What does section 461A of the Capital Allowances Act 2001 do?

Section 461A addresses how unrelieved qualifying expenditure in a capital allowances pool is treated when a trader switches from the accruals basis to the cash basis. It removes any portion that would qualify as a cash basis deduction from the pool, preventing the trader from claiming relief twice on the same expenditure.

What is the cash basis deductible amount under section 461A?

The cash basis deductible amount is the portion of unrelieved qualifying expenditure in a capital allowances pool that would have been allowable as a deduction under cash basis rules, assuming the expenditure was paid in the tax year of entry to the cash basis. This amount is removed from the pool and cannot be carried forward.

How is the cash basis deductible amount calculated under section 461A?

The cash basis deductible amount must be determined on a just and reasonable basis in all the circumstances. Where only part of the pooled expenditure would qualify for a cash basis deduction, a fair apportionment is required to identify the portion that should be removed from the capital allowances pool on entry to the cash basis.

What happens to pooled expenditure that is not a cash basis deductible amount?

Expenditure remaining in the pool that does not qualify as a cash basis deductible amount, such as expenditure on cars, stays in the capital allowances pool. It continues to be available for capital allowances purposes if and when the trader subsequently leaves the cash basis in a future tax year.

Capital Allowances Act 2001 section 461A

Unrelieved qualifying expenditure: entry to cash basis

Section 461A deals with what happens to unrelieved qualifying expenditure in a capital allowances pool when a trader switches from the accruals basis to the cash basis of accounting for tax purposes.

When a trader enters the cash basis, any expenditure that would qualify for a cash basis deduction cannot be carried forward as unrelieved qualifying expenditure in the capital allowances pool from the previous tax year.
A "cash basis deductible amount" is unrelieved qualifying expenditure that would be an allowable deduction under cash basis rules, assuming the expenditure was paid in the year of entry to the cash basis.
The cash basis deductible amount must be determined on a just and reasonable basis in all the circumstances.
The definitions of "enters the cash basis" and "calculating the profits of a trade on the cash basis" from section 1A apply to this section.

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