When an asset in respect of which capital allowances have been claimed is disposed of, there is a comparison between the disposal proceeds and the tax written down value.

In the case of plant and machinery, this is generally done by reference to the entire pool of qualifying assets rather than on an asset-by-asset basis. If the disposal proceeds are lower than the tax written down value, a balancing allowance or writing-down allowance arises. A balancing allowance arises if the disposal occurs in a chargeable period in which the qualifying activity is permanently discontinued. A balancing allowance is deducted from income profits for that year. For further discussion, see Practice note, Capital allowances: availability and types of plant and machinery allowances: Calculating WDAs, balancing allowances and balancing charges.