277 Writing off of expenditure and meaning of “residue of expenditure”

Summary

This section contains the rules relating to the writing off of expenditure on industrial buildings or structure in order to ascertain the “residue of expenditure” at any relevant time, and prescribes the dates at which particular allowances are to be deemed to be written off. The importance of this section lies in the fact that the amounts of all balancing allowances, balancing charges and subsequent writing-down allowances depend upon the amounts previously written off in respect of the particular expenditure. In order to safeguard against the possibility of double allowance, it is necessary to be precise as to the dates at which the amounts are written off. Similar precision is necessary in order to ensure that in no case will the allowances amount to more than 100 per cent of the original expenditure.

Details

General

(1) Expenditure on the construction of buildings or structures is to be treated as written off to the extent and at the times specified in this section and references to the residue of such expenditure are to be construed accordingly.

Industrial building (initial) allowance

(2) An industrial building (initial) allowance is to be written off as at the time when the building or structure is first used.

Writing-down allowances

(3) A writing-down allowance is to be written off as at the time by reference to which the title to that allowance is determined. The title to a writing-down allowance arises if the building or structure was in use as an industrial building or structure at the end of the chargeable period or its basis period. By virtue of section 321(2), this means at the end of the accounting period in the case of corporation tax while, in the case of income tax, it means at the end of the basis period (see section 306) for the year of assessment. In the case of a sole trader, his/her basis period for a year of assessment is normally the 12 month period of account ending in the year of assessment while, in the case of a lessor, the basis period is the year of assessment itself. Thus, if a trader made up his/her accounts to 30 June, his/her writing-down allowance for, say, the tax year 2003 would be written off as at 30 June, 2003. In the case of a lessor, the writing-down allowance for the tax year 2003 would be written off as at 31 December, 2003.

Where a writing-down allowance is to be written off at the time when an event occurs which gives rise to a balancing allowance or charge (for example, when an industrial building or structure is sold and the time of the sale is also the end of the chargeable period or its basis period), the writing-down allowance in question is to be deducted in determining the residue of expenditure immediately before the event for the purpose of computing the balancing allowance or charge. The danger of a double allowance is thus avoided.

Notional writing-down allowances

(4)(a) If, for any period or periods between the time when a building or structure is first used and the time when the residue of expenditure is to be determined, a building or structure does not qualify for a writing-down allowance because the building or structure was not being used for industrial purposes at the material time, then, in computing the residue of expenditure, notional writing-down allowances equal to the writing-down allowance which would have been made if the building or structure had qualified for the allowances are to be treated as having been previously written off.

(4)(b) Where the building or structure was in use as an industrial building or structure at the end of the basis period for any year of assessment before 1960–61, a notional writing-down allowance equal to 2 per cent of the expenditure on the construction of the building or structure is to be treated as written off at the end of the previous year of assessment.

Balancing allowances and balancing charges

(5) If on the occasion of a sale a balancing allowance is made in respect of expenditure on a building or structure, then, in determining the residue of expenditure, the amount by which the residue of the expenditure before the sale exceeds the net proceeds of the sale is to be treated as written off at the time of the sale.

(6) If on the occasion of a sale a balancing charge is made in respect of expenditure on a building or structure, the residue of expenditure is to be increased at the time of the sale by the amount on which the charge is made.

(7) Where a person entitled to the relevant interest in the building or structure creates an interest subject to that relevant interest and receives consideration (other than rent or an amount treated or partly treated as rent under section 98) for the creation of that interest which results in a balancing allowance, the amount by which the residue of the expenditure before the receipt exceeds the consideration received is to be treated as written off at the time of the receipt (or, if later, 26 March, 1997).

Relevant Date: Finance Act 2021