Balancing charges: selling an asset you claimed capital allowances on

Short version. If your company sold a fixed asset (equipment, machinery, a van) that it had claimed capital allowances on, such as the Annual Investment Allowance (AIA), you may have a balancing charge. It goes in two places, both in the financial inputs. Any accounting profit on the sale goes in Profit on disposal of fixed assets (in the profit and loss section), where it is shown as Other income and kept out of your taxable trading profit. The balancing charge itself goes in Balancing charges (in Tax adjustments), where it is added to your taxable profit and reported in box 710 of the CT600. One thing to know up front: if you sold the asset for more than it originally cost, the amount above cost is a capital gain. If it is taxable, enter it separately in the Chargeable gains (gross) field. More on that below.

What a balancing charge is

When your company buys equipment, it usually claims tax relief on the cost through capital allowances. The AIA lets you deduct the whole cost in the year of purchase, so the item is worth nil for tax after that (its tax written-down value is zero).

A balancing charge is what happens when you later sell that item. You already had tax relief for the full cost, so on sale HMRC claws some of that relief back. The clawed-back amount is added to your taxable profit for the year. It is the mirror image of a capital allowance: an allowance reduces your taxable profit, a balancing charge increases it.

The key rule is the cap. The amount treated as a balancing charge is your sale proceeds limited to what you originally paid for the asset (Capital Allowances Act 2001, section 62). You can never have a bigger balancing charge than the allowances you actually claimed. Anything you receive above the original cost is not a balancing charge at all. It is a capital gain, dealt with under separate rules.

A worked example

Take a common case. A company buys a machine for £100 and claims the full £100 under AIA in year one. Later it sells the machine for £300, and the machine was sitting in the books at £100, so the accounts show a £200 profit on disposal. That single sale actually splits into three separate amounts:

This is why there are two fields, not one. Your accounts must show the real £200 profit on the sale, so the numbers on the balance sheet reconcile. But for tax that profit is not trading income, so we take it back out, and instead add the £100 balancing charge that the capital allowance rules produce. The result is that your accounts stay accurate and your tax is calculated the way HMRC expects.

Where to enter it in SimpleCompanyTax

Both fields are tucked behind a short link so they stay out of the way for companies that never sell assets. In the Financial data step:

1. In the profit and loss section, just above the Operating profit line, select “Add a profit on selling equipment or another fixed asset”. Enter the profit your accounts show on the sale (the sale price less the asset’s remaining book value). In the example that is £200. It appears as Other income in your accounts.
2. Selecting that also opens the matching field in Tax adjustments: Balancing charges (labelled box 710). Enter the balancing charge here, which is your sale proceeds capped at the original cost. In the example that is £100.

That is all you need to do. We add the £100 balancing charge to your taxable profit, report it in box 710 of the CT600, remove the £200 accounting profit from the tax computation, and show the working transparently in the tax computation we file. The live tax estimate updates as you type, so you can see the effect straight away.

A quick sense check: enter the balancing charge as the amount of allowances being clawed back, not the whole sale price, whenever the price is above cost. If you sold the machine for £80 instead of £300, the balancing charge would be £80 (the proceeds, which are already below the £100 cost), and there would be no capital gain to worry about.

If you sold it for more than you paid

This is the boundary the example above reaches. The amount received above the original cost (the £200 in the table) is a capital gain, not a balancing charge and not trading income. The two fields above correctly cover the balancing charge, and if the excess is taxable you report it through a third field: Chargeable gains (gross), behind the “Add a capital gain” link in Tax adjustments.

What that means in practice:

• Sold at or below what it cost you: there is no gain, so the two fields give a complete and correct answer. Nothing more to enter.
• Sold above cost, but the gain is exempt: everyday moveable items (chattels) sold for £6,000 or less are exempt from chargeable gains, so a machine sold for £300 has no taxable gain and the two fields still give the right result. Confirm the exemption applies to your asset.
• Sold above cost with a taxable gain: enter the gain in Chargeable gains (gross) and we report it in boxes 210 to 220 and add it to your taxable profits. Our capital gains article walks through computing the gain and the situations that still need an accountant.

A quick check if you are unsure: did you sell the asset for more than your company originally paid, and is it worth more than £6,000? If yes, work out the gain and enter it, or speak to an accountant if the sale is complicated.

What it does to your tax

A balancing charge increases your taxable profit pound for pound, so it increases your Corporation Tax. In the example, the £100 balancing charge adds £100 to your taxable profit. At the 19% small profits rate that is £19 of extra Corporation Tax. The £200 accounting profit does not add to your tax, because it has been taken back out and dealt with under the capital allowance and gains rules instead.

See how Corporation Tax is calculated for the wider picture, or disallowable expenses for another adjustment that works the opposite way (adding a cost back rather than removing income).

Already filed and realised you missed a balancing charge? You can file an amendment.

This article is general guidance, not tax advice. Capital allowances and chargeable gains can involve judgement, especially where an asset was used partly for private purposes or sold to a connected person. If you are unsure, check GOV.UK or speak to an accountant.