CA27005 - PMA: Assets used partly for qualifying activity: Allowances and charges

A person may buy an asset partly to use in a qualifying activity and partly for other purposes. An example is a businessman who buys a word processor that he uses to keep his business records and his private financial records. If the person claims FYA they must reduce the FYA on a just and reasonable basis taking account of the extent to which the asset is likely to be used for purposes other than those of the qualifying activity. But they must deduct the full FYA (before the reduction) when they calculate the qualifying expenditure they can add to a pool for WDA.

Example Bruce buys a minibus for £50,000 to use in his business. This minibus is not a car for Capital Allowance purposes The FYA available on the minibus is £20,000 (= 40% of £50,000). Bruce also plans to use the minibus privately and estimates that the private use will be 25%. The FYA is reduced to £15,000 (= 75% of £20,000). The pool of qualifying expenditure carried forward is £30,000 (= £50,000 - £20,000).

Where an asset is acquired partly for purposes other than those of the qualifying activity, or starts to be used in that way before any expenditure is pooled, put the qualifying expenditure into a single asset pool. Similarly, if a disposal value is brought to account because an asset has begun to be used partly for purposes other than those of the qualifying activity CA23240 put an amount equal to the disposal value into a single asset pool.

Calculate the WDA in the normal way and then reduce it on and a just and reasonable basis taking account of the extent of use not for the qualifying activity.. It is this reduced WDA that is made to the taxpayer but you deduct the full WDA in calculating the qualifying expenditure to carry forward.

Example In the example above Bruce has a pool of qualifying expenditure of £30,000 for his minibus. He uses the minibus 25% privately. The WDA of £7,500 (= 25% x £30,000) is reduced by 25% to £5,625. The qualifying expenditure carried forward is £22,500 (= £30,000 - £7,500).

If there is a balancing event calculate a balancing adjustment (a balancing allowance or a balancing charge) in the normal way. Then reduce it on a just and reasonable basis to reflect the degree of non-qualifying activity use (and so the restriction of the allowances) over the period of ownership.

Example Michael buys a computer for £40,000 in the year ended 31 December 2002. He brings it into use immediately. In the year ended 31 December 2002 he uses it 75% for business purposes and 25% privately. In the year ended 31 December 2003 Michael uses the computer 50% for business purposes and 50% privately. In the year ended 31 December 2004 Michael sells the computer for £32,500. Here are his capital allowance computations:

The balancing charge of £10,000 is restricted to £6,250 (= £10,000 x [75% + 50%] / 2) because there was 75% business use in the year ended 31 December 2002 and 50% business use in the year ended 31 December 2003.