How Short Life Asset (SLA) Allowances Work

If new main pool assets exceed 100% AIA limits, short life asset pools will allow tax losses on disposals to be set against taxable profit.


The following acronyms are commonly used in respect of capital allowances. For the sake of brevity they are also sometimes used in this article.

SLA Short Life Asset A main pool asset with an maximum expected working life of eight years
AIA Annual Investment Allowance i.e. 100% annual capital allowance against new assets (Limit £25K)
WDA Written Down Allowance i.e. 18% on written down tax value B/Fwd. and new assets above £25K

Benefits of SLA - Short Life Asset Pools

New fixed assets such as plant and machinery, office equipment and commercial vehicles are usually to a "main pool" which attracts an AIA of 100% up to a limit £200,000 (2019) due to increase to £1 million for two years from 2020

If that limit is not exceeded the written down tax value of the pool will always be zero. If however new main pool assets are expected to exceed that limit, only WDA of 18% then applies to the excess leaving a balance carried forward that is again reduced by WDA in subsequent years. In theory this could go on indefinitely.

If a short life asset such as a computer or delivery van is later sold, that  will simply reduce the value main pool balance before WDA is assessed. If however it is instead assigned to its own short life asset pool, substantial tax reliefs that might otherwise be lost can become available as this article explains.

How Main Pool Capital Allowances are Calculated

Assume that a) £100,000 written down tax value for main pool assets B/Fwd from the previous year b) new assets £220,000 including a van for £20,000 forecast to be purchased for the current year c) AIA =  £200,000 WDA = 18%.

 Capital Allowances and Written Down Tax Value £
Written down tax value of Main Pool Assets B/Fwd. 100,000
 add: New Plant and Machinery (incl new van)  220,000
 Sub-Total of Main Pool Assets  320,000
 less: 18% WDA on written down tax value of Main Pool B/Fwd  18,000
 less: 100% AIA on New Main Pool Assets (limit £25K)  200,000
 less: 18% WDA on £20K Balance of New Main Pool Assets  3,600
 Total Capital Allowances  221,600
 Written down tax value of Main Pool Assets C/Fwd.  98,400

Allocating Short Life Assets to the Main Pool

The problem with the above is with having allocated the van to the main pool.

If 100% AIA is claimed against the long life plant and machinery, capital allowances of 18% for the van over two years would amount to £6,552, leaving a written down tax value of £13,448. Selling the van in year 3 for £5,000 would then create an apparent tax loss of £8,448.

Short Life Asset Pools and Capital Allowances

By electing to isolate the van by allocating it to a “special” short life asset (SLA) pool, this problem can be avoided. Short life is defined by HMRC as being no more than eight years following the year in which the asset was acquired.

Because the 100% annual investment allowance had been claimed against the £200,000 of new (long life) plant and machinery, capital allowances of 18% still apply to the van. After two years, WDA allowances of £6,552 would still remain the sum of capital allowances claimed, leaving its written down tax value C/Fwd. into year 3 of £13,448, exactly as before.

The difference assigning the van to its own short life asset pool arises however when the van is sold during year 3 for £5,000 as follows:

Cost of Van £20,000
less; 2 Year's Capital Allowances £6,552
Written Down Tax Value C/Fwd. £13,448
less; Proceeds of Sale £5,000
Balancing Allowance £8,448

Applying the Balancing Allowance

As the van was separated into its own short life asset pool, a balancing allowance has now been calculated, representing the £8,448 tax loss incurred when it was sold: That means the loss is now recognised and is tax deductible.

The £8,448 tax loss plus the £6,552 of WDA claimed over the previous two years will then represent a £15,000 reduction in the taxable profits on which corporation tax has been charged over the van’s three year's working life in the business.

This compares with a reduction of just £7,452 in taxable profits; - i.e. two year's capital allowances of £6,552 plus £900 in WDA as a result of the reduction of £5,000 in year 3’s main pool written down tax value had the van not been separated into its own short life asset pool.

In the unlikely event that the sale of an short life asset produces a profit against its written down tax value, a balancing charge arises instead which would then be added to the taxable profit.

Rules Governing Short Life Asset Pools

Each short life asset has to be allocated to its own unique pool. Cars and long life assets such as plant and machinery do not qualify for short life asset pool treatment.

Electing to allocate a main pool asset to an short life asset pool must be advised to HMRC in writing within two years of the end of the financial year in which it was acquired (company) or by 31st. January after the end of the income tax year (sole trader). An election to do so is irrevocable; you cannot subsequently change your mind.

Short life means what it says: If, eight years after the financial year during which the asset was acquired it is still in the balance sheet, it's written down tax value has to be transferred to the main pool.

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