Capital allowances and disposal of assets

A: When a business disposes of plant and machinery, for capital allowance purposes we include a disposal amount in main (general) pool, which is the lower of, proceeds or cost. When the plant is sold at a gain the lower amount will always be the cost figure, this will give rise to a balancing charge or a reduction in the pool. However, if no capital allowances were claimed then there is no clawback of capital allowances.

The treatment of the excess i.e. the gain will depend on the amount of proceeds received and the cost of the asset.

Plant and machinery are wasting assets. A wasting asset is normally exempt from tax when disposed. However, if plant and machinery is used in a business and the person making the disposal was entitled to claim capital allowances and has sold that asset for a profit, the gain will be subject to tax.

If the plant is moveable the chattels rules will apply (CG15440). If both the proceeds and cost are more than £6,000 the chattels rules will not apply.

So, the disposal of the van has created a £30,000 gain, this gain will be subject to Corporation Tax as both proceeds and cost are above £6,000 and any capital allowances previously claimed will be clawed back. The tractor made a gain of £900 but as both proceeds and cost are below £6,000 the gain is exempt under the chattel rules and again the capital allowances claimed will be clawed back. The £3,000 gain on the forklift will be restricted to the lower of: £1,667 (5/3 x (£7,000 less £6,000)) or, the indexed gain £2,192 (£3,000 less £808 indexation Feb 2011 to Dec 2017) therefore, £1,667 will be subject to Corporation Tax and the capital allowances previously claimed will be clawed back.