Background
1716.Dredging allowances are only available for capital expenditure on dredging. Dredging does not include normal maintenance work on an existing channel. Much of the expenditure on dredging by harbour boards (for example) will be revenue expenditure and will have no capital element. Industrial Buildings Allowances (IBA) are available for the construction of docks and canals in suitable trades, see Part 3 and section 274 (in which docks and inland navigation undertakings are listed as qualifying trades). So dredging allowances can supplement the IBA relief. Similarly the equipment used for dredging will normally qualify for plant and machinery allowances. And routine dredging to keep a waterway open will be allowable as a revenue expense under Case I of Schedule D. The dredging allowances code supplements these other reliefs by providing relief for expenditure which would otherwise not enjoy tax relief.
1717.The code also provides for expenditure paid to a third party carrying on a dredging trade to qualify for relief. A typical situation would be if an industrial trader pays a harbour board a fee to improve, by way of dredging, access to industrial facilities.