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Heres an example…. lets say you have an expensive car which has a b/d balance of £10000. You then sell the car for £9000. You then get a balancing allowance of £1000. However, if you sold the car at a profit (lets say proceeds were £12000) then there is a balancing charge of £2000
Let me try to explain to you.
Lets assume you have started your business in 2010 and you have purchased a asset for your business which cost around £20,000. As per tax you would be getting a capital allowance on this Say @ 20%.For 2010 you would get a capital allowance of £4,000 (i.e. £20,000 * 20%)
Now you in 2011 you have sold the product. lets see the effect on capital allowance.
1) Sold the machine for £18,000
In this case as a company u would get a benefit of £2000 i.e. £18,000(sales price) – £20,000(purchase price)-£4,000(capital allowance of last year).
Since this is a addition benefit, it would be taxable referred as “Balancing Charge”
2) Sold the machine for £10,000
In this case you would have made a loss of £6,000 i.e. £10,000(Sales price)-£20,000(purchase price)-£4,000(capital allowance)
Since this a loss. it would be allowed as deduction from your taxable profit as “Balancing allowance”.
Hope this helps.
so in short, when u have a profit its a balancing charge and when u have a loss its a balancing allowance ?
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