Background
496.Legislation which allowed the postponement of plant and machinery allowances on ships was first introduced in FA 1965. Subsequent changes to plant and machinery allowances made similar provision. The current approach stems mainly from FA 1985.
497.The deferment rules were introduced by sections 94 to 98 of FA 1995 to deal with cases in which:
a balancing charge arises on the disposal of a ship; and
a replacement ship is not acquired until a subsequent chargeable period.
498.The deferment rules let a person defer the balancing charge if expenditure (equal to or greater than the amount deferred) is incurred on a replacement ship within six years of the disposal.
Section 127: Single ship pool
499.This section is based on parts of section 31(1) and (2) of CAA 1990. It requires expenditure on ships to be allocated to a single asset pool – called a “single ship pool” – subject to the two exceptions in subsection (2).
500.Subsection (3) defines the appropriate non-ship pool. This replaces the term “actual trade” which is used in CAA 1990. See Note 30 in Annex 2.
Section 128: Expenditure which is not to be allocated to single ship pool
501.This section is based on parts of section 31(1) and (11) of CAA 1990. It provides that expenditure must not be allocated to a single ship pool if the ship is provided for leasing unless the ship meets the conditions in subsection (1)(a) and (b).
Section 129: Election to use the appropriate non-ship pool
502.This section is based on section 33 of CAA 1990. It allows taxpayers to opt out of the single ship pool rules in respect of any expenditure on ships. It includes a minor change.
503.Subsection (1) provides for an election to do this. CAA 1990 requires taxpayers to give notice for this rather than to elect. By requiring an election, this Act gives taxpayers the benefit of section 42 of TMA 1970 and Schedule 18 to FA 1998. See Change 21 in Annex 1.
504.This section has nothing for the following provisions in section 33 of CAA 1990 which are unnecessary for this Act:
section 33(1) – see Notes 32 and 33 in Annex 2;
section 33(2) – this is unnecessary given the way this Act deals with pools in Chapter 5; and
section 33(3)(a) – see Note 31 in Annex 2.
505.Section 577 defines “notice”. Section 576 gives the meaning of “Inland Revenue”.
Section 130: Notice postponing first-year or writing-down allowance
506.This section is based on sections 30(1) and (1A) and 31(3) and (3A) of CAA 1990. It allows taxpayers to postpone first-year allowances arising on the provision of ships and writing-down allowances for single ship pools.
507.Section 577 defines “notice”. Section 576 gives the meaning of “Inland Revenue”.
Section 131: Effect of postponement
508.This section is based on sections 30(2) and (4) and 31(4), (5) and (10) of CAA 1990. It deals with the mechanics of postponing an allowance.
509.Subsection (1)(b) provides that the postponement of an allowance does not affect the calculation of the available qualifying expenditure in any chargeable period.
510.Subsections (2) and (3) provide that the total amount postponed may be taken as allowances in subsequent chargeable periods.
511.Subsection (4) makes it clear that the total allowances so claimed may not exceed the total amount postponed.
512.Subsection (5) makes it clear that any allowances made (but previously postponed) do not affect the calculation of the unrelieved qualifying expenditure in section 59.
513.Subsection (6) ensures that any subsequent claim for an allowance that has previously been postponed does not affect the calculation of writing-down allowances in that subsequent chargeable period.
514.Subsection (7) provides that postponed allowances (that have not subsequently been taken) are not treated as amounts carried forward for the purposes of section 403ZB(2) of ICTA. Section 31(10) of CAA 1990 also refers to sections 383(5)(d) and 388(7) of ICTA. However, these references were spent following the repeal of section 383 and of part of section 388(7) by FA 1994.
515.Sections 30(5) and 31(6) of CAA 1990 have not been rewritten. See Note 34 in Annex 2. That also explains the reference in subsection (1)(b) of this section to “the allowance” in place of “the whole allowance” in section 30(2)(b) of CAA 1990.
Section 132: Disposal events and single ship pool
516.This section is based on parts of sections 31(2) and (11), 31(7), 33(5)(b) and 40(4) of CAA 1990. It:
gives an additional disposal event for single ship pools; and
provides special rules for any disposal event which occurs.
517.Subsection (2) provides the special rules dealing with all disposal events in relation to a single ship pool. These rules are necessary as the postponement rules are not intended to give rise to balancing allowances or charges on the disposal of a ship.
518.In CAA 1990, a disposal value is brought into account in the notional trade (which is how the single ship pool is established). However, any balancing allowance or charge is not given effect in the normal way. The amount is instead allocated to the shipowner’s actual trade as if it were qualifying expenditure (in the sense used in CAA 1990) or a disposal value. This section is more direct. If there is a disposal event in respect of a single ship pool, any available qualifying expenditure is allocated to the appropriate non-ship pool. It is in that pool that any disposal value is brought into account. The end result under these two different methods is the same. See Note 35 in Annex 2.
519.Subsection (3) makes it clear that a disposal event is dealt with in the same way if there has been an election under section 129.
520.There is nothing in this section equivalent to section 31(8) of CAA 1990. That cannot affect tax liabilities in chargeable periods covered by this Act.
Section 133: Ship not used
521.This section is based on section 32(1) of CAA 1990. It withdraws any writing-down allowances made or postponed for a single ship pool if the ship ceases to be owned without being used for the purposes of the qualifying activity.
522.Relief for expenditure on the ship is not lost. Subsection (3) allocates an amount equal to the withdrawn allowances to the appropriate non-ship pool.
523.Subsection (4) makes it clear that this section does not apply as an alternative to section 132. Both sections could apply to a single event.
524.Section 32(2) of CAA 1990 is not rewritten in this Act as it merely ensures that definitions applying in section 31 also apply to section 32(1).
Section 134: Deferment of balancing charges: introduction
525.This section provides an introduction to the deferment rules in sections 135 to 156.
Sections 135 and 136: Claims and conditions for deferment
526.These sections are based on parts of sections 33A(1) and (2) and 33F(1) and (2). They provide the conditions that need to be met if a person is to defer a balancing charge.
527.This Act has nothing corresponding to:
section 33F(3) of CAA 1990. That provides for claims to be made under the deferment rules on or after 31 May 1996; and
section 33A(2)(b) of CAA 1990. That provides that there can be no deferment if any of the limits on the amount deferred is nil. It is unnecessary as the deferment of nil would have no effect.
Section 137: Effect of deferment
528.This section is based on part of section 33A(2) of CAA 1990. It provides the mechanism for giving effect to the deferment. It reduces or (if the full balancing charge is deferred) cancels out the effect of the balancing charge by allocating the amount deferred to the appropriate non-ship pool. This is because the balancing charge from the disposal of the ship leads to a disposal value in the appropriate non-ship pool. See paragraph 518 above and section 132.
Section 138: Limit on amount deferred
529.This section is based on part of section 33A(2), (3) and (6) of CAA 1990. It provides the upper limits on the amount of any balancing charge that may be deferred. There is a minor change.
530.Subsection (1)(a) provides that the amount deferred must not exceed the balancing charge which would arise in the appropriate non-ship pool if the claim for deferment had not been made. In CAA 1990, this limit is expressed in terms of what would be the balancing charge for the shipowner’s actual trade ignoring balancing charges from the notional trades (in this Act, pools) provided by sections 41(2), 79(5) and 80(5).
531.This subsection is more direct. Subsection (1)(a) also ensures that balancing charges arising in the “appropriate non-ship pool” applicable to a ship may not affect a claim to defer a balancing charge arising in a different pool. See Change 22 in Annex 1.
532.Subsection (1)(b) provides that the deferred amount is limited to the balancing charge actually attributable to the ship. This amount is quantified in section 139. This ensures that other disposal events in the appropriate non-ship pool do not have the effect of increasing the amount available for deferment.
533.Subsection (1)(c) ensures that the amount of a deferment claim is limited to the expenditure on new shipping that will be incurred in the six years from the disposal event. This expenditure must be incurred either by:
the shipowner; or
if the shipowner is a company, a member of the same group as the shipowner.
534.Subsection (1)(d) provides that the amount of the deferment may not exceed the shipowner’s profits or income from the qualifying activity in the relevant chargeable period. This ensures that a deferment claim may not create a loss for the chargeable period in which the balancing charge arises.
535.Subsection (2) provides that for the purposes of subsection (1)(d):
other deferments for the chargeable period are taken into account; and
a deferment takes precedence over the provisions dealing with the carry-forward of trading losses.
