F6 Taxation (UK)

Taxation (UK) Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section E: Inheritance tax Section F: National insurance contributions Section G: Value Added Tax Section H: The obligations of tax payers and/or their agents

Section B: Income tax liabilities B2. Income from employment B3. Income from self – employment (Part 1) B3. Income from self – employment (Part 2) B5. The comprehensive computation of taxable income and income tax liability B2. Income from employment B3. Income from self – employment (Part 1) B3. Income from self – employment (Part 2) B5. The comprehensive computation of taxable income and income tax liability Designed to give you knowledge and application of:

 Capital allowances i. Define plant and machinery for capital allowances purposes. [1] ii. Compute writing down allowances, first year allowance and the annual investment allowance. [2] iii. Compute capital allowances for motor cars. [2] iv. Compute balancing allowances and balancing charges. [2] v. Recognise the treatment of short life assets. [2] vi. Explain the treatment of assets included in the special rate pool. [2] vii. Define an industrial building for industrial buildings allowances purposes. [1] viii. Compute industrial buildings allowance for new buildings. [2] B3 (Part 2): Income from self employment Learning outcomes

General pool Expensive Car Private use asset Short life asset Special rate pool Capital Allowances ££££££ TWDV b/fX XX AdditionsXXX X Disposals(X) X X Less: Allowances(X) X TWDV c/fXXXXX Allowances for the period X Capital allowances “statutory form of depreciation allowance” Expenses eligible for capital allowance Plant & machinery Industrial buildings Categories and the calculation of capital allowances TWDV means tax written down value.

Annual investment allowance (AIA) The following points are related to AIA:  Available to all kinds of businesses  Allows business to immediately write off the first £100,000 of  Expenditure on plant and machinery  The £100,000 limit is applicable annually  Where the period of accounts is more or less than 12 months the  Limit of £100,000 is proportionately increased or decreased Refer to the example (Jake) on page 95

Writing down allowance WDA is given at 20% per annum on the reducing balance basis WDA when an accounting period is 12 months The capital allowances will be 20% of the TWDV of the pool. WDA when an accounting period is more or less than12 months The WDA is increased or decreased i.e. scaled up or down accordingly. Refer to Example (Linda) on page 97 Writing down allowance

Capital allowances for motor cars Motor car Cars with CO2 emission rates exceeding 160g/km  If these cars are purchased after 6 April 2009 (1 April 2009 for limited companies), they are not pooled in the general pool of plant and machinery.  Each of these cars is allocated to the special rate pool and will have its own capital allowance calculation.  These cars do not qualify for AIA.  The WDA on these cars is calculated at the rate of 10% per annum on a reducing balance basis. Low emission car Cars with CO2 emission rates between 111g/km and 160g/km  goes into the general pool.  writing down allowance (WDA) at the rate of 20% per annum will be available on these cars.  Does not qualify for AIA  CO 2 emission 110g/km or less  100% first year allowance in the year the car is purchased, irrespective of the length of the accounting period. Refer to Test Yourself 4 on page 101

Refer to Example on page 102 Balancing adjustments

Industrial buildings allowance (IBA) for new buildings IBA for first user WDA is 1% per annum on the qualifying expenditure on a STRAIGHT LINE BASIS The allowance given in full unless accounting period is not 12 months / pro-rated The allowance given in full even if the building bought part-way through the accounting period Allowance is given if the building is in industrial use (or temporary disuse) at the END of the accounting period The allowance is given in full if the building was only in industrial use for part of the period, provided it was in industrial use at the end of the period. The calculation for industrial buildings allowances is a separate calculation from plant and machinery capital allowances. The allowances are calculated for each industrial building on an individual basis, they are not pooled. The allowances given for the accounting period If the trader owns the industrial building OR has a lease of more than 50 years on an industrial building and an election has been made to claim the allowances. Refer to Test Yourself 11 on page 115

 Capital allowances i. Define plant and machinery for capital allowances purposes. [1] ii. Compute writing down allowances, first year allowance and the annual investment allowance. [2] iii. Compute capital allowances for motor cars. [2] iv. Compute balancing allowances and balancing charges. [2] v. Recognise the treatment of short life assets. [2] vi. Explain the treatment of assets included in the special rate pool. [2] vii. Define an industrial building for industrial buildings allowances purposes. [1] viii. Compute industrial buildings allowance for new buildings. [2] RECAP