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ACCA Strategic Professional · Advanced Taxation (UK) · Investment and other expenditure that reduces tax liabilities

Wexford Ltd has a main pool tax written down value of £50,000 at the start of the year. In the year it sells one machine for £70,000 (original cost £55,000) and has no additions. It has no special rate pool assets. What is the effect on the main pool?

A balancing charge of £5,000 arises. Proceeds deducted from the pool are limited to original cost of £55,000, so the £50,000 pool becomes negative by £5,000. A negative pool is charged as a balancing charge and the pool is then nil.

  1. AA balancing charge of £5,000 arises and the pool is reduced to nilCorrect
  2. BA writing down allowance of £0 arises and a balancing charge of £20,000 arises
  3. CA balancing charge of £15,000 arises because the proceeds exceed cost
  4. DNo balancing charge arises; the pool is reduced to nil and the loss is ignored

Explanation

Disposal proceeds are deducted from the pool, limited to original cost of £55,000. The pool is £50,000 − £55,000 = −£5,000, which is a balancing charge of £5,000 as the pool is negative and cannot be carried forward. The gain over cost, £15,000, is a chargeable gain issue for a company and not a capital allowance matter. £20,000 uses full proceeds, ignoring the cost cap.

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