ACCA Taxation (F6) Practice Exam

What pool assets should be prioritized for AIA?

1. Main pool assets

2. Special rate pool, as they receive lower percentage of WDA capital allowances

3. Short life assets only

4. Private use assets

The correct answer is: Special rate pool, as they receive lower percentage of WDA capital allowances

When considering which pool assets should be prioritized for the Annual Investment Allowance (AIA), the special rate pool is significant because it typically qualifies for a lower percentage of Writing Down Allowance (WDA) compared to other asset pools. The AIA offers an immediate tax relief on qualifying expenditures, allowing businesses to deduct the full cost of qualifying assets from their taxable profits in the year of purchase, up to a certain limit. The special rate pool includes assets such as cars with CO2 emissions above a certain level, which only attract a reduced WDA of 6%, making them less favorable for tax relief as opposed to the AIA. By prioritizing the special rate pool for AIA claims, businesses can maximize their tax relief at the higher initial rate rather than having to settle for the lower WDA rate over time. In contrast, main pool assets and short life assets generally allow for higher percentage claims under WDA or qualify for full relief on AIA in many cases. Private use assets are not eligible for AIA since they do not qualify as allowable business expenses, making them less relevant to this question.