288 Balancing allowances and balancing charges.

[ITA67 s272(1) to (4), (5)(a) and (b) and (6) and definition of “scientific research allowance” in ITA67 s271; CTA76 s21(1) and Sch1 par28 and par29; FA94 s24(b); FA95 s25(1)]

(1) Subject to this section, where any of the following events occurs in the case of any machinery or plant in respect of which an initial allowance or a wear and tear allowance has been made for any chargeable period to a person carrying on a trade—

(a) any event occurring after the setting up and before the permanent discontinuance of the trade whereby the machinery or plant ceases to belong to the person carrying on the trade (whether on a sale of the machinery or plant or in any other circumstances of any description),

(b) any event occurring after the setting up and before the permanent discontinuance of the trade whereby the machinery or plant (while continuing to belong to the person carrying on the trade) permanently ceases to be used for the purposes of a trade carried on by the person,

(c) the permanent discontinuance of the trade, the machinery or plant not having previously ceased to belong to the person carrying on the trade,

(d) in the case of machinery or plant consisting of ^[6]>a specified intangible asset within the meaning of section 291A,^<[6] computer software or the right to use or otherwise deal with computer software, any event whereby the person grants to another person a right to use or otherwise deal with the whole or part of the ^[1]>computer software concerned^{<[1] [1]>}“that machinery or plant”^<[1] in circumstances where the consideration in money for the grant constitutes (or, if there were consideration in money for the grant, would constitute) a capital sum, an allowance or charge (in this Chapter referred to as a “balancing allowance” or a “balancing charge”) shall, in the circumstances mentioned in this section, be made to or, as the case may be, on that person for the chargeable period related to that event.

(2) Where there are no sale, insurance, salvage or compensation moneys or where the amount of the capital expenditure of the person in question on the provision of the machinery or plant still unallowed as at the time of the event exceeds those moneys, a balancing allowance shall be made, and the amount of the allowance shall be the amount of the expenditure still unallowed as at that time or, as the case may be, of the excess of that expenditure still unallowed as at that time over those moneys.

(3) Where the sale, insurance, salvage or compensation moneys exceed the amount, if any, of that expenditure still unallowed as at the time of the event, a balancing charge shall be made, and the amount on which it is made shall be an amount equal to—

(a) the excess, or

(b) where the amount still unallowed is nil, those moneys.

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(3A)Where, in relation to an event referred to in subsection (1)(d), a balancing allowance or balancing charge is to be made to or, as the case may be, on a person for the chargeable period related to that event and following that event, the person retains an interest in the machinery or plant, then, for the purposes of this Chapter—

(a) the amount of capital expenditure still unallowed at the time of the event, which is to be taken into account in calculating the balancing allowance or balancing charge, shall be such portion of the unallowed expenditure relating to the machinery or plant in question as the sale, insurance, salvage or compensation moneys bear to the aggregate of those moneys and the market value of the machinery or plant which remains undisposed of, and the balance of the unallowed expenditure shall be attributed to the machinery or plant which remains undisposed of, and

(b) the amount of capital expenditure incurred on the machinery or plant in question shall be treated as reduced by such portion of that expenditure as the sale, insurance, salvage or compensation moneys bear to the aggregate of those moneys and the market value of the machinery or plant which remains undisposed of.

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(3B)Notwithstanding subsection (3), a balancing charge shall not be made where the amount of the sale, insurance, salvage or compensation moneys received by the person in question in respect of the machinery or plant is less than €2,000; but this subsection shall not apply in the case of the sale or other disposal of the machinery or plant to a connected person.

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(3C) Notwithstanding subsection (3), a balancing charge shall not be made by reference to a wear and tear allowance made to a company in respect of capital expenditure incurred on the provision of a specified intangible asset within the meaning of section 291A where an event referred to in subsection (1) occurs more than ^[8]>15 years^<[8][9]>[8]>10 years^<[8]<[9][9]>5 years^<[9] after the beginning of the accounting period of the company in which the asset was first provided and such event, or any scheme or arrangement which includes that event, does not result in a company within the charge to corporation tax which is connected (within the meaning of section 10) with the first-mentioned company incurring capital expenditure on the asset in respect of which expenditure a claim is made under section 291A.

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(3C) Notwithstanding subsection (3), a balancing charge shall not be made by reference to a wear and tear allowance made to a company (in this subsection referred to as the ‘first-mentioned company’) in respect of capital expenditure ^[12]>incurred on the provision^<[12][12]>incurred before 14 October 2020 on the provision^<[12] of a specified intangible asset (within the meaning of section 291A) where an event referred to in subsection (1) occurs more than 5 years after the beginning of the accounting period of the company in which the asset was first provided, but if—

(a) that event, or any scheme or arrangement which includes that event, results in a company which is connected (within the meaning of section 10) with the first-mentioned company incurring capital expenditure on the specified intangible asset, and

(b) for the purposes of this Chapter and Chapter 4, the amount of that expenditure would, apart from this subsection, exceed the amount still unallowed, at the time of the event, of capital expenditure incurred by the first-mentioned company on the provision of that asset,

the amount of such expenditure shall be deemed, for those purposes, to be equal to the said amount still unallowed.

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(4) (a) In this subsection, “scientific research allowance” means—

(i) in relation to any expenditure incurred before the 6th day of April, 1965, the total amount of any allowances made in respect of that expenditure under section 244(3) of the Income Tax Act, 1967, increased by the amount of any allowance made under section 244(4)(b) of that Act or, as the case may be, reduced by any amount treated as a trading receipt in accordance with section 244(4)(c) of that Act, and

(ii) in relation to any expenditure incurred on or after the 6th day of April, 1965, the amount of any allowance made in respect of that expenditure under subsection (1) or (2) of section 765, reduced by any amount treated as a trading receipt in accordance with section 765(3)(a).

(b) Notwithstanding anything in subsection (3), in no case shall the amount on which a balancing charge is made on a person exceed the aggregate of the following amounts—

(i) the amount of the initial allowance, if any, made to the person in respect of the expenditure in question,

(ii) the amount of any wear and tear allowance made to the person in respect of the machinery or plant in question,

(iii) the amount of any scientific research allowance made to the person in respect of the expenditure, and

(iv) the amount of any balancing allowance previously made to the person in respect of the expenditure.

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(c) Where subsection (3A) applies, the amount of any allowances referred to in paragraph (b) made in respect of the machinery or plant in question shall, for the purposes of this Chapter, be apportioned so that:

(i) such portion of those allowances as the sale, insurance, salvage or compensation moneys bear to the aggregate of those moneys and the market value of the machinery or plant which remains undisposed of, shall be attributed to the grant of the right to use or otherwise deal with, referred to in subsection (1)(d), and

(ii) the balance of those allowances shall be attributed to the machinery or plant which remains undisposed of.

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(5) (a) Where the aggregate amount of initial allowances and wear and tear allowances made to any person in respect of any machinery or plant exceeds the actual amount of the expenditure incurred by that person on the provision of that machinery or plant, the amount of such excess (in this paragraph referred to as “the excess amount”) shall, on the occurrence of an event within paragraph (a), (b), (c) or (d) of subsection (1), be deemed to be a payment of an equal amount received by that person on account of sale, insurance, salvage or compensation moneys and shall be added to any other such moneys received in respect of that machinery or plant, and a balancing charge shall be made and the amount on which it is made shall be an amount equal to—

(i) where there are no sale, insurance, salvage or compensation moneys, the excess amount, or

(ii) where there are sale, insurance, salvage or compensation moneys, the aggregate of such moneys and the excess amount.

(b) Where as respects any machinery or plant an event within paragraph (a), (b), (c) or (d) of subsection (1) is followed by another event within any of those paragraphs, any balancing allowance or balancing charge made to or on the person by virtue of the happening of the later event shall take account of any balancing allowance or balancing charge previously made to or on that person in respect of the expenditure incurred by the person on the provision of that machinery or plant.

(6) (a) Where—

(i) the sale, insurance, salvage or compensation moneys consist of a payment or payments to a person under the scheme for compensation in respect of the decommissioning of fishing vessels implemented by the Minister for the Marine and Natural Resources in accordance with Council Regulation (EC) No. 3699/93 of 21 December 1993,¹ and

(ii) on account of the receipt by the person of such payment or payments, a balancing charge is to be made on the person for any chargeable period other than by virtue of paragraph (b),

then, the amount on which the balancing charge is to be made for that chargeable period shall be an amount equal to one-third of the amount (in this subsection referred to as “the original amount”) on which the balancing charge would but for this subsection have been made.

(b) Notwithstanding paragraph (a), there shall be made on the person for each of the 2 immediately succeeding chargeable periods a balancing charge, and the amount on which that charge is made for each of those periods shall be an amount equal to one-third of the original amount.

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(6A) (a) Where—

(i) the sale, insurance, salvage or compensation moneys consist of a payment or payments to a person under the scheme for compensation in respect of the decommissioning of fishing vessels implemented by ^[11]>the Minister for Agriculture, Fisheries and Food in accordance with Council Regulation (EC) No. 1198/2006 of 27 July 2006^2<[11][11]>the Minister for Agriculture, Food and the Marine in accordance with Council Regulation (EU) No. 508/2014 of the European Parliament and of the Council of 15 May 2014^2<[11], and

(ii) on account of the receipt by the person of such payment or payments, a balancing charge is to be made on the person for any chargeable period other than by virtue of paragraph (b),

then, the amount on which the balancing charge is to be made for that chargeable period shall be an amount equal to one-fifth of the amount (in this subsection referred to as “the original amount”) on which the balancing charge would but for this subsection have been made.

(b) Notwithstanding paragraph (a), there shall be made on the person for each of the 4 immediately succeeding chargeable periods a balancing charge, and the amount on which that charge is made for each of those periods shall be an amount equal to one-fifth of the original amount.

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