WHAT IS THE SPECIAL RATE POOL?
UNDERSTANDING THE SPECIAL RATE POOL?
The Special Rate Pool is one of the two main categories for capital assets under the UK's capital allowances system, the other being the Main Rate Pool. It primarily includes assets with longer-lasting economic lives, integral features of buildings, and certain high-emission cars. These assets are subject to a lower writing down allowance (WDA) rate compared to the assets in the Main Rate Pool.
The Special Rate Pool is a crucial concept in the UK's capital allowances system, primarily affecting assets with longer economic lives and certain high-emission cars. Businesses must understand the pool's implications for tax efficiency, financial planning, and promoting environmentally friendly practices. By categorizing assets correctly and applying the relevant WDA rates, companies can effectively manage their tax liabilities and make informed financial decisions.
ASSETS INCLUDED IN THE SPECIAL RATE POOL
- Integral Features of Buildings: This category includes features that are integral to a building, such as heating, cooling, and ventilation systems, as well as water and electrical systems. These elements are essential for the operation of the building and have longer economic lives.
- Certain High-Emission Cars: Cars with high carbon dioxide (CO2) emissions, often referred to as “high-pollution” cars, are placed in the Special Rate Pool. The intention is to encourage businesses to invest in greener and more environmentally friendly vehicles.
WRITING DOWN ALLOWANCES (WDA) IN THE SPECIAL RATE POOL
The Special Rate Pool attracts a lower WDA rate, which currently stands at 6%. This means that businesses can claim a capital allowance of 6% of the asset's value each year. This rate is significantly lower than the 18% rate associated with assets in the Main Rate Pool.
IMPORTANCE OF THE SPECIAL RATE POOL
Understanding the Special Rate Pool is essential for businesses for several reasons:
- Tax Efficiency: Placing certain assets in the Special Rate Pool ensures that the tax relief corresponds with the economic lifespan of these assets. It prevents over-claiming and promotes tax efficiency.
- Financial Planning: The pool influences financial planning decisions, especially when it comes to the purchase and maintenance of integral building features and cars. Businesses must consider the lower WDA rate in their long-term strategies.
- Environmentally Friendly Practices: By placing high-emission cars in this pool, the UK government encourages businesses to adopt environmentally friendly practices by investing in greener vehicles.
EXAMPLE OF THE SPECIAL RATE POOL
Suppose a company installs a new heating and cooling system in its office building at a cost of £100,000. This asset falls under the category of integral features of buildings and is placed in the Special Rate Pool. As a result, the business can claim a WDA of 6% of the asset's value each year. In the first year, the company can claim a capital allowance of £6,000 (£100,000 x 6%). This continues for subsequent years.