TXBalancing charge / allowance

Please look at the OT notes and video for chapter 5 to explain

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 ?

you got it!