. The main pool has no other balance and the company continues to trade. The machine is a tangible movable asset used in the trade and qualified for capital allowances. Compute the capital allowances effect and any chargeable gain.

Show the solution

Machine cost £9,000 and proceeds are £12,000, so proceeds exceed cost.
Deduct the lower amount, £9,000 (cost), from the main pool.
The AIA was given as a 100% allowance, so no tax written down value remains for this machine. With no other balance in the main pool, deducting £9,000 leaves −£9,000. A negative balance is a balancing charge, so the balancing charge is £9,000.
After the balancing charge the pool is nil, so the writing down allowance for the period is nil.
Excess over cost = £12,000 − £9,000 = £3,000.
Chattels check: the machine qualified for capital allowances, so it is not exempt as a wasting chattel. Proceeds exceed £6,000, so the gain is capped at 5/3 × (£12,000 − £6,000) = £10,000. The £3,000 is below the cap, so the gain is £3,000.
The balancing charge of £9,000 is added to trading profit. The gain of £3,000 goes into chargeable gains.

Answer: Balancing charge £9,000 in trading profit; writing down allowance nil; chargeable gain £3,000.

Example 2

Cwm Ltd ceases trading and closes its main pool, tax written down value £15,000, by selling the only asset for £11,000. The asset cost £20,000. Compute the balancing adjustment and any gain.

Show the solution

Proceeds £11,000 are below cost £20,000, so deduct £11,000.
Pool balance = £15,000 − £11,000 = £4,000.
The trade has ceased and the pool is closed, so the £4,000 left is a balancing allowance.
No gain arises because proceeds are below cost.
There is no capital loss either.

Answer: Balancing allowance £4,000, no chargeable gain and no capital loss.

Exam tips

Write the words 'cost cap' next to every plant disposal before you start.
Show the pool computation and the gains computation separately so you can pick up method marks.
For a gain on plant above cost, state the chattels check: £6,000 or less is exempt, and above that the gain is capped at 5/3 × (proceeds − £6,000).
Know SBA: 3% straight line, no balancing adjustment for the seller, buyer continues the allowances on the original qualifying cost, and SBA claimed reduces the seller's allowable cost so the gain is higher.
Learn AIA £1,000,000 at 100% and the 100% and 50% first year allowances for companies.
Remember a balancing charge leaves the pool nil, so there is no writing down allowance that period.

Practice questions from Chargeable gains for companies

Capital Allowances Interaction with Company Disposals in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalCapital Allowances and Structures and Buildings Allowance

Capital Allowances Interaction with Company Disposals: frequently asked questions

Is a balancing charge a chargeable gain?

No. It is a trading profit item. It goes into the adjusted trading profit through the capital allowances computation, not into chargeable gains.

When does plant produce a chargeable gain?

Only when it is sold for more than it cost. The gain is the proceeds minus cost, and the cost part is dealt with in the capital allowances pool. The chattels rules then apply. A sale for £6,000 or less is exempt, and above that the gain is capped at 5/3 × (proceeds − £6,000).

Does the structures and buildings allowance create a balancing adjustment?

No. On sale the seller has no balancing adjustment and the buyer continues the allowances over the remaining period on the original qualifying cost. For the seller, SBA claimed reduces the allowable cost, which increases the gain.

Does enhanced capital allowance relief change disposal treatment?

The disposal proceeds, limited to cost, are still deducted in the pool computation. A balancing charge arises only if the pool balance is too small to absorb the proceeds, so the balance after the deduction is negative.