What is a balancing charge?
Definition of balancing charge:
A balancing charge is a calculation that should sometimes be added when selling company equipment. The purpose of the balancing charge is to stop companies claiming too much tax relief on a business asset.
When you buy a piece of equipment, you can sometimes claim capital allowance on the cost of the item. Capital allowance allows companies to deduct some or all of the cost of equipment from profits before tax.
If the equipment is later sold for more than the original price minus the capital allowance claimed on the item, a balancing charge is needed.
Calculating a balancing charge
Item sale price + capital allowance claimed on item – original purchase price = balancing charge
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