Finance Act 1994

Capital allowances

211 Income tax allowances and charges in taxing a trade etc

(1) For section 140 of the [1990 c. 1.] Capital Allowances Act 1990 there shall be substituted the following section—

“140 Income tax allowances and charges in taxing a trade etc

(1) In computing for the purposes of income tax a person’s income for any period of account there shall be made all such deductions and additions as are required to give effect to the provisions of Parts I to VI and this Part which relate to allowances and charges in respect of capital expenditure; and subsection (2) below and section 141 have effect as respects allowances and charges which fall to be made under those provisions as they apply for the purposes of income tax.

(2) Allowances and charges which fall to be made for any period of account in taxing a trade under the provisions of Parts I to VI and this Part as they apply for the purposes of income tax shall be given effect by treating the amount of any allowance as a trading expense of the trade in that period, and by treating the amount on which any such charge is to be made as a trading receipt of the trade in that period.

(3) Any claim made by a person for an allowance falling to be made to him in taxing his trade shall be made in his return of income for income tax purposes, and section 42 of the [1970 c. 9.] Taxes Management Act 1970 shall not apply to any such claim.

(4) This section shall apply in relation to professions, vocations, employments and offices as it applies in relation to trades.

(5) Deductions allowable in taxing a trade under the provisions of Part VII as they apply for the purposes of income tax shall be given effect in accordance with subsections (1) and (2) above.

(6) In the application of subsection (2) above to allowances and charges which fall to be made under the provisions of Part I, references to a trade shall be treated as including references to an undertaking treated by virtue of section 21(5A) as carried on by way of trade.”

(2) Subject to section 214(7) below, this section and sections 212 to 214 below, in their application to trades, professions or vocations set up and commenced before 6th April 1994 or employments or offices entered into before that date, have effect as respects the year 1997-98 and subsequent years of assessment.

212 Chargeable periods for income tax purposes

(1) For section 160 of the [1990 c. 1.] Capital Allowances Act 1990 there shall be substituted the following section—

“160 Meaning of “period of account”

(1) In this Act as it applies for income tax purposes, “period of account” has the meaning given by the following provisions of this section.

(2) In the case of a person to or on whom an allowance or charge falls to be made in taxing his trade, profession or vocation, “period of account” means, subject to subsections (3) and (4) below, any period for which accounts are made up for the purposes of the trade, profession or vocation.

(3) For the purposes of subsection (2) above—

(a) where two periods of account overlap, the period common to both shall be deemed to fall in the first period of account only; and

(b) where there is an interval between two periods of account, the interval shall be deemed to be part of the first period of account.

(4) For the purposes of subsection (2) above, where a period of account (“the original period”) would, apart from this subsection, be a period of more than 18 months, that period shall be deemed to be divided into as many separate periods of account—

(a) the first beginning with the commencement date of the original period; and

(b) each subsequent one beginning with an anniversary of that date,

as may be necessary to secure that none of those periods of account is a period of more than 12 months.

(5) In the case of any other person to or on whom an allowance or charge falls to be made under Parts I to VI or this Part, “period of account” means any year of assessment.

(6) Any reference in this section to the overlapping of two periods shall be construed as including a reference to the coincidence of two periods or to the inclusion of one period in another, and references to the period common to both of two periods shall be construed accordingly.”

(2) In subsection (2) of section 161 of that Act (other interpretative provisions), for the definitions of “chargeable period” and related expressions there shall be substituted the following definitions—

““chargeable period” means an accounting period of a company or a period of account, and a reference to a “chargeable period related to” the incurring of expenditure, or a sale or other event, is a reference to the chargeable period in which the expenditure is incurred, or the sale or other event takes place;”.

213 Other amendments of Capital Allowances Act 1990

(1) In the [1990 c. 1.] Capital Allowances Act 1990 the following words, in each place where they occur, shall cease to have effect, namely—

• “or its basis period”;

• “or of which the basis periods end on or before that date”;

• “or, as the case may be, in its basis period”;

• “or in the basis period for which”;

• “or, as the case may be, its basis period”; and

• “or the basis periods for which”.

(2) In subsection (2) of section 3 of that Act (writing down allowances for industrial buildings and structures), after the word “less” there shall be inserted the words “or more” and after the word “reduced” there shall be inserted the words “or increased”.

(3) In section 8 of that Act (writing off of expenditure on industrial buildings and structures)—

(a) in subsection (5), in paragraph (a), the words from “or” to the end shall cease to have effect; and

(b) in subsection (13), for paragraph (d) there shall be substituted the following paragraph—

“(d) the periods of account of that other person in respect of that trade had, in the case of each year of assessment, ended immediately before the beginning of the next following year of assessment.”

(4) In subsection (2)(a) of section 24 of that Act (writing-down allowances and balancing adjustments), for sub-paragraph (ii) there shall be substituted the following sub-paragraph—

“(ii) a proportionately reduced or, as the case may require, increased percentage of the excess if the period is a period of less or more than a year, or the trade has been carried on for part only of the period;”.

(5) In subsection (3) of section 34 of that Act (writing-down allowances etc. for expensive motor cars), for paragraphs (a) and (b) there shall be substituted the following paragraphs—

“(a) except in a case falling within paragraph (b) below, £3,000 or, if the period is a period of less or more than a year, that amount proportionately reduced or, as the case may require, increased,

(b) if, by virtue of section 153, the person carrying on the trade is regarded as having incurred a part only of the expenditure actually incurred on the provision of the motor car, a proportionate part of £3,000 or, if the period is a period of less or more than a year, that part proportionately reduced or, as the case may require, increased.”

(6) In subsection (1)(b) of section 35 of that Act (contributions to expenditure on expensive motor cars), for the words “or, if the chargeable period is part only of a year, that amount proportionately reduced” there shall be substituted the words “or, if the chargeable period is a period of less or more than a year, that amount proportionately reduced or, as the case may require, increased”.

(7) In subsection (2) of section 85 of that Act (writing down allowances), after the word “less” there shall be inserted the words “or more” and after the word “reduced” there shall be inserted the words “or increased”.

(8) For subsection (6) of section 98 of that Act (mineral extraction: writing down and balancing allowances), there shall be substituted the following subsection—

“(6) If a chargeable period is a period of less or more than a year or if the trade has been carried on for part only of it, the percentage appropriate under subsection (5) above shall be correspondingly reduced or, as the case may require, increased.”

(9) In subsection (1) of section 134 of that Act (allowances for expenditure on dredging), the words from “but where a writing-down allowance” to the end shall cease to have effect.

(10) For subsections (5) to (7) of section 137 of that Act (allowances for capital expenditure on scientific research) there shall be substituted the following subsection—

“(5) The relevant chargeable period shall be the chargeable period in which the expenditure was incurred or, if it was incurred before the setting up and commencement of the trade, the chargeable period beginning with that setting up and commencement.”

(11) In subsection (5) of section 161 of that Act (other interpretative provisions), for the words from “or in charging” to the end there shall be substituted the words “or income tax.”

214 Amendments of other enactments

(1) In the Taxes Act 1988, the following provisions shall cease to have effect, namely—

(a) in section 96 (farming and market gardening: relief for fluctuating profits), in subsection (7), paragraph (b);

(b) section 383 (extension of right to set-off to capital allowances);

(c) in section 384 (restrictions on right of set-off), in subsection (1), the words “(including any amount in respect of capital allowances which, by virtue of section 383, is to be treated as a loss)”, and in subsection (2), the words “or an allowance in respect of expenditure incurred”, paragraph (b) and the word “or” immediately preceding that paragraph;

(d) in section 388 (carry-back of terminal losses), in subsection (6), paragraphs (b) and (d) and the word “and” immediately preceding paragraph (d), and in subsection (7), the words from the beginning to “an earlier year: and”; and

(e) in section 389 (supplementary provisions relating to carry-back of terminal losses), subsections (5) to (7).

(2) In subsection (6) of section 384 of that Act—

(a) for the words “There shall be disregarded for the purposes of section 383 any allowances” there shall be substituted the words “There shall be disregarded for the purposes of sections 380 and 381 so much of any loss as derives from any allowances”; and

(b) for the words “the year of the loss (as defined in section 383)” there shall be substituted the words “the year of assessment in which the loss was sustained”.

(3) In subsection (1) of section 397 of that Act (restriction of relief in case of farming and market gardening)—

(a) after the word “loss”, in the second place where it occurs, there shall be inserted the words “, computed without regard to capital allowances,”; and

(b) the words from “and where” to the end shall cease to have effect.

(4) In subsection (4)(a) of section 520 of that Act (allowances for expenditure on purchase of patent rights), for sub-paragraph (ii) there shall be substituted the following sub-paragraph—

“(ii) a proportionately reduced or, as the case may require, increased percentage of the excess if the period is a period of less or more than a year, or the trade has been carried on for part only of the period;”.

(5) In the following provisions of that Act, namely—

(a) section 521 (provisions supplementary to section 520);

(b) section 528 (manner of making allowances and charges); and

(c) section 530 (disposal of know-how),

the words “or its basis period”, in each place where they occur, shall cease to have effect.

(6) In subsection (2)(a) of section 530 of that Act (disposal of know-how), for sub-paragraph (ii) there shall be substituted the following sub-paragraph—

“(ii) a proportionately reduced or, as the case may require, increased percentage of the excess if the period is a period of less or more than a year, or the trade has been carried on for part only of the period;”.

(7) Subsection (1)(a) above—

(a) except in its application to a trade set up and commenced on or after 6th April 1994, has effect where the first of the two years of assessment to which the claim relates is the year 1996-97 or any subsequent year, and

(b) in its application to a trade so set up and commenced, has effect where the first of those two years of assessment is the year 1995-96 or any subsequent year.