Disposing an asset if you claimed full expensing or 50% first year allowance
How to work out the balancing charge when you dispose or sell plant or machinery after claiming full expensing or 50% first year allowances for them.
If you dispose or sell an asset which you have claimed full expensing or the 50% first year allowance on, you must work out a balancing charge and add this when working out your taxable profits on your Company Tax Return.
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Check if you’ve disposed of the asset and work out the value.
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Work out the relevant proportion.
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Work out the balancing charge.
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Add the balancing charge when working out your taxable profits.
You must not deduct the disposal value that is included in the balancing charge from the main rate or special rate pool, as you would with a normal disposal.
Work out the balancing charge and relevant proportion — full expensing
To work out the balancing charge, you must first work out the disposal value for the asset (this is usually the amount you sell it for).
If you claimed full expensing for the full cost of the asset, the balancing charge is the same amount as the disposal value.
If you claimed full expensing for part of the cost of the asset, you must work out the correct balancing charge to add when working out your taxable profits.
To work this out, take the amount you claimed full expensing on, divide this by the original cost of the asset (this will give you the relevant proportion), then multiply the answer by the disposal value.
- Work out the disposal value of the asset.
- Take the amount you claimed full expensing on and divide it by the original cost of the asset to get the relevant proportion.
- Multiply the disposal value by the relevant proportion.
Example of working out the balancing charge after full expensing has been claimed for part of the cost of an asset
On 1 April 2023, Hunter and Ball Ltd spent £100,000 on a new excavator.
In the accounting period ending 31 December 2023, Hunter and Ball Ltd claimed full expensing for £40,000 of the cost and pooled the remaining £60,000.
On 1 April 2026, Hunter and Ball Ltd sell the excavator for £50,000.
To work out the balancing charge:
1. Work out the disposal value — this is the £50,000 from the sale.
2.Work out the relevant proportion. Full expensing has been claimed for £40,000 of the expenditure, which is only part of the cost of the asset. The remaining £60,000 has been added to the capital allowances pool. Therefore, the relevant proportion is £40,000 divided by £100,000.
3. The balancing charge is worked out by multiplying the disposal value by the relevant proportion.
£50,000 × (£40,000 ÷ £100,000) = £20,000
Therefore, the balancing charge is £20,000, which is added when working out taxable profits.
The remaining disposal value of £30,000 must be deducted from the main rate pool in the normal way.
Work out the balancing charge and relevant proportion — 50% first year allowance
To work out the balancing charge to add when working out your taxable profits, you must work out the relevant proportion of the disposal value of the asset.
The portion of the disposal value not included in the balancing charge should be deducted from your special rate pool in the normal way.
If you’ve claimed the 50% first year allowance for the full cost of the asset, the relevant proportion of the disposal value is half.
If you claimed the 50% first year allowance for part of the cost of the asset, you must work out the correct balancing charge to add when working out your taxable profits.
To work this out, take the amount you claimed the 50% first year allowance on, divide this by 2 and then divide your answer by the original cost of the asset (this will give you the relevant proportion). Multiply your answer by the amount you sold the asset for to give you your balancing charge.
- Work out the disposal value of the asset.
- Take the amount you originally claimed the 50% first year allowance on and divide it by 2.
- Take the result of step 2 and divide this by the full cost of the asset to get the relevant proportion.
- Multiply the disposal value by the relevant proportion to get the balancing charge.
Example of working out the balancing charge after 50% first year allowance has been claimed for part of the cost of an asset
On 1 April 2024, Hunter and Ball Ltd spent £1,600,000 on an air conditioning system.
In its accounting period ending 31 December 2024, Hunter and Ball Ltd claimed the annual investment allowance on £1,000,000 of the expenditure and 50% first year allowance on the remaining £600,000 of the expenditure.
The first year allowance claimed by Hunter and Ball Ltd was £300,000, with the remaining £300,000 of expenditure added to the special rate pool in the accounting period ending 31 December 2025.
On 1 April 2029, Hunter and Ball Ltd decided to replace the air conditioning system with a more efficient system. It sold the entirety of the old system for scrap parts for £200,000.
To work out the balancing charge:
- Work out the disposal value of the asset. The disposal value is the £200,000 scrap proceeds.
- Take the amount you originally claimed the 50% first year allowance on and divide it by 2. £600,000 ÷ 2 = £300,000.
- Take the result of step 2 and divide this by the full amount of the asset to get the relevant proportion. £300,000 ÷ £1,600,000 = 0.1875
- Multiply the disposal value by the relevant proportion to get the balancing charge. £200,000 × 0.1875 = £37,500.
Therefore, the balancing charge is £37,500, which is added when working out your taxable profits.
The remaining £162,500 of the disposal value which is not subject to a balancing charge must be deducted from the special rate pool in the normal way.