The Capital Allowances Act 2001 uses two key concepts to determine the amount of any entitlement to capital allowances or liability to balancing charges: ‘available qualifying expenditure’ (AQE) and ‘the total of any disposal receipts to be brought into account’ (TDR).

The legislation then says, simply enough, that if AQE exceeds TDR then a writing-down allowance or balancing allowance will be due for the period in question. If the reverse is true, then there will be a balancing charge for the period.

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