Balancing Charges & Disposals

Key facts

When you dispose of a capital-allowance asset, the disposal value is deducted from the relevant pool.
A balancing charge arises if disposal proceeds exceed the pool balance — it is added to taxable profits.
A balancing allowance arises if the pool balance exceeds disposal proceeds on cessation of trade — it is an additional deduction.
For general pools (main rate and special rate), balancing allowances only arise on cessation — not on individual disposals.
Assets claimed under full expensing have specific disposal rules: the proceeds (capped at cost) create a balancing charge.

What Are Balancing Adjustments?

A balancing adjustment occurs when a company disposes of an asset on which capital allowances have been claimed. The adjustment can be a balancing charge (increasing taxable profit) or a balancing allowance (decreasing taxable profit), depending on the relationship between the disposal value and the pool balance.^[1]

The purpose is to ensure that the total capital allowances claimed over the life of the asset correctly reflect the net cost (original cost minus disposal proceeds) to the business.

How Disposals Affect the Pool

When an asset is sold, scrapped, destroyed, or given away, a disposal value is deducted from the capital allowance pool:^[2]

Disposal Type	Disposal Value Brought In
Sale at arm’s length	Sale proceeds (capped at original cost)
Sale to a connected person	Market value at the date of disposal (capped at original cost)
Scrapped or destroyed (no proceeds)	Nil (or any insurance/scrap proceeds received)
Given away	Market value at the date of gift (capped at original cost)
Asset ceases to be used for trade	Market value at the date it ceases to be used

Cap at original cost: The disposal value brought into the pool is always capped at the original cost of the asset. If you sell for more than cost, the excess is a chargeable gain — not a balancing charge.^[2]

Balancing Charges

A balancing charge arises when the disposal value exceeds the balance of the pool. This means the company has received more capital allowances than the net cost of the asset justified, so the excess is “clawed back” as taxable income.^[1]

Common situations where balancing charges arise:

Single asset pools: If an asset in a single asset pool (e.g. a short-life asset or asset with private use) is sold for more than the pool balance
Full expensing disposals: The disposal proceeds (capped at cost) are treated as a balancing charge because 100% of the cost was already deducted
General pool going negative: If total disposals in a period cause the main rate or special rate pool to become negative, the negative amount is a balancing charge (this is rare for ongoing businesses)

Tip: For the main and special rate pools in an ongoing business, individual asset disposals normally just reduce the pool balance — they do not trigger balancing charges. A balancing charge only arises if the total pool goes below zero.

Balancing Allowances

A balancing allowance is the opposite of a balancing charge. It arises when the disposal proceeds are less than the pool balance, and the company has therefore not received enough capital allowances over the asset’s life.^[2]

Important restriction:

For the main rate and special rate pools, a balancing allowance can only arise on cessation of the trade. During the life of the business, a positive pool balance simply carries forward to the next period.
For single asset pools, a balancing allowance can arise in any period when the asset is disposed of for less than the pool balance.

Cessation of Trade

When a company ceases to trade, the final accounting period triggers balancing adjustments on all remaining pools:^[1]

All assets still in the pools are treated as disposed of at their market value (or actual sale proceeds if sold)
The disposal values are deducted from the pools
If a pool has a positive balance remaining, that balance is a balancing allowance (an additional deduction in the final period)
If a pool has a negative balance, the negative amount is a balancing charge (additional taxable income)

Example: A company ceases trading with a main pool balance of £25,000. It sells all remaining equipment for £8,000. The balancing allowance is £25,000 − £8,000 = £17,000, which is deducted from the company’s taxable profits in its final period.

Disposals of Full-Expensed Assets

Assets on which full expensing (100% FYA) was claimed have specific disposal rules:

The disposal proceeds (capped at original cost) are brought in as a balancing charge
The balancing charge does not reduce a pool — it is a standalone taxable amount
If the sale proceeds exceed the original cost, the excess above cost is a chargeable gain (taxed under the capital gains rules)

For assets on which the 50% FYA (special rate full expensing) was claimed, the disposal proceeds reduce the special rate pool in the normal way. Balancing adjustments are reported in the capital allowances section of the company’s return — Corporation Tax filing software calculates the figures for you.

Frequently Asked Questions

What is a balancing charge in Corporation Tax?

A balancing charge arises when the disposal value of a capital allowance asset exceeds the pool balance, meaning the company received more capital allowances than the net cost justified. The excess is added back to taxable profits.

When does a balancing allowance arise?

For the main rate and special rate pools, a balancing allowance only arises on cessation of trade — not on individual asset disposals. For single asset pools, it can arise whenever the asset is disposed of for less than the pool balance.

What happens when I sell an asset claimed under full expensing?

The disposal proceeds (capped at the original cost) are treated as a balancing charge, since 100% of the cost was already deducted. Any proceeds exceeding the original cost are taxed as a chargeable gain instead.

Is the disposal value capped at the original cost of the asset?

Yes. The disposal value brought into the capital allowance pool is always capped at the original cost. If you sell an asset for more than its original cost, the excess is a chargeable gain, not a balancing charge.

Sources

Balancing charges — GOV.UK
Capital Allowances Manual: CA24000 – Balancing adjustments — HMRC
Claim capital allowances — GOV.UK