Writing-Down Allowance (WDA)

Definition of Writing-Down Allowance (WDA)

Writing-Down Allowance (WDA) is a tax relief offered to businesses in the United Kingdom as a form of capital allowance. This allowance permits businesses to reduce the taxable value of their plant and machinery over time. Typically, the WDA is calculated as 18% of the written-down value of the total assets. However, for certain long-life assets, the WDA is calculated at a lower rate of 8%.

Examples

General Plant and Machinery:
- Business A invests £100,000 in new machinery.
- This machinery is pooled with other such assets.
- At the end of the year, a WDA of 18% is applied, allowing Business A to deduct £18,000 from its taxable income.
Long-Life Assets:
- Business B acquires a long-life asset valued at £50,000.
- Since it is considered a long-life asset, the WDA applied is 8%.
- Business B can deduct £4,000 from its taxable income.

Frequently Asked Questions (FAQs)

What assets qualify for writing-down allowance?

Assets that qualify for writing-down allowances typically include plant and machinery used in the trade.

How often can businesses claim writing-down allowance?

Businesses can claim the writing-down allowance annually when they file their tax returns.

How is the written-down value calculated?

The written-down value is the original value of the asset plus any additions, minus any allowances claimed in previous years.

Are there different rates for different types of assets?

Yes, general plant and machinery usually attract an 18% allowance, while certain long-life assets attract an allowance at 8%.

Can any business claim writing-down allowances?

Most businesses that have qualifying assets can claim writing-down allowances, providing they meet the necessary criteria.

Annual Investment Allowance (AIA)

AIA is an allowance that provides businesses with a 100% tax relief on qualifying plant and machinery expenditure, up to a certain limit for that tax year.

Capital Allowance

Capital allowance is a form of tax relief available to businesses on qualifying capital expenditure, reducing the amount of taxable profits.

Written-Down Value

This is the value of an asset after accounting for depreciation and any other reductions to its value.

Plant and Machinery

These are tangible assets used in the operation of a business, including computers, vehicles, tools, and industrial equipment.

Online References

Suggested Books for Further Studies

“Taxation: Finance Act 2021” by Alan Melville
- A comprehensive guide on UK taxation and capital allowances.
“Tolley’s Tax Guide 2021-22” by Claire Hayes, Ruth Newman, and Adam Broke
- Provides an overview of the key tax legislation and reliefs, including capital allowances.
“Capital Allowances: Transactions and Planning 2021” by Martin Wilson
- Focuses on the intricacies of capital allowances and strategies for tax planning in the UK.

Accounting Basics: “Writing-Down Allowance (WDA)” Fundamentals Quiz

### What is the typical WDA rate for general plant and machinery? - [x] 18% - [ ] 10% - [ ] 20% - [ ] 25% > **Explanation:** The typical writing-down allowance (WDA) rate for general plant and machinery is 18%. ### How often can businesses claim writing-down allowance? - [x] Annually - [ ] Semi-annually - [ ] Quarterly - [ ] Monthly > **Explanation:** Businesses can claim the writing-down allowance annually when they file their tax returns. ### What is the WDA rate for long-life assets? - [ ] 10% - [ ] 15% - [x] 8% - [ ] 12% > **Explanation:** The WDA rate for long-life assets is calculated at 8%. ### Do writing-down allowances apply to buildings? - [ ] Yes, all buildings - [ ] Only residential buildings - [ ] Only commercial buildings - [x] No, typically to plant and machinery > **Explanation:** Writing-down allowances typically apply to plant and machinery, not buildings. ### What is the written-down value? - [ ] The original value of an asset - [ ] The selling price after depreciation - [x] The value after accounting for depreciation and other reductions - [ ] Market value adjusted for inflation > **Explanation:** The written-down value is the value of an asset after accounting for depreciation and any other reductions to its value. ### Which term refers to the allowance that provides 100% tax relief on qualifying expenditure? - [x] Annual Investment Allowance (AIA) - [ ] Written-Down Allowance (WDA) - [ ] Initial Allowance - [ ] Depreciation Allowance > **Explanation:** The Annual Investment Allowance (AIA) provides 100% tax relief on qualifying capital expenditure up to a certain limit. ### Can AIA and WDA be claimed on the same asset in the same year? - [ ] Yes, always - [x] No, usually not - [ ] Yes, but only under specific conditions - [ ] They must be alternated annually > **Explanation:** Generally, both AIA and WDA cannot be claimed on the same asset in the same year. ### What would be the WDA deduction on a £75,000 general plant and machinery? - [ ] £10,000 - [x] £13,500 - [ ] £18,000 - [ ] £5,000 > **Explanation:** The WDA deduction would be 18% of £75,000, which equals £13,500. ### Is WDA applicable to vehicles used in a business? - [x] Yes - [ ] No - [ ] Only if they are delivery vehicles - [ ] Only if they are passenger cars > **Explanation:** WDA can be applicable to vehicles used in a business, as they are considered plant and machinery. ### What is the primary purpose of the writing-down allowance? - [ ] To increase the taxable income - [ ] To provide immediate cash flow - [x] To reduce taxable value of assets - [ ] To increase asset valuation > **Explanation:** The primary purpose of the writing-down allowance is to reduce the taxable value of certain assets over time.

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