How does section 55 of the Capital Allowances Act 2001 determine entitlement to allowances?

Section 55 requires a comparison of available qualifying expenditure (AQE) against total disposal receipts (TDR) for each capital allowances pool in each chargeable period. Where AQE exceeds TDR, the person is entitled to a writing-down allowance, or a balancing allowance if it is the final chargeable period.

When does a balancing charge arise under section 55 of the Capital Allowances Act 2001?

A balancing charge arises when total disposal receipts (TDR) exceed available qualifying expenditure (AQE) in a pool for a chargeable period. This claws back previously given allowances to the extent disposal proceeds exceed the remaining pool balance. The balancing charge is treated as taxable income or profit for the period.

What is the difference between a writing-down allowance and a balancing allowance under section 55?

A writing-down allowance is the standard annual relief that reduces the pool balance over time, available in most chargeable periods when AQE exceeds TDR. A balancing allowance arises only in the final chargeable period, such as when a trade ceases, and relieves the entire remaining pool balance in one go.

What restrictions apply to entitlement under section 55 of the Capital Allowances Act 2001?

Section 55 is subject to restrictions involving special rate cars where a discontinued activity is continued by a relevant company, and certain overseas leasing arrangements. Where plant or machinery is used for overseas leasing, allowances may be prohibited altogether. Practitioners should verify whether these restrictions apply before finalising claims.

Capital Allowances Act 2001 section 55

Determination of entitlement or liability

Section 55 explains how to determine whether a person is entitled to a writing-down allowance or balancing allowance, or is liable to a balancing charge, for each pool of qualifying expenditure in a chargeable period.

Entitlement or liability is worked out separately for each capital allowances pool by comparing available qualifying expenditure (AQE) against total disposal receipts (TDR) for the period
Where AQE exceeds TDR, a writing-down allowance is due — except in the final chargeable period, when the excess gives rise to a balancing allowance instead
Where TDR exceeds AQE, a balancing charge arises for that period
These rules are subject to restrictions for special rate cars where an activity is discontinued and continued by a relevant company, and for certain overseas leasing arrangements

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