EXPLANATORY NOTE

 

1. This clause removes the requirement to put expenditure on cars costing less than £12,000 into a separate pool for calculating capital allowances, with effect from 1 April 2000 for corporation tax or 6 April 2000 for income tax.

 

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DETAILS OF THE CLAUSE

 

2. Subsection (1) amends section 41 Capital Allowances Act 1990, which provides for expenditure on various classes of machinery or plant to go into separate pools for calculating capital allowances.

3. There are two separate pools under section 41 at present. One contains expenditure on cars costing less than £12,000 and certain pre April 1987 expenditure on assets for leasing. The other contains expenditure on assets leased outside the UK.

4. This subsection removes the separate pool for cars costing less than £12,000 and certain leased assets. The separate pool for assets leased outside the UK, which is needed to calculate allowances at the special rate of 10 per cent rate that applies to such assets, continues.

 

5. Subsections (2) and (3) ensure that when the separate pool is abolished, the closing balance brought forward on the separate pool from the immediately preceding chargeable period is added to the opening balance on the main pool for the chargeable period at the start of which the abolition has effect.

Example

A company, which makes up its accounts to 31 December each year, has closing balances at the end of 1999, after deducting any writing down allowances for 1999, of £1,000,000 on the main pool and £200,000 on the inexpensive car pool.

The inexpensive car pool is abolished for 2000 and subsequent years. It is thereby merged into the main pool at the start of 2000. The opening balance on the main pool for 2000 is £1,000,000 + £200,000 = £1,200,000.

 

6. Subsection (4) provides for the repeal of the inexpensive car pool to have effect for chargeable periods ending on or after 1 April 2000 for corporation tax or 6 April 2000 for income tax.

 

7. Subsection (5) allows the taxpayer to elect for the repeal only to have effect for chargeable periods ending on or after 1 April 2001 for corporation tax or 6 April 2001 for income tax.

 

Example

In the above example, if the company makes an election under subsection (5), the inexpensive car pool remains separate from the main pool, and capital allowances are computed separately, for 2000. It is merged into the main pool at the start of 2001.

 

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BACKGROUND

8. Expenditure on inexpensive cars and certain leased assets was originally put into a separate pool because these assets did not qualify for first year allowances. When first year allowances were available generally at 100%, this was needed to prevent first year allowances spilling over into non-qualifying assets through the pooling system. The risk of spill over has almost wholly disappeared with present rates and availability of first year allowances.

9. The election was added at the suggestion of the Consultative Committee of the Tax Law Rewrite to give the taxpayer greater flexibility over the timing of the changeover. It allows the taxpayer to choose to delay the abolition of the separate car pool for a year where this would be to the advantage of the taxpayer.