394 Effect of giving relief under section 381 by reference to capital allowances

Capital allowances for a year of assessment in respect of which loss relief is given under section 381 are to be treated as effectively allowed for all tax purposes up to the amount of these allowances in respect of which relief is so given. For example, the profits for 2002 are €10,000 and the capital allowances for that year amount to €18,000. There is no carry forward of capital allowances. A “section 381” claim is made for the year 2002 by reference to the option provided for by section 392(1), creating a loss of €8,000 which is fully relieved under section 381. The balance of the capital allowances not so relieved is €10,000 (€18,000 – €8,000). The Case I assessment for 2002 will therefore be nil (€10,000 less capital allowances €10,000).

Any relief which is given for a subsequent year in respect of capital allowances which are then used to obtain relief under section 381 by virtue of section 392(1) is to be adjusted by amended assessment. This could arise because of the time limit on the making of a “section 381” claim of 2 years from the end of the year of assessment in respect of which the claim is made. If, in the example above, the balance of capital allowances for 2002, namely, €10,000, were carried forward and allowed against the assessment for 2003 and subsequently, but after that assessment had been made, a “section 381” claim were made for 2002 by virtue of section 392(1), the “section 381” relief would be given for 2002 and the allowances which had been set against the 2003 assessment would be withdrawn by amended assessment.

Relevant Date: Finance Act 2021