Recoupment is a term used by the Tax law where Inland Revenuerecovers previous tax claims allowed to the taxpayer.
Where any fixed asset is sold or no longer used by you for business purposes, and capital allowances were previously claimed on the asset, tax will arise on the sale known as recoupment. Please note that taking an asset out of use for business purposes, include donating an asset to be used for privat e purposes, like giving your work car to your wife/children to use.
Because you previously claimed capital allowances on the asset the allowances must be recouped, i.e. paid back to Inland Revenue.
Calculating recoupment can be tricky, but the basic principle is that recoupment is calculated using the proceeds from the sale (limited to the original cost) and then deducting the remaining tax value of the vehicle. But where the market value of the asset is more than the proceeds, the market value should rather be used. Therefore the market value of the asset (limited to the original cost) and then deduct the remaining tax value of the vehicle.
Recoupment is finally added to your taxable income.