CFM64150 - Foreign exchange: accounts drawn up in a foreign currency: capital allowances
Calculating capital allowances in a foreign currency
Where profits and losses of a business are calculated in a currency other than sterling, capital allowances on plant and machinery are also calculated in that currency. This is because capital allowances are deducted in computing the profit for corporation tax purposes under CAA01/S2(1)(b).
Where the Capital Allowances Act 2001 refers to a specific monetary limit in sterling, for example the £12000 limit for expensive cars, this should be translated into the functional currency at the spot rate applying on the date of acquisition of the car (see CFM64325).
This treatment of capital allowance is unchanged from that applying for periods beginning before 1 January 2005.
Example
In the APE 31 December 2010 the computation is as follows:
| - | $ |
|---|---|
| Pool b/f | 1,852,728 |
| Expenditure | 543,750 |
| Disposals | 233,410 |
| Balance | 2,163,068 |
| WDA 25% | 540,767 |
| Pool c/f | 1,622,301 |
The trading profits figure is calculated as follows:
| - | $ |
|---|---|
| Adjusted P&L profit | 1,895,430 |
| less capital allowances | 540,767 |
| Trading profit | 1,354,663 |
Only now is the amount translated into sterling for the company tax return.
If the company translates its CT profits at the closing rate, and the exchange rate at 31/12/2010 is £1/$1.75 the entry for trading profit on the return becomes £774,093.
Structures and Buildings allowances
Structures and Buildings allowance under CAA01/PT2A, as inserted by SI2019/1087, may be claimed in respect of certain expenditure incurred in the construction of new non-residential structures and buildings and on capital costs of renovations on or after 29 October 2018 but only where the construction contract or, in the case of in-house expenditure, the first expenditure is not before that date. Allowances are given on a straightline basis.
As in the case of capital allowances on plant or machinery, amounts are computed in the currency used in calculating profits liable to CT.