Answers · UK 2025/26
What is a capital allowances pool balancing charge in the UK?
A balancing charge arises when you sell or dispose of a business asset and the disposal proceeds exceed the written-down value (WDV) of the capital allowances pool. The excess is added back to taxable profits as a balancing charge, reversing past allowances claimed.
Full answer
Capital allowances allow businesses to deduct the cost of qualifying plant and machinery against taxable profits. Assets are pooled and their value is written down each year using the Writing Down Allowance (WDA) -- 18% per year for the main pool, 6% per year for the special rate pool. What is a balancing charge: When a pooled asset is sold or the business ceases, the disposal proceeds are deducted from the pool balance. If the proceeds exceed the pool's written-down value, the negative balance is a 'balancing charge' -- taxable income added back to profits. Example: - Pool WDV: £10,000 - Asset sold for: £15,000 - Balancing charge: £5,000 added to taxable profits This represents a clawback of capital allowances previously claimed in excess of the actual depreciation (as evidenced by the high sale price). Balancing allowance: The opposite can also occur. If the pool WDV exceeds the disposal proceeds, you receive a 'balancing allowance' -- an additional deduction equal to the unrelieved amount. Balancing allowances are only available in the main and special rate pools when the business ceases (or in the short life asset pool on disposal). During normal trading, the pool continues to carry forward the unrelieved balance. Single asset pool: For 'short life assets' (assets elected to be separately tracked, with a useful life under 8 years), a balancing charge or allowance arises on disposal even during trading. Annual Investment Allowance interaction: If the full cost was written off via the AIA (£1,000,000 annual limit), the pool WDV is zero. Any subsequent disposal proceeds create a full balancing charge equal to the sale value. Full Expensing (100% first-year allowances on main pool assets) creates the same effect -- 100% written off upfront means 100% of disposal proceeds become a balancing charge.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.