The main pool is one of the primary categories for claiming capital allowances on business assets. It applies to most plant and machinery, allowing businesses to deduct a percentage of the asset’s value from their taxable profits each year. Understanding how the main pool works helps businesses optimize their tax relief while maintaining compliance with tax regulations.
1. What Is the Main Pool?
The main pool is a capital allowance category that groups qualifying assets together for tax deduction purposes. Instead of deducting the full cost of an asset in one year, businesses claim a percentage of the asset’s value annually.
A. Key Features of the Main Pool
- Most plant and machinery assets qualify.
- Writing Down Allowance (WDA) is applied at a fixed rate (typically 18% per year).
- New and used assets can be added to the pool.
- Reduces the tax burden over multiple years.
B. Assets That Qualify for the Main Pool
- General plant and machinery.
- Office equipment (computers, printers, desks).
- Business vehicles (excluding cars with high CO₂ emissions).
- Machinery used in production and operations.
- Furniture and fixtures in commercial properties.
2. How the Main Pool Works
The main pool allows businesses to claim capital allowances by applying the Writing Down Allowance (WDA) each year until the asset’s value is fully deducted.
A. Writing Down Allowance (WDA)
- Applied at 18% per year on the pool’s balance.
- Reduces taxable profits over multiple years.
- Carried forward annually until the pool value is reduced to zero.
B. Example Calculation
A company purchases machinery for $100,000. The WDA is applied as follows:
- Year 1: $100,000 × 18% = $18,000 deduction → Remaining balance: $82,000
- Year 2: $82,000 × 18% = $14,760 deduction → Remaining balance: $67,240
- Year 3: $67,240 × 18% = $12,103 deduction → Remaining balance: $55,137
The process continues until the asset’s value is fully deducted.
3. Main Pool vs. Special Rate Pool
While the main pool covers most plant and machinery, some assets must be placed in the special rate pool.
A. Differences Between the Two Pools
| Feature | Main Pool | Special Rate Pool |
|---|---|---|
| Writing Down Allowance (WDA) | 18% per year | 6% per year |
| Qualifying Assets | General plant and machinery | Integral building features (lighting, heating, elevators) |
| Vehicle Eligibility | Most business vehicles | Cars with CO₂ emissions over a certain threshold |
B. When to Use the Special Rate Pool Instead
- If the asset qualifies as an integral building feature.
- If a business vehicle exceeds CO₂ emission limits.
- If the asset has a long depreciation period.
4. Adding and Removing Assets from the Main Pool
Businesses need to adjust their main pool calculations when new assets are added or when existing assets are sold.
A. Adding New Assets
- New purchases are added to the pool in the year of acquisition.
- Annual WDA is applied to the updated pool balance.
B. Removing Assets (Disposals)
- When an asset is sold, its sale price is deducted from the pool balance.
- If the remaining pool balance is low, a balancing charge may apply.
C. Example Disposal Adjustment
A company has a main pool balance of $50,000. It sells an asset for $10,000.
- New pool balance = $50,000 – $10,000 = $40,000
- 18% WDA applied on the new balance in the next year.
5. Maximizing Tax Savings Using the Main Pool
Businesses can optimize tax benefits by strategically managing their main pool capital allowance claims.
A. Utilize Annual Investment Allowance (AIA) First
- Claim 100% deduction for eligible expenditures up to the AIA limit.
- Use WDA for expenditures exceeding AIA.
B. Time Asset Purchases Strategically
- Spread large asset purchases across tax years to maximize allowances.
- Monitor tax policy changes to take advantage of temporary reliefs.
C. Maintain Accurate Records
- Keep detailed records of asset purchases and disposals.
- Ensure correct pool classification to avoid errors in tax filings.
6. Ensuring Compliance in Main Pool Claims
Proper record-keeping and tax planning are essential for compliance.
A. Keep Detailed Asset Registers
- Document purchase dates, costs, and disposal values.
- Ensure proper classification between main pool and special rate pool.
B. Seek Professional Tax Advice
- Consult a tax advisor for complex asset claims.
- Stay updated on changes in capital allowance regulations.
7. Optimizing Tax Benefits with the Main Pool
The main pool provides businesses with a structured approach to claiming capital allowances on plant and machinery. By understanding how WDA applies, managing asset disposals correctly, and utilizing tax-saving strategies, businesses can optimize their capital allowance claims and reduce tax liabilities effectively.