300 Manner of making allowances and charges

Summary

Initial allowances, wear and tear allowances (including accelerated wear and tear allowances), balancing allowances and balancing charges are to be made in taxing the trade of the person entitled to the allowance or subject to the charge except in the case of a person —

• who leases machinery or plant other than in the course of a trade (a non-trading lessor), or
• who is entitled to wear and tear allowances in respect of expenditure incurred on fixtures and fittings in rented residential accommodation.

By virtue of section 321(4), this means that the allowances or charges are to be made, in the case of income tax, in charging the profits or gains of the trade and, in the case of corporation tax, in computing the income of the trade.

Where the person entitled to the allowances is a non-trading lessor, the allowances are to be made by means of discharge or repayment of tax and are to be available primarily against income from the letting of machinery or plant. Any balancing charge to be made on a non-trading lessor is to be made under Case IV of Schedule D.

Where an allowance arises in respect of expenditure incurred on fixtures and fittings in rented residential accommodation, the allowance is to be made in charging the person’s rental income under Case V of Schedule D.

Details

Allowances to be made in taxing the trade

(1) Except in the case of a non-trading lessor and the case of wear and tear allowances in respect of fixtures and fittings in rented residential accommodation, any initial allowance, wear and tear allowance (including accelerated wear and tear allowances), balancing allowance or balancing charge to be made to or on a person in respect of capital expenditure on machinery or plant is to be made to or on the person in taxing the person’s trade. For income tax purposes, the making of an allowance or charge in taxing the trade requires the allowance to be deducted from, or the charge to be added to, the taxable profits of the trade as computed under Case I of Schedule D. For the purposes of corporation tax, it requires the allowance to be deducted, or the charge to be added, in computing the trading income.

Non-trading lessors

(2) In the case of a non-trading lessor, any initial allowance, wear and tear allowance (including accelerated wear and tear allowances) or balancing allowance in respect of capital expenditure on machinery or plant is to be made by means of discharge or repayment of tax and is to be available primarily against income from the letting of machinery or plant.

(3) Any balancing charge to be made on a non-trading lessor in respect of such expenditure is to be made under Case IV of Schedule D.

Fixtures and Fittings

(4) In the case of a wear and tear allowance in respect of capital expenditure on machinery or plant (fixtures and fittings) being expenditure which is incurred wholly and exclusively in respect of a house used solely as a dwelling and which is let as furnished, the allowance is to be made in charging the person’s rental income under Case V of Schedule D.

Relevant Date: Finance Act 2021