392 Option to treat capital allowances as creating or augmenting a loss

(1) Where a claim is made under section 381 for a year of assessment for relief in respect of a trading loss, the claimant may opt in that claim to have an amount equal to the capital allowances for the year of assessment in which the loss is sustained (referred to as “the year of the loss”) to be taken into account in arriving at the amount of the loss. In addition to increasing the size of a loss, the deduction of the capital allowances may operate to create a loss for the purposes of “section 381” loss relief (that is, where the trade would be in profit if the capital allowances were not taken into account). The quantum of the capital allowances which are to be taken into account for these purposes is determined by section 393.

(2) Where a claimant’s income for a year of assessment is insufficient to absorb the whole of the loss arrived at following the deduction of capital allowances, “section 381” relief is to be treated as having been given primarily in respect of the loss computed without reference to the capital allowances rather than to the loss computed with reference to the capital allowances. This allows the capital allowances not set off under the claim to be carried forward to the next year of assessment.

Relevant Date: Finance Act 2021