Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 4

Miscellaneous and general

Overview

This Chapter sets out miscellaneous and general provisions in relation to the application of capital allowances for income tax and corporation tax purposes.

304 Income tax: allowances and charges in taxing a trade, etc

Summary

This section provides that persons liable to income tax who are claiming capital allowances under Part 9 are obliged to include details of such claims in their annual income tax return required to be delivered under the Income Tax Acts. In general, where full effect cannot be given for such capital allowances in taxing a trade due to there being no profits or an insufficiency of profits of the trade, the unused allowances may be carried forward to the following and succeeding years and treated as part of the allowances due for those years. The section also provides for the carry-back of certain unused allowances to the tax year 2019, where such allowances are in respect of the period 1 January to 31 December 2020.

Details

Application

(1) This section and section 305 apply in relation to capital allowances and charges which are to be made under Part 9 as it applies for income tax purposes.

Claims for allowances

(2) A claim by a person for any allowance in charging profits or gains of any description must be included in the person’s annual income tax return, and the allowance is to be made as a deduction in charging those profits or gains (and not as a deduction in computing those profits or gains for assessment).

(3)(a) A claim for an industrial building (initial) allowance under section 271 must include a certificate signed by the claimant stating that the expenditure was incurred on the construction of an industrial building or structure and must give such particulars as show that the allowance is to be made.

(3)(b) A claim for an initial allowance under section 283 must include a certificate signed by the claimant stating that the expenditure was incurred on new machinery or plant and must give such particulars as show that the allowance is to be made.

(3A) Covid-19 allowances

(3A)(a)(i) A number of key terms are defined for the purpose of subsection (3A):

  • The “relevant period” is defined as the period 1 January to 31 December 2020.
  • A “specified allowance” means an allowance referred to in section 531AU(2). The allowances that section 531AU(2) refers to, and in respect of which this relief may apply, are: wear and tear allowances for plant and machinery (section 284(1)), writing-down allowances for industrial buildings and structures (section 272(3)) and allowances for farm buildings and structures (section 658(2)).
  • The term “relevant allowances” has the meaning given to it in paragraph (b).

(3A)(a)(ii) Where the basis period for the year of assessment 2020 is not the same as the relevant period (i.e. is not 1 January 2020 to 31 December 2020), the specified allowances of any basis period which overlaps with the relevant period are to be apportioned to the relevant period in proportion to the number of months (or fractions of months) in the respective periods.

(3A)(b) Where an individual carrying on a trade1, either solely or in a partnership, claims, in respect of the relevant period (1 January 2020 to 31 December 2020), a specified allowance (or part thereof), and that specified allowance (or part thereof) could, but for the making of a claim under paragraph (c), be carried forward to the following year or years under subsection (4), then the individual may make a claim for relief under paragraph (c). These are referred to as “relevant allowances”.

(3A)(c)(i) Subject to section 395C, an individual may make a claim to have any portion of the relevant allowances carried back to the year 2019. Where such a claim is made, the relevant allowances will be added to the allowances to be given as a deduction in charging the profits of the same trade2 for that year.

(3A)(c)(ii) Where relevant allowances are carried back under this subsection, relief will be given for allowances from an earlier period before relief is given for allowances from a later period.

(3A)(c)(iii) Where a claim for relief is made under this subsection, the relevant allowances cannot be used to create or augment a loss under Chapter 2 of Part 12.

(3A)(d) Where relief for relevant allowances is given to an individual under this subsection, the individual will not be entitled to relief in respect of those relevant allowances under any other provision of the Income Tax Acts.

Carry forward of unutilised allowances

(4) Subject to the exception outlined in subsection (6)(c), if full effect cannot be given in any year to an allowance to be made under Part 9 in taxing a trade or in charging any other profits, either because there are no assessable profits for that year or because the assessable profits are too small to cover the allowance, then, so much of the allowance as is not given in that year may be carried forward for allowance in subsequent years.

Balancing charges

(5) Any balancing charge to be made for any year under Part 9 in taxing a person’s trade or in charging a person’s income under Case V of Schedule D is to be made by means of an assessment on the person.

Professions, employments and offices

(6)(a) & (b) In general, the above rules apply to professions, offices and employments as they apply to trades. However, the requirement in subsection (3)(b) regarding the making of a claim for an initial allowance under section 283 is so applied only in relation to professions as there is no entitlement to an initial allowance in the case of employments and offices.

(6)(c) Additionally, the treatment of unutilised allowances outlined in subsection (4) does not apply to allowances given by means of discharge or repayment of tax or in charging a person’s rental income under Case V of Schedule D. The treatment of these allowances is outlined in section 305.

Footnotes

1 By virtue of subsection (6)(a), subsection (3A) also applies in relation to professions, employments and offices.

2 By virtue of subsection (6)(a), subsection (3A) also applies in relation to professions, employments and offices.

Relevant Date: Finance Act 2021