When selling assets on which capital allowances were claimed, you may need to adjust your taxable profits with a balancing charge or allowance. Understanding these rules ensures you don’t face unexpected tax liabilities. Learn how to handle asset disposals correctly.
Typically, the value of the asset sold is considered to be the amount for which it was sold. However, if the asset was given away, no longer used, or sold for less than its market value, then the market value should be used.
If you initially claimed 100% tax relief on the asset, the business is required to add back the difference between the sale price and the original value to their taxable profits. This adjustment is known as a balancing charge. A balancing charge ensures that a business does not receive more tax relief than it was entitled to on the purchase of the asset. Essentially, the balancing charge operates in the opposite manner to a capital allowance, increasing the amount of profit on which tax is due.
If writing down allowances were used initially, you may face either a balancing charge or a balancing allowance.
There are specific rules that apply when calculating a balancing charge, particularly in the following cases:
- If you originally claimed a super-deduction or special rate first-year allowances.
- If you claimed full expensing or 50% first-year allowances.
In the year your business closes, instead of claiming capital allowances, you must enter a balancing charge or balancing allowance on your tax return.
