Glossary · UK
What is Balancing Charge?
An amount added back to taxable profits when a business sells an asset for more than its remaining capital allowances value.
Full Definition
A balancing charge arises in the capital allowances system when a business disposes of an asset and the proceeds exceed the tax value left in the relevant pool. Because capital allowances have already given relief for the cost of the asset, selling it for more than its written down value means the business has had too much relief, so the excess is added back to taxable profits as a balancing charge. The charge is most common where an asset was given a full deduction, for example through the Annual Investment Allowance, full expensing or a first year allowance, and is then sold while the pool would otherwise be low or empty. In a normal pool, sale proceeds are simply deducted from the pool balance, and a balancing charge only appears if that makes the pool negative. The opposite situation, where proceeds are lower than the remaining value, can produce a balancing allowance giving extra relief, though for ongoing pools this usually only happens when a business ceases. Balancing charges feed into the profit figure taxed at the relevant Income Tax or Corporation Tax rate for 2026/27.