Selling Fixed Assets

Selling a fixed asset at a loss against its net book value can still produce a taxable profit on its written down tax value.

Creating and Updating Fixed Assets Using Figurewizard

Figurewizard automatically calculates monthly budgeted values for purchases and sale of fixed assets, from nothing more than the figures you provide. 

Monthly budgets for financing net of any sales are also calculated simply from % to be financed over how many months. All that follows can be checked and tested from the link below for the example of the interactive What-If calculator.

Net Book and Written Down Tax Values

Cost less depreciation describes the net book value of fixed assets; cost less capital allowances their written down tax value.

When fixed assets are sold they are likely to produce either a profit or a loss on their net book value, which will be reflected in the accounts as such. However corporation tax is neither levied on such a profit or set off against profits if a loss is returned. Instead any tax liability or allowance arising from the sale will be subject to the value of the sale as compared to the written down tax value of the asset.

Capital Allowances

The cost of a fixed asset (excluding VAT) less capital allowances claimed over its lifetime is what represents its written down tax value.

Fixed assets are pooled according to their rates of capital allowances. For example plant and machinery, fixtures, equipment including office equipment and commercial vehicles are usually assigned to a "main pool" which all attract the same rates of capital allowance. Other fixed assets such as property or cars with different capital allowances are placed in their own "special" pools.

Main pool assets qualify for 100% annual investment allowances (AIA) in the year they were purchased up to a limit of £200K (2016 / 2017). Where main pool asset acquisitions exceed the £200K limit, the AIA on the balance goes down to 18%. Capital allowances on that balance for subsequent years would also be at 18% on the reducing balance.  

However in the case of most SME s consistently spending no more than its AIA for main pool assets, the written down tax value will be zero.

Taxable Profits on the Sale of a Fixed Asset

Take for example a delivery van, purchased for £12,000. If this were to straight-lined depreciated at 25% per annum, its written down book value after three years would be £4,000. If the van is then sold for £3,000 the loss on its net book value would amount to £1,000.

However when the van was purchased it had qualified for a 100% capital allowance, meaning that its written down tax value (WDTV) was zero from day one of ownership. As a result the £3,000 sale would represent a profit on its WDTV and that would be added to the taxable profit and taxed accordingly.

For more information on capital allowances and corporation tax comutations follow the link below.

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