How is the writing-down allowance calculated under section 418 of the Capital Allowances Act 2001?

The writing-down allowance is calculated as a percentage of the excess of unrelieved qualifying expenditure (UQE) over total disposal receipts (TDR). The rate is 10% for mineral asset acquisitions or 25% for other qualifying expenditure. The allowance is proportionately adjusted for chargeable periods shorter or longer than twelve months or for part-year trading.

What cap applies to a balancing charge under section 418?

A balancing charge arises when TDR exceeds UQE, but it is capped at the lower of that excess and the net cumulative allowances previously given on the expenditure. This means the charge cannot exceed the total tax relief actually received, ensuring the taxpayer is never charged more than the benefit obtained from earlier allowances.

Can a person claim less than the full writing-down or balancing allowance under section 418?

Yes. A person entitled to either a writing-down allowance or a balancing allowance may elect to reduce it to a specified lower amount. This flexibility allows taxpayers to manage taxable profits strategically, for example by preserving losses or aligning capital allowance relief with available income in a particular chargeable period.

How does a first-year allowance interact with balancing charges under section 418?

Where a first-year allowance was claimed on expenditure in the same period the expenditure was incurred and a balancing charge also arises in that period, the first-year allowance is treated as an allowance for an earlier chargeable period. This ensures it is included in the cap calculation, preventing the balancing charge from exceeding total relief received.

Capital Allowances Act 2001 section 418

Amount of allowances and charges

Section 418 sets out how to calculate the amount of writing-down allowances, balancing allowances, and balancing charges for mineral extraction trades, based on the relationship between unrelieved qualifying expenditure (UQE) and total disposal receipts (TDR).

Writing-down allowances are 10% of the excess of UQE over TDR for mineral asset acquisitions, or 25% for other qualifying expenditure, with proportionate adjustment for short or long periods or part-year trading.
A balancing charge arises where TDR exceeds UQE, but is capped at the net allowances previously given on that expenditure.
A balancing allowance equals the full amount by which UQE exceeds TDR, and arises in the circumstances prescribed elsewhere in the legislation.
A person claiming a writing-down allowance or balancing allowance may elect to reduce the allowance to a specified lower amount.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member