CA23220 - PMA: WDA & balancing adjustments: Rate of WDA
CAA01/S56
Prior to FA2008 the annual rate of WDA was normally 25%.
The rate was 10% (subject to Revenue & Customs Brief 40/07) for overseas leasing CA24000 and 6% for long-life assets (LLAs) CA23700.
Main pool of P&M expenditure
FA2008 reduced the main rate of WDAs from 25% to 20% -
- for CT, from 1 April 2008,
- for IT, from 6 April 2008.
There are exceptions for -
- small pools of P&M expenditure (either in the main pool or in the special rate pool - see below). Where the amount is £1,000 or less CA23225 that amount may be written-off as the WDA for that chargeable period
- expenditure incurred wholly for the purposes of a North Sea ring fence trade, taxable under ICTA/S501A (supplementary charge in respect of ring fence trades) where the WDA is 25%.
Transitional provisions: When the chargeable period of a business begins on 1 April 2008 (CT) or 6 April 2008 (IT) the 20% rate will apply to the main pool of P&M expenditure from the start of that period. But when the chargeable period spans the relevant start date a ‘hybrid rate’ rate (see below) will apply for that transitional chargeable period.
Special rate pool
FA2008 also introduced a 10% pool called the special rate pool, which contains expenditure incurred on or after 1 April 2008 (for CT purposes) or 6 April 2008 (for IT purposes), on -
- the provision or replacement of integral features CA23080,
- long-life assets (LLAs) CA23700, and
- thermal insulation CA22220.
Transitional provisions: LLA expenditure: When the chargeable period of a business begins on 1 April 2008 (CT) or 6 April 2008 (IT) an already existing LLA pool will be transferred to the new special rate pool and will attract 10% WDAs from the start of the period. But when the chargeable period of a business spans the operative date, the following rules apply:-
- all new LLA expenditure incurred on or after 1 (or 6) April 2008 is to be allocated to the new 10% special rate pool
- A ‘hybrid rate’ will have effect for expenditure in the LLA pool for the whole of that transitional period, and
- At the start of the next chargeable period, all unrelieved expenditure in the LLA pool is to be transferred to the new special rate pool.
Hybrid rate
When a business’s chargeable period spans the relevant change date: 1 April 2008 (CT) or 6 April 2008 (IT), a hybrid rate is used to calculate the rate of WDA for that transitional period.
- The hybrid rate for the main P&M pool is arrived at by calculating the proportion of the chargeable period falling before the change date, and the proportion falling after it, calculating the rate for each portion at the 25% and 20% rates respectively, and then adding the two percentages together.
- The hybrid rate for the LLA pool is calculated in the same way, but by applying the 6% and 10% rates to the portion of the period before and after the change date respectively, and once again, by then adding those two percentages together.
There is an on-line calculator at http://www.hmrc.gov.uk/capital_allowances/read-reck-intro.htm (and an internal intranet version for HMRC staff to use at http://cahrcalculator.apps.hmrci/CAHR01.aspx), which will work out the hybrid rate applicable
- for both the main P&M pool and the LLA pool (in either case)
- for both IT and CT purposes, and
for chargeable periods that straddle the relevant April 2008 change date.
Long or short chargeable periods - general
Reduce or increase the appropriate rate proportionately if the chargeable period is less or more than a year. You should also reduce the rate proportionately if the qualifying activity has been carried on for part only of the chargeable period.
General
The taxpayer may claim less than the full amount of a WDA.
