When would you have a balancing charge / balancing allowance?

• A. Proceeds greater than the tax written down value (TWDV) result in a balancing charge.
• B. Proceeds less than the TWDV result in a balancing allowance.
• C. Proceeds equal to the TWDV require no balancing adjustment.
• D. Proceeds greater than the TWDV always result in no balancing adjustment.

Answer: (B)

When you dispose of an asset for which capital allowances have been claimed, you compare the sale proceeds to the tax written down value (TWDV). If proceeds exceed the TWDV, a balancing charge arises and increases taxable profits. If proceeds are less than the TWDV, a balancing allowance is created and reduces taxable profits. If the proceeds equal the TWDV, there is no balancing adjustment.

The scenario described as a balancing allowance is when the sale proceeds are less than the TWDV, because the difference (TWDV minus proceeds) is treated as an allowable deduction. The other statements describe either a balancing charge (proceeds > TWDV) or no adjustment (proceeds = TWDV), or are incorrect in asserting no adjustment in all cases where proceeds are above TWDV.