# Balancing Charges & Allowances



## millertime

Can anyone tell me how to calculate Balancing charges and allowances?


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## Nige

When you buy a business asset, you normally get capital allowances over 8 years. So, if you bought two machines four years ago for €5,000 each, the tax written down value (TWDV) (the cost less the capital allowances to date) would be €2,500 each (€5,000 - 625 -625-625-625).

Now, if you sell machine A for €4,000 you will have a balancing charge to reclaim the "excess" allowances. The balancing charge is calculated as follows:

sales proceeds: €4,000
Less
TWDV               €2,500
Balancing charge €1,500

This balancing charge is subject to tax.

If machine B is scrapped (no proceeds) you get an additional balancing allowance, which is treated as a normal capital allowance. The balancing allowance will be the difference between the TWDV and the proceeds (if any) and so, in this case will be €2,500.


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## capall

Well explained above

The idea I guess is that the revenue by giving you capital allowances is letting you claim a tax write off for the decline in value of your asset.
If you can sell that asset at a price higher then its tax written down value then from their point of view they want their tax allowance back ,otherwise they are giving you a tax write off for an expense you haven't incurred

Similarly you expect if you sell an asset for lower then its TWDV to get a tax deduction for this difference

In effect the tax allowances are adjusted to reflect the actual real cost to the business


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## millertime

Thanks All


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