303 Allowances for expenditure on dredging

Summary

This section provides that certain capital expenditure on dredging qualifies for capital allowances consisting of an initial allowance of 10 per cent, and annual writing-down allowances of 2 per cent, of the expenditure incurred. Where a trade is permanently discontinued, the trader qualifies for a balancing allowance equal to the remainder of the capital expenditure not already writing off by way of initial and annual allowances.

Details

Initial allowance and annual writing-down allowances

(1)(a) The initial allowance and annual writing-down allowances apply where a person carrying on a qualifying trade incurs capital expenditure on dredging for the purposes of the trade, and the trade consists of the maintenance or improvement of the navigation of a harbour, estuary or waterway or the dredging is for the benefit of vessels coming to, leaving or using any dock or other premises occupied by the person for the purposes of the trade.

An initial allowance equal to 10 per cent of the expenditure incurred is made for the first relevant chargeable period to the person who incurred the expenditure. Annual writing-down allowances equal to 2 per cent of that expenditure are made to the person for the time being carrying on the trade beginning with the first relevant chargeable period. Where a writing-down allowance is to be made for a year of assessment to a person who is within the charge to income tax in respect of the trade for part only of that year, that part is treated as a separate chargeable period for the purposes of computing allowances under this section.

(1)(b) No allowances are available for expenditure incurred before 30 September, 1956.

Balancing allowances

(2) Where a trade is permanently discontinued in a chargeable period, the person last carrying on the trade is entitled to a balancing allowance equal to the remainder of the capital expenditure not already writing off by way of initial and writing-down allowances.

(3) A balancing allowance will be given only on an actual permanent discontinuance of a trade as distinct from a change of ownership which for assessment purposes is treated as a permanent discontinuance.

Allowances to be made in taxing the trade

(4) Allowances under this section are to be made in taxing the trade. By virtue of section 321(4), this means that the allowances 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.

Apportionment of expenditure in certain cases

(5) Where capital expenditure on dredging is incurred partly for the purpose of a qualifying trade and partly for other purposes, a just apportionment of the expenditure is to be made, and capital allowances are to be given only in respect of the expenditure apportioned to the qualifying trade.

Pre-trading expenditure

(6) Where a person incurs capital expenditure on dredging either before commencing to trade or before occupying the dock or other premises, the person is treated as if the person had been carrying on the trade or occupying the dock or other premises, as the case may be, at the time when the expenditure was incurred.

Contribution to cost of dredging incurred by another person

(7) Where a person contributes to the cost of dredging incurred by another person (for example, where a trader occupying a private dock contributes to the cost of the dredging carried out by a harbour authority), the contributor is treated as if that contribution were capital expenditure on dredging. Thus, if the contributor satisfies the tests laid down in subsection (1), the contributor qualifies for capital allowance in respect of that contribution. Any allowances to be made to the recipient of the contribution are to be computed by reference to the recipient’s net expenditure after deducting the contribution.

Bar on double relief

(8) Expenditure which qualifies for capital allowances under Chapter 1 of Part 9 on the basis that it is expenditure on an industrial building or structure cannot also qualify for capital allowances under this section.

Notional allowances for years before 1960–61

(9) Capital allowances for dredging were originally introduced with effect from 1960–61 but by reference to expenditure incurred on or after the 30 September, 1956. For the purpose of computing balancing allowances, any writing-down allowances which could have been made for years before 1960–61, if the section had been in operation, are treated as having been made, so that the total capital allowances to be given are restricted, in effect, to the written down value of the expenditure at 6 April, 1960.

Relevant Date: Finance Act 2021