AITI Chartered Tax Adviser

How is corporation tax charged on capital allowances?

A company is entitled to claim a capital allowance for expenditure on:

(a) machinery or plant, and motor vehicles,
(b) industrial buildings (including holiday cottages and hotels), farm buildings and structures,
(c) mining and exploration activities,
(d) intellectual property,
(e) transmission capacity rights.

A company can have a balancing adjustment if it disposes of an asset before the asset’s tax writing down life has come to an end. If the company has underclaimed capital allowances, it will be due a balancing allowance, and if it has overclaimed capital allowances, it will have a balancing charge.
Unlike the income tax treatment, a trading company deducts the capital allowances (and balancing allowances) to which it is entitled as a trading expense and treats any balancing charge as a trading receipt.