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Capital allowance is the deduction available to UK tax payers while computing taxable income. In UK, depreciation is not an allowable expense and its place is taken by capital allowance.

Both depreciation and capital allowance become applicable when you buy long-term assets for business purposes. Buildings, plant & machinery and furniture are examples of such long-term assets. As these assets will be used over a number of years, you cannot write their costs off as expense in the year of purchase.

Instead, the typical solution is to estimate their useful life in years, and write off a proportionate amount each year over this life time. This is what we call depreciation. In UK, however, depreciation is not allowed as a business expense.

The capital allowance system also essentially allows you to write off the cost of assets over a number of years. However, the regulations regarding capital allowance is much more complex.

For example, in the case of buildings, the entire cost of the building cannot be the basis for claiming capital allowance. Instead, you have to segregate the cost into First Fix and Second Fix costs. Capital allowance can be claimed only for the Second Fix costs.

First Fix costs include costs up to and including plastering. Second Fix costs are all the costs after the plastering stage to final finishing. These actually include innumerable items such air-conditioning, electrical fittings (but not the wiring), water supply fittings (but not the piping) and so on.

Considering that you pay for the building as a whole, computing the Second Fix costs is a complex exercise requiring special valuation expertise. The result is that many businesses do not claim the capital allowances that they are entitled to, and pay significantly higher amounts of tax than they need to.

Accountants are not typically equipped to identify and value the borderline items eligible for capital allowances.

For more information please visit Annuities or drop by the blog owners site Purchase Annuity to get in touch

In other articles we have seen that when a disposal event occurs, taxpayers are subjected to a balancing charge or allowed a balancing allowance. A balancing charge involves charging back excessive capital allowances claimed and balancing allowance provides relief for claims that are short.

Capital allowances are considered excessive when the disposal value is more than the notional written down value after deducting the writing down allowances from the original cost. If the disposal value is less than the notional written down value, capital allowance claims are treated as inadequate and the shortage is made up through a balancing allowance.

The issue of disposal even becomes relevant in the above context. Disposal events are not confined to sale of an asset. Instead, all the following events are disposal events:
• The taxpayer ceases to own the asset
• Possession of the asset by the taxpayer is lost permanently
• Abandonment of an asset used for mineral exploration and access at the site where it was so used
• The asset ceases to exist
• The asset begins to be used for a purpose other than the qualifying activity
• The qualifying activity itself is discontinued permanently
• The asset is leased under a long funding lease

When a disposal event takes place, the taxpayer is required to bring a disposal value into account. The rules regarding computation of disposal value is somewhat complex; it might not be even the sale value if the sale event is considered a tax avoidance measure.

It is possible that an asset might have more than one disposal event. In such cases, disposal value needs to be brought into account only on the happening of the first event.

It is to be noted that except in the case of single asset pools, the above provisions apply to the pool total as a whole and not to individual assets.

For more information please visit Annuities or drop by the blog owners site Purchase Annuity to get intouch

capital allowance claims

Hundreds of Burbank city employees have received a collective $4 million in bonuses since July 2007, according to documents the city fought in court to keep out of public view.

A Los Angeles County Superior Court judge in May ordered city officials to release bonus pay amounts for individual employees to the Burbank Leader, which sued to obtain the information. The city of Burbank had denied the newspaper's public records request, arguing that it would harm employee morale and violate workplace privacy rules.

On Thursday, City Council members noted that they had suspended bonuses for mostly executive-level employees for the coming fiscal year, given a budget in which library upgrades were put off, fire services were reduced and fees were raised.

"As a result of that, we are returning that money to city services which is important," Councilwoman Emily Gabel-Luddy said. "Frankly, it was a very important step to take. Actually, it was critical. And we took it."

The records released by city officials reveal a work culture built around that bonus system, which for some employees has amounted to tens of thousands of dollars in the last four years alone.

Burbank Water and Power General Manager Ron Davis pulled in $79,000 in bonus pay during the four-year period, putting him at the top of the list. Davis' total salary in 2010 was $263,028.

Hundreds of Burbank city employees have received a collective $4 million in bonuses since July 2007, according to documents the city fought in court to keep out of public view.

A Los Angeles County Superior Court judge in May ordered city officials to release bonus pay amounts for individual employees to the Burbank Leader, which sued to obtain the information. The city of Burbank had denied the newspaper's public records request, arguing that it would harm employee morale and violate workplace privacy rules.

On Thursday, City Council members noted that they had suspended bonuses for mostly executive-level employees for the coming fiscal year, given a budget in which library upgrades were put off, fire services were reduced and fees were raised.

"As a result of that, we are returning that money to city services which is important," Councilwoman Emily Gabel-Luddy said. "Frankly, it was a very important step to take. Actually, it was critical. And we took it."

The records released by city officials reveal a work culture built around that bonus system, which for some employees has amounted to tens of thousands of dollars in the last four years alone.

Burbank Water and Power General Manager Ron Davis pulled in $79,000 in bonus pay during the four-year period, putting him at the top of the list. Davis' total salary in 2010 was $263,028.

Pension