Example
Suppose P has a shipping trade. During the year ending 30 June 2001 P has a taxable profit of £340,000. That figure includes a balancing charge of £500,000 arising on the disposal of a qualifying ship. P also has trading losses of £209,000 available to carry forward at 1 July 2000.
If no claim for deferment is made, P’s net profit for the year ending 30 June 2001 is:
Actual profit £340,000
Less:
Loss brought forward £209,000
Taxable profit £131,000
P would have no further losses available to carry forward to the chargeable period for the year ending 30 June 2002.
If P is expecting to incur further expenditure on new shipping within six years of the disposal, P will be entitled to defer the balancing charge arising in the year ending 30 June 2001.
Under subsection (1)(a) the amount qualifying for deferment may not exceed the balancing charge arising (£500,000). Under subsection (1)(d), the deferred amount must also be no more than P’s profit for the year ending 30 June 2001 (£340,000). In accordance with subsection (2), the losses brought forward are ignored for this.
Suppose P defers £340,000. The balancing charge is effectively reduced by this amount, giving rise to a nil profit in the year ending 30 June 2001. P’s losses of £209,000 will be carried forward to the year ending 30 June 2002.
Section 139: Amount taken into account in respect of old ship
536.This section is based on section 33B of CAA 1990. It determines the amount of any balancing charge that is deemed to relate to the ship. It is one of the provisions that ensure that a shipowner may only defer a balancing charge arising from the disposal of a qualifying ship.
537.It is relatively easy to identify the balancing charge arising on the disposal of the ship if:
all of the expenditure on the provision of a ship is allocated to a single ship pool; and
no expenditure is then allocated from the single ship pool to the appropriate non-ship pool.
It is just the excess of the disposal value over the available qualifying expenditure after any allowances. Subsection (2) provides this – “amount A”.
538.The same cannot be done if some or all of the expenditure on the ship is allocated to the appropriate non-ship pool. It is in the nature of pooling that it is impossible to say how much of any allowance relates to one bit of expenditure and how much to another. Some assumptions have to be made. Subsections (3) and (4) do this. They provide “amount B” – what would have been the balancing charge if:
all the expenditure on the ship were allocated to the appropriate pool;
no other expenditure had been allocated to that pool; and
writing-down allowances had been made in full.
539.Subsection (5) caters for a person who defers a balancing charge and then later makes an election to allocate expenditure to the non-ship pool. They can do this because section 129 allows up to two years to make the election. It substitutes amount B in place of amount A. Any adjustments to assessments can then be made if necessary (see section 157).
Section 140: Notice attributing deferred amounts to new expenditure
540.This section is based on section 33A(5), (5A), (6) and (8) of CAA 1990. It provides the basic conditions that need to be met for a deferred amount to be attributed to expenditure on new shipping.
541.If a deferred amount is not attributed to expenditure on new shipping, then section 144 provides that it ceases to qualify for deferment.
542.Subsection (1) provides that the shipowner must give a notice to the Inland Revenue attributing a deferred amount to the new expenditure.
543.Subsection (2) makes it clear that an attribution matches a deferred amount with an equal amount of new expenditure.
544.Subsection (3) ensures that the rule in subsection (1) is subject to the following two subsections and to the “first-in first-out” rule in section 141.
545.Subsection (4) requires the expenditure to be incurred in the six years beginning with the relevant disposal event. For example, if the balancing charge arising relates to the disposal of a ship on 29 November 2001, the expenditure on new shipping must be incurred by 28 November 2007. The expenditure must be incurred by the shipowner or a company within the same group.
546.Subsection (5) ensures that the total attributed to new expenditure may not exceed the amount of the new expenditure.
547.Section 577 defines “notice”.
Section 141: Deferred amounts attributed to earlier expenditure first
548.This section is based on section 33D(6) of CAA 1990. It requires a deferred amount to be attributed to the first item of expenditure on new shipping that is incurred in the six-year period. If the first item of expenditure is less than the deferred amount, then the excess is carried forward to the next item, and so on. This means that shipowners cannot generally choose how to attribute deferred amounts.
549.There is a minor change. Subsection (2)(b) goes wider than CAA 1990 by providing for the case in which two ships are disposed of simultaneously. See Change 23 in Annex 1.
Section 142: Variation of attribution
550.This section is based on section 33F(4) and (4A) of CAA 1990. It lets a shipowner vary an attribution. This gives the shipowner an element of choice as to which ship a deferred amount is attributed. That can be of benefit to taxpayers if two (or more) ships are acquired simultaneously.
