As this will be a trading asset for the business, please can you confirm what capital allowances we will be able to claim through the Ltd company, we are considering first-year allowances such as the super deduction. How would a future sale of the helicopter be dealt with for CA purposes when claiming FYA, could we arrange the sale in such a way there is a lesser charge?
Firstly, is it worth noting that the super deduction is no longer available for expenditure incurred after the 1st of April 2023 as per s.9(2) FA2021. This has now been replaced by full expensing relief which was announced in the Spring Budget and is included in clause 7 of the current Finance Bill. Unlike the Annual Investment Allowance (AIA), full expensing relief has no upper expenditure limit. As the helicopter is to be leased out it will not qualify for full expensing relief as it appears to fall within general exclusion 6 of s.46 CAA 2001 for leasing. If the helicopter is a long life asset, it would also fall within general exclusion 5.
The only exception to general exclusion 6 above is if the company is deemed to be providing a service, for example if the company were to hire out the helicopter with a pilot, rather than just the asset, they could argue that they are providing a service. For more information on the distinction between leasing and provision of services please see CA23115
The client will need to consider whether the helicopter is a long-life asset or not, based on the facts relating to the aircraft and its use or intended use. See HMRC’s guidance on whether helicopters are long life assets at the foot of CA23782.
However, it will qualify for the AIA which will remain at £1m for the foreseeable future. This is subject to the general exclusions of s38B CAA 2001. See CA23084.
If the helicopter costs in excess of £1m or the AIA is only partially claimed, the rate of the writing down allowance (WDA) will depend on whether or not the helicopter is a long life asset. If so, WDA will only be due at 6%. If not, WDA will be due at 18%.
Depending on which allowances have been claimed, the future sale will give rise to a balancing adjustment s.55 CAA2001 in the capital allowances pool, based on the disposal value in s.61 CAA2001. Of course, the normal restrictions on disposal values within s.62-64 CAA2001 will need to be considered.
If full expensing relief has been claimed, there will always be a balancing charge on disposal – the same rule applied for the super deduction.
If full expensing 100% relief had been claimed on the helicopter in full, the balancing charge is equal to the disposal value s.59A(3) CAA2001. In any other case, where the company could have claimed a proportion of the expenditure under FYA and remaining under WDA, the charge is equal to the relevant proportion of the disposal value, which is found by applying the following sum:
Amount of expenditure for which 100% FYA claimed / Total amount of expenditure for which 100% FYA could have been claimed.
The balance of the disposal value which relates to the non-full expensing relief will be allocated to the main pool and may result in a separate balancing charge.
If the company plans to reduce the amount of the charge by entering certain arrangements with the seller, HMRC would apply newly inserted s.59C CAA2001. s.59C seeks to counteract these kinds of arrangements which are entered into the main purpose, to avoid or reduce the amount of the balancing charge.
In essence, it seems the helicopter would be most suitable for AIA based on the facts, with a possibility of full expensing relief, dependant on if a pilot is provided and whether the company can demonstrate they are providing a service. With the future sale being subject to the balancing adjustment rules and for full expensing, new anti-avoidance provisions intended to prevent arrangements entered to secure a tax advantage.
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