290 Option in case of replacement

Summary

Where a balancing charge arises in relation to machinery or plant and the taxpayer replaces that machinery or plant, the taxpayer may elect that the charge be offset by providing that the wear and tear allowances due on the new machinery or plant be computed on the basis of its cost less the balancing charge. In any case where the balancing charge actually exceeds the cost of the new machinery or plant, the balancing charge to be made in relation to the old machinery or plant is reduced to the excess of the balancing charge over the cost of the new machinery or plant. In such cases, the taxpayer is not entitled to any capital allowance in respect of the new machinery or plant.

Details

If machinery or plant in relation to which a balancing charge has arisen is replaced by the owner of that machinery or plant, the owner may make an election in writing to the inspector to have the charge either wholly or partially deferred depending on whether the capital expenditure incurred on providing the replacement machinery or plant is greater than, or less than or equal to, the amount of the charge.

Amount of charge greater than expenditure on replacement machinery or plant

(a) Where the amount on which the balancing charge would have been made is greater than the capital expenditure incurred on the replacement machinery or plant —

• the charge is made only on an amount equal to the difference,
• no initial allowance, wear and tear allowances or balancing allowances are allowed in respect of the replacement machinery or plant, and
• in calculating the amount of any future balancing charge to be made in respect of the replacement machinery or plant, an initial allowance will be deemed to have been made in respect of that machinery or plant equal to the amount of the expenditure incurred on its provision.

Amount of charge less than or equal to expenditure on replacement machinery or plant

(b) Where the capital expenditure incurred on the replacement machinery or plant is equal to or greater than the amount on which the balancing charge would have been made —

• no balancing charge is made,
• any initial allowance and wear and tear allowances in respect of the replacement machinery or plant are computed as if the cost of such machinery or plant had been equal to the actual expenditure incurred less the withheld balancing charge, and
• in considering the amount of any future balancing allowance or charge to be made in respect of the replacement machinery or plant, an initial allowance equal to the amount of the withheld balancing charge is deemed to have been granted in respect of it, in addition to any initial allowance or wear and tear allowances actually granted.

Relevant Date: Finance Act 2021