CA27300 - PMA: Assets used partly for qualifying activity: Significant reduction in use

CAA01/S208

Expenditure on an asset that is used partly for a qualifying activity and partly for other purposes is put into a single asset pool.CA27005. The allowances are reduced on a just and reasonable basis. There may be a change of circumstances, which means that the allowances given exceed the depreciation charge. If:

• the extent of the use of an asset for activities that are qualifying activities falls, and
• the market value of the asset exceeds the balance in the single asset pool for the chargeable period in which the change of circumstances happens by more than £1 million,

a disposal value is brought to account.

The disposal value is market value. It is put into another single asset pool and the WDAs in that pool are reduced on a just and reasonable basis taking account of the changed circumstances.

Example

Icarus Airways buys a plane for £40 million in its accounts year ended 31 December 2018. It uses the plane 90% for a qualifying activity and 10% for an activity not within the charge to tax in the UK. It claims WDA. The WDA of £7.2 million (18% of £40 million) is reduced to £6.48 million (90% of £7.2 million). The pool carried forward at 31 December 2018 is £32.8 million. In the year ended 31 December 2019 things change. The plane starts to be used 90% for activities outside the UK tax net. The market value of the plane at the end of this year is £36 million, which is more than £1 million more than the pool value of £32.8 million. A disposal value of £36 million is brought to account. There is a balancing charge of £2.88 million (= 90% of £36 million - £32.8 million) for the year ended 31 December 2019. There is a pool of £36 million on 1 January 2020.