Chapter 3: Allowances and charges
Overview
1614.This Chapter deals with allowances and charges on qualifying expenditure. Qualifying expenditure is pooled. There is a separate pool for each trade. Disposal values can arise in relation to qualifying expenditure. Disposal values effectively reduce allowances or lead to balancing charges.
1615.Section 456 requires pooling of qualifying expenditure to be carried out separately for each trade concerned.
1616.Section 457 sets out whether there is an allowance or a charge for a chargeable period.
1617.Section 458 deals with the amount of the allowance or charge.
1618.Sections 459 to 461 set out how to find “AQE” which is a term used in the earlier sections.
1619.Section 462 deals with when a disposal value is to be brought into account, and its amount, in respect of qualifying expenditure.
1620.Section 463 gives effect to allowances and charges as trading expenses or trading receipts.
Section 456: Pooling of expenditure
1621.This section is drafted to introduce pooling explicitly.
1622.Subsection (2) provides explicitly that there is a separate pool in respect of each trade for which there is some qualifying expenditure. It can be inferred from section 530(2)(b) of ICTA that there are separate pools for separate trades.
Section 457: Determination of entitlement or liability
1623.This section is based on section 530(2) and (3) of ICTA. It decides if a person is entitled to an allowance or liable to a charge.
1624.Section 459 defines “AQE” in the pool for a chargeable period. Section 462 decides if a disposal value is brought into account for a chargeable period (and how much).
Section 458: Amount of allowances and charges
1625.This section is based on section 530(2) and (3) of ICTA. Subsections (1) to (3) set out the calculation of a writing-down allowance for a chargeable period. The rate at which writing-down allowances are given is 25% per year. The amount of a writing-down allowance is adjusted if the chargeable period is more or less than a year and if the trade is carried on for only part of the chargeable period.
1626.There is a minor change.Subsection (4) allows a person to claim a writing-down allowance of less than the full entitlement for the chargeable period. See Change 38 in Annex 1.
1627.Subsections (5) and (6) set out the calculation of a balancing charge or balancing allowance for a chargeable period.
Section 459: Available qualifying expenditure
1628.This section is based on section 530(4) of ICTA. It defines “available qualifying expenditure” in a pool for a chargeable period. That is essentially any unrelieved qualifying expenditure brought forward from the previous chargeable period plus any qualifying expenditure added to the pool for the current chargeable period.
Section 460: Allocation of qualifying expenditure to pools
1629.This section is based on section 530(4)(a) of ICTA. It sets out when qualifying expenditure can be added to a pool.
1630.There is a minor change. This section allows qualifying expenditure to be added to a pool either in the chargeable period in which it is incurred or in a later chargeable period. This is in line with the approach taken in this Act to plant and machinery allowances in Part 2. It gives taxpayers flexibility – albeit it is only likely to be of practical interest in unusual circumstances. See Change 54 in Annex 1.
Section 461: Unrelieved qualifying expenditure
1631.This section is based on section 530(4)(b) of ICTA. It sets out the amount that is carried forward in a pool from one chargeable period to the next chargeable period.
1632.Subsection (3) stops any amount being carried forward after the trade is permanently discontinued. This makes explicit the fact that the pool ceases to exist on the ending of the trade in relation to which that pool exists. There would only be unrelieved qualifying expenditure if the taxpayer were to choose, for some reason, not to claim all of a balancing allowance that is available on the trade cessation. See Note 60 in Annex 2.
Section 462: Disposal values
1633.This section is based on sections 530(5) and 531(2) of ICTA. It determines disposal values and the periods for which they are to be brought into account.
1634.Subsection (2) gives the amount brought into account. It limits the amounts to capital sums, which makes explicit the fact that receipts that are income do not come out of the pool in addition to being taxed as income. ICTA does not limit the disposal value to capital sums. See Change 55 in Annex 1.
Section 463: Giving effect to allowances and charges
1635.This section is based on section 532(1) of ICTA and sections 140(2), 144(2) and 161(2) and (5) of CAA 1990. It gives effect to allowances and charges as trading expenses or receipts. This makes explicit the way in which effect is given to allowances and charges. See Note 61 in Annex 2.
