Revenue Note for Guidance

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Revenue Note for Guidance

321 Provisions of general application in relation to the making of allowances and charges

Summary

Certain general provisions applicable to the making of allowances and charges are applied for the purposes of Part 9 (capital allowances for industrial buildings or structure, machinery or plant, and dredging) and other provisions of the Tax Acts relating to capital allowances or charges.

Details

Application

(1) The provisions of subsections (2) to (7) apply for the purposes of interpreting —

  • Part 9 (capital allowances for industrial buildings or structures, machinery or plant, and dredging),
  • section 374 (capital allowances for cars costing over a certain amount),
  • sections 658 to 660 (farming capital allowances),
  • Chapter 1 of Part 24 (capital allowances for certain mining),
  • sections 764 and 765 (allowances for scientific research),
  • section 769 (allowances for training of local staff), and
  • any other provision of the Tax Acts relating to the making of allowances or charges under or in accordance with the provisions referred to above.

Chargeable periods

(2) “chargeable period” is an accounting period of a company or a year of assessment. A reference to a chargeable period or its basis period (“basis period” is defined in section 306) is a reference to the chargeable period if it is an accounting period and to the basis period for it if it is a year of assessment. A reference to a chargeable period related to expenditure or a sale or other event is, in the case of corporation tax, a reference to the accounting period in which the expenditure is incurred or the sale or other event takes place and, in the case of income tax, a reference to the year of assessment in the basis period for which the expenditure is incurred or the sale or other event takes place.

(2A) Subsection (2A) provides that, for the purposes of ascertaining the cost of expenditure on an asset for capital allowance purposes, references to expenditure in relation to an asset are to include expenditure on labour costs that, under IFRS, are taken into account for accounting purposes as part of the value of the asset. It also provides that interest paid which is taken into account for accounting purposes as part of the cost of an asset is not to be included as expenditure for capital allowance purposes.

(3) In so far as corporation tax is concerned, references to tax for a chargeable period are to be taken as references to the tax for any financial year which is chargeable in respect of that period, that is, the tax chargeable for that period by reference to the tax rates applicable to the financial year or years within which that period lies.

Allowances or charges in taxing a trade

(4) In the case of corporation tax, a reference to allowances or charges being made in taxing a trade is a reference to their being made in computing a company’s trading income for corporation tax purposes. In the case of income tax, a reference to allowances or charges being made in taxing a trade is a reference to their being made in charging the profits or gains of a person’s trade to income tax.

Writing-down allowances

(5)(a) Where expenditure is written off on a “straight-line” basis over a specified length of time (for example, mine development allowance under section 670) the amount of the allowance for a chargeable period (accounting period for corporation tax purposes, year of assessment for income tax purposes) will bear the same relationship to the total qualifying expenditure as the length of the chargeable period bears to the total period of the writing off.

(5)(b) The aggregate amount of the writing-down allowances made, whether to the same or to different persons, together with the amount of any initial allowance (but not any investment allowance), cannot exceed the amount of the expenditure.

(6) Where the reference is partly to years of assessment before 1976–77, a writing-down allowance includes an annual allowance, and an allowance on account of wear and tear of machinery or plant includes a deduction on account of wear and tear of machinery or plant, in the sense which in the context those expressions had immediately before the commencement of the Corporation Tax Act, 1976. In essence, this provision provides for continuity between pre and post-corporation tax allowances.

(7) Writing-down allowances and allowances on account of the wear and tear of machinery or plant which are to be made for a chargeable period of less than one year in length are to be proportionately reduced.

Miscellaneous

(8) This provision adapts for corporation tax any income tax provisions relating to capital allowances not specifically referred to in subsection (1). In any such provision, unless the context otherwise requires, any reference to an allowance or charge for a year of assessment under a provision referred to in that subsection is to include the like allowance or charge for an accounting period of a company, and any reference to the making of an allowance or charge in charging profits or gains of a trade is to be construed as a reference to making the allowance in taxing a trade.

Change in ownership of a trade

(9) This subsection applies for the purposes of —

  • Part 9 (capital allowances for industrial buildings or structures, machinery or plant, and dredging),
  • section 670 (mine development allowance),
  • sections 764 and 765 (allowances for scientific research),
  • section 769 (allowances for training of local staff), and
  • any other provision of the Tax Acts relating to the making of allowances or charges under or in accordance with the provisions referred to above.

Any provision of the Income Tax Acts which for those purposes treats a trade as or as not permanently discontinued or treats a new trade as set up and commenced applies in the like manner in the case of a trade so treated by virtue of the Corporation Tax Acts. In other words, where there is a change in ownership (either in whole or in part) of a trade which under the Income Tax Acts is a cessation of the trade or is treated as a cessation of the trade for the purposes of computing capital allowances under the provisions mentioned above, the same position applies for the purpose of computing such capital allowances in the case of companies.

Saver provision

(10) Any allowance or charge which would be made to certain Shannon and IFSC companies for an accounting period under this Part is, notwithstanding the deletion of sections 445 and 446, preserved and Part 14 shall apply with any modifications necessary to give effect to this subsection.

Relevant Date: Finance Act 2021