393 Extent to which capital allowances to be taken into account for purposes of section 392

(1) Capital allowances are to be taken into account for the purpose of creating or augmenting a loss under section 392(1) only to the extent that they are not required to offset balancing charges (being balancing charges under Part 9 or Chapter 1 of Part 29) for the year of assessment to which they relate.

Only so much of the capital allowances for the year of assessment (as so calculated) as are not absorbed by any assessment for that year may be deducted, under section 392(1), in the computation of the loss for the purposes of “section 381” loss relief. Where, however, there are capital allowances carried forward from an earlier year, these would by virtue of section 391(2)(b) be allowed against the assessment in priority to the actual capital allowances for the year. This serves to increase the amount of the capital allowances which are available for taking into account in determining a loss under section 392(1). For example, a “section 381” claim is for, say, the year 2002, and for that year there are profits of €20,000 and a balancing charge of €10,000. The capital allowances for the year are €30,000 and allowances of €20,000 are brought forward. The allowances brought forward are treated as covering both the balancing charge and €10,000 of the profits leaving the whole of the capital allowances for the year itself, €30,000, available to create a loss. The loss would be €20,000, namely, profits €10,000 (€20,000 less €10,000) less allowances €30,000.

(2) The amount of the capital allowances which are required to offset balancing charges for this purpose is to be determined by deducting from the full amount on which the balancing charge is made any capital allowances carried forward to the year concerned which, if there were no balancing charge, would be non-effective in that year (that is to say, so much of the capital allowances carried forward to the year as exceeds the profits for that year). The remainder, if any, of the balancing charge is to be treated as absorbing capital allowances for the year itself and so diminishing the amount of allowances to be taken into account in the loss computation for that year.

Relevant Date: Finance Act 2021