Balancing allowance on cessation of trade: how it works for a limited company
Short version. A company that stops a qualifying activity may have a balancing allowance for plant and machinery in its main or special rate pool. Enter the prepared whole-pound claim in the matching pool field. It appears separately in the computation and in CT600 box 705 or 695.
1. Work out the pool result
A balancing allowance depends on the pool balance, disposal values and the rules for ending the qualifying activity. It is different from a writing-down allowance and a balancing charge. Use the amount from your prepared capital-allowances computation. The service does not calculate it from sale proceeds or the accounts disposal profit.
Under Tax adjustments, open “+ Add a writing down allowance or an electric car claim”, then enter Balancing allowance, main pool or Balancing allowance, special rate pool. A prepared writing-down allowance may also be entered if it applies. For accounts covering more than twelve months, confirm which Corporation Tax return takes the allowance in the capital allocation panel. The panel initially places a cessation allowance in the final return. Check that allocation against the actual cessation period and your prepared working.
2. Check the draft documents
The free draft preview shows the allowance as a separate computation line. Main-pool allowances appear in box 705 and special rate pool allowances in box 695. For a long accounting period, inspect both draft CT600s and check that the claim is in the return ending on cessation. If trading stopped before the accounts end, check the Corporation Tax coverage dates as well as the allocation.
This is general guidance. The director is responsible for the pool computation, the qualifying-activity cessation date and the amount entered.
Official sources
Section 55 of the Capital Allowances Act 2001 says:
(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on (a) the available qualifying expenditure in that pool for that period (“AQE”), and (b) the total of any disposal receipts to be brought into account in that pool for that period (“TDR”).
(2) If AQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period. (3) If TDR exceeds AQE, the person is liable to a balancing charge for the period. (4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance. (5) The final chargeable period is given by section 65. (6) Subsection (2) is subject to section 104F (special rate cars: discontinued activity continued by relevant company) and section 110(1) (overseas leasing: allowances prohibited in certain cases).
Section 65(1) says:
The final chargeable period for (a) the main pool, or (b) a special rate pool, is the chargeable period in which the qualifying activity is permanently discontinued.