I had some advice here regarding disposal of asset last year.
I’ve been doing some more research for it because something didn’t seat right in my brain.
We had a few assets that broke just out of warranty. 3 went to scrap and 1 was sold on at a loss. The calculation was explained and processes done but it didn’t seem right to get the full AIA and then get back the cost as a loss when disposed of.
It seems, via a little light reading, that this was a mistake. And that perhaps while recieving advice I should have warning the assistee off this.
HOW ON EARTH DO I SORT THAT MESS?
Any help would be greatly appreciated.
Morning,
Could you possibly explain what has happened or provide a link to the old thread?
Kind regards,
Chris
The relevant paragraph in HMRC guidance seems to be
If you sell an asset for which you claimed AIA or first year allowances, and your pool has a zero balance, the amount you sell it for (or its market value if you give it away or use privately) is the balancing charge.
(Capital allowances and balancing charges (Self Assessment helpsheet HS252) - GOV.UK)
In other words, if you sell something on which you claimed 100% AIA then you effectively have to treat the entire amount you received when you sold the item as income.
(Note: I’m not an accountant, @SQKaccountancy is, so if they suggest different then believe them rather than me!)
Basically that is correct. It should be put through as gain on disposal of an asset rather than sales income. An example, as I do not really like the heavy HMRC documents:
You buy an 2 assets for £100 each and claim AIA of £200 in that year. The next year one of them gets broken and you sell the other for £25. You would treat as both of them as disposed and include a £25 gain on disposal. This £25 will be treated as a balancing charge in your tax computation.
I hope this helps.
Kind regards,
Chris