(1) This section applies if—
(a) a person carrying on a trade leaves the cash basis in a chargeable period,
(b) the person has incurred expenditure at a time when the cash basis applies in relation to the trade,
(c) some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and
(d) the expenditure would have been qualifying expenditure if the cash basis had not applied at the time the expenditure was incurred.
(2) In this section the “relieved portion” of the expenditure is the higher of the following—
(a) the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade, or
(b) the amount of that expenditure for which a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade.
(3) For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 456)—
(a) the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and
(b) the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure.
(4) For the purposes of determining any disposal values (see section 462), the expenditure incurred by the person is to be regarded as qualifying expenditure.
(4A) Subsection (11)(za) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.
(5) For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if—
(a) immediately before the beginning of the chargeable period the cash basis applied in relation to the trade, and
(b) the cash basis does not apply in relation to the trade for the chargeable period.
An allowance or charge to which a person is entitled or liable under this Part for a chargeable period is to be given effect in calculating the profits of the trade, by treating—
(a) the allowance as an expense of the trade, and
(b) the charge as a receipt of the trade.
(1) Allowances are available under this Part if a person incurs qualifying expenditure on the purchase of patent rights.
(2) In this Part “patent rights” means the right to do or authorise the doing of anything which would, but for that right, be an infringement of a patent.
(1) References in this Part to expenditure incurred on the purchase of patent rights include expenditure incurred on obtaining a right to acquire future patent rights.
(2) If a person—
(a) incurs expenditure on obtaining a right to acquire future patent rights, and
(b) subsequently acquires those rights,
the expenditure is to be treated as having been expenditure on the purchase of those rights.
(3) “A right to acquire future patent rights” means a right to acquire in the future patent rights relating to an invention in respect of which the patent has not yet been granted.
(4) References in this Part to the proceeds of a sale of patent rights include a sum received from a person which is treated under this section as expenditure incurred by him on the purchase of patent rights.
(1) The acquisition of a licence in respect of a patent is to be treated as the purchase of patent rights.
(2) The grant of a licence in respect of a patent is to be treated as a sale of part of patent rights.
(3) But the grant by a person entitled to patent rights of an exclusive licence is to be treated as a sale of the whole of those rights.
(4) “Exclusive licence” means a licence to exercise those rights to the exclusion of the grantor and all other persons for the period remaining until the rights come to an end.
(1) “Qualifying trade expenditure” means capital expenditure incurred by a person on the purchase of patent rights for the purposes of a trade within the charge to tax carried on by the person.
(2) The same expenditure may not be taken into account as qualifying trade expenditure in relation to more than one trade.
(3) Expenditure incurred for the purposes of a trade by a person about to carry on the trade is to be treated as if it had been incurred by him on the first day on which he carries on the trade.
(4) But subsection (3) does not apply if the person has before that day sold all the rights on the purchase of which the expenditure was incurred.
“Qualifying non-trade expenditure” means capital expenditure incurred by a person on the purchase of patent rights if—
(a) any income receivable by the person in respect of the rights would be liable to tax, and
(b) the expenditure is not qualifying trade expenditure.
(1) Qualifying expenditure has to be pooled for the purpose of determining a person’s entitlement to writing-down allowances and balancing allowances and liability to balancing charges.
(2) There is a separate pool—
(a) for each trade in respect of which the person has qualifying trade expenditure, and
(b) for all of the person’s qualifying non-trade expenditure.
(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on—
(a) the available qualifying expenditure in that pool for that period (“AQE”), and
(b) the total of any disposal receipts to be brought into account in that pool for that period (“TDR”).
(2) If AQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period.
(3) If TDR exceeds AQE, the person is liable to a balancing charge for the period.
(4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.
(5) The final chargeable period for a pool to which qualifying trade expenditure has been allocated is the chargeable period in which the trade is permanently discontinued.
(6) The final chargeable period for a pool to which qualifying non-trade expenditure has been allocated is the chargeable period in which the last of the patent rights on which the person has incurred qualifying non-trade expenditure—
(a) comes to an end without any of those rights being revived, or
(b) is wholly disposed of.
(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is 25% of the amount by which AQE exceeds TDR.
(2) If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.
(3) If in the case of qualifying trade expenditure the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.
(4) A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.
(5) The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDR exceeds AQE.
(6) The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDR.
A person’s available qualifying expenditure in a pool for a chargeable period consists of—
(a) any qualifying expenditure allocated to the pool for that period in accordance with section 474, and
(b) any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 475.
(1) The following rules apply to the allocation of a person’s qualifying expenditure to a pool.
(2) An amount of qualifying expenditure is not to be allocated to the pool for a chargeable period if that amount has been taken into account in determining the person’s available qualifying expenditure for an earlier chargeable period.
(3) Qualifying expenditure is not to be allocated to the pool for a chargeable period before that in which the expenditure is incurred.
(4) Qualifying expenditure incurred on patent rights is not to be allocated to the pool for a chargeable period if in any earlier period those rights—
(a) have come to an end without any of them having been revived, or
(b) have been wholly disposed of.
(1) A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDR.
(2) The amount of the unrelieved qualifying expenditure is—
(a) the excess less the writing-down allowance made for the period, or
(b) if no writing-down allowance is claimed for the period, the excess.
(3) No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.
475A Unrelieved qualifying expenditure: entry to cash basis
(1) If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending in the previous tax year (or, if there is more than one such period, the latest of them).
(2) A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.
(3) Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances.
(4) Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.
(1) In this Chapter “disposal receipt” means a disposal value that a person is required to bring into account in accordance with—
(a) this section, or
(b) section 614BS of ITA 2007 or section 918 of CTA 2010 (cases where expenditure taken into account under Part 2, 5 or 8 of this Act) or any other enactment.
(2) A person is required to bring a disposal value into account for the chargeable period in which he sells the whole or a part of any patent rights on which he has incurred qualifying expenditure.
(3) Subject to section 477, the disposal value to be brought into account is the net proceeds of the sale, so far as they consist of capital sums.
(1) The amount of any disposal value, or the total amount of any disposal values, required to be brought into account by a person—
(a) on the sale of the whole of any patent rights, or
(b) on one or more sales of part of any patent rights,
is limited to the capital expenditure incurred by the person on purchasing the rights.
(2) But subsection (3) applies if the person acquired the rights as a result of—
(a) a transaction which was between connected persons, or
(b) a series of transactions each of which was between connected persons.
(3) That amount, or total amount, is limited to the capital expenditure on purchasing the rights incurred by whichever party to the transaction, or to any of the transactions, incurred the greatest such expenditure.
(1) This section applies if—
(a) a person carrying on a trade leaves the cash basis in a chargeable period,
(b) the person has incurred expenditure at a time when the cash basis applies in relation to the trade,
(c) some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and
(d) the expenditure would have been qualifying trade expenditure if the cash basis had not applied at the time the expenditure was incurred.
(2) In this section the “relieved portion” of the expenditure is the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade.
(3) For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 470)—
(a) the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and
(b) the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure.
(4) For the purposes of determining any disposal receipts (see section 476), the expenditure incurred by the person is to be regarded as qualifying trade expenditure.
(5) For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if—
(a) immediately before the beginning of the chargeable period the cash basis applied in relation to the trade, and
(b) the cash basis does not apply in relation to the trade for the chargeable period.
(5A) Subsection (11)(za) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.
An allowance or charge to which a person is entitled or liable under this Part for a chargeable period in respect of qualifying trade expenditure is to be given effect in calculating the profits of the trade, by treating—
(a) the allowance as an expense of the trade, and
(b) the charge as a receipt of the trade.
479 Persons having qualifying non-trade expenditure: income tax
(1) This section applies for income tax purposes if a person is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current tax year”) in respect of qualifying non-trade expenditure.
(2) An allowance is to be given effect by deducting it from or setting it off against the person’s income from patents for the current tax year.
(2A) The allowance is given effect at Step 2 of the calculation in section 23 of ITA 2007.
(3) If the amount to be deducted from or set off against the person’s income from patents for that tax year exceeds the amount of that income, the excess must be deducted from or set off against the person’s income from patents for the next tax year, and so on for subsequent tax years.
(4) A charge is to be given effect by treating the charge as income to be assessed to income tax.
480 Persons having qualifying non-trade expenditure: corporation tax
(1) This section applies for corporation tax purposes if a company is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current accounting period”) in respect of qualifying non-trade expenditure.
(2) An allowance is to be given effect by deducting it from the company’s income from patents for the current accounting period.
(3) If the amount to be deducted from the company’s income from patents for that period exceeds the amount of that income, the excess must (if the company remains within the charge to tax) be deducted from its income from patents for the next accounting period, and so on for subsequent accounting periods.
(4) A charge is to be given effect by treating the charge as income of the company from patents.
481 Anti-avoidance: limit on qualifying expenditure
(1) In the two cases given below, the amount (if any) by which the capital expenditure incurred by a person (“the buyer”) on the purchase of patent rights exceeds the relevant limit is to be left out of account in determining the buyer’s qualifying expenditure.
(2) The first case is where the buyer and the seller are connected with each other.
(3) The second case is where it appears that the sole or main benefit which (but for this section) might have been expected to accrue to the parties from—
(a) the sale, or
(b) transactions of which the sale is one,
was obtaining an allowance under this Part.
(4) If the seller is required to bring a disposal value into account under this Part because of the sale, the relevant limit is that disposal value.
(5) If subsection (4) does not apply but the seller—
(a) receives a capital sum on the sale, and
(b) is chargeable to tax in respect of that sum in accordance with section 587 of ITTOIA 2005 or section 912 of CTA 2009,
the relevant limit is that sum.
(6) If neither subsection (4) nor subsection (5) applies, the relevant limit is whichever of the following is the smallest—
(a) the market value of the rights;
(b) if the seller incurred capital expenditure on acquiring the rights, the amount of that expenditure;
(c) if a person connected with the seller incurred capital expenditure on acquiring the rights, the amount of that expenditure.
482 Sums paid for Crown use etc. treated as paid under licence
(1) This section applies if an invention which is the subject of a patent is used by or for the services of—
(a) the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or
(b) the government of a country outside the United Kingdom under corresponding provisions of the law of that country.
(2) The use is to be treated as having taken place under a licence.
(3) Sums paid in respect of the use are to be treated as having been paid under a licence.
For the purposes of this Part a person’s “income from patents” means—
(a) royalties or other sums paid in respect of the use of a patent,
(b) balancing charges to which the person is liable under this Part, and
(c) amounts on which tax is payable under section 587, 593 or 594 of ITTOIA 2005 or under section 912 or 918 of CTA 2009 (taxation of receipts from sale of patent rights).
(1) Allowances are available under this Part if a person carries on a qualifying trade and qualifying expenditure has been incurred on dredging.
(2) In this Part “qualifying trade” means a trade or undertaking the whole or part of which—
(a) consists of the maintenance or improvement of the navigation of a harbour, estuary or waterway, or
(b) is of a kind listed in Table A or B in section 274 (meaning of qualifying trade for purposes of industrial buildings allowances).
(2A) If a company or partnership is as a result of section 6D (NI rate activity treated as separate trade) treated for the purpose of this Act as carrying on two separate trades, each of them is for the purposes of this Part to be treated as a qualifying trade if the separate trades would together be so treated.
(3) “Dredging” does not include anything done otherwise than in the interests of navigation.
(4) Subject to subsection (3), “dredging” includes—
(a) the removal of anything forming part of, or projecting from the bed of, the sea or any inland water—
(i) by whatever means it is removed, and
(ii) even if, at the time of removal, it is wholly or partly above water, and
(b) the widening of an inland waterway.
(1) Expenditure on dredging is qualifying expenditure if—
(a) it is capital expenditure,
(b) it is incurred for the purposes of a qualifying trade by the person carrying on the trade, and
(c) if the person does not carry on a qualifying trade within section 484(2)(a), the dredging is for the benefit of vessels coming to, leaving or using a dock or other premises occupied by the person for the purposes of the qualifying trade.
(2) If capital expenditure is incurred—
(a) partly for the purposes of a qualifying trade, and
(b) partly for other purposes,
the qualifying expenditure is the part of the capital expenditure that, on a just and reasonable apportionment, is referable to the purposes of the qualifying trade.
(3) If part only of a trade or undertaking is within section 484(2), subsection (2) of this section applies as if—
(a) the part which is within section 484(2), and
(b) the part which is not,
were separate trades.
486 Pre-trading expenditure of qualifying trades, etc.
(1) If a person incurs capital expenditure with a view to carrying on a trade or a part of a trade, this Part applies as if the expenditure were incurred by the person on the first day on which the trade or part of the trade is carried on.
(2) If a person incurs capital expenditure—
(a) in connection with a dock or other premises, and
(b) with a view to occupying the dock or premises for the purposes of a qualifying trade which is not a qualifying trade within section 484(2)(a),
this Part applies as if the expenditure were incurred by the person when he first occupies the dock or premises for the purposes of the qualifying trade.
(1) A person is entitled to a writing-down allowance for a chargeable period if—
(a) qualifying expenditure has been incurred on dredging,
(b) at any time during the chargeable period, the person is carrying on the qualifying trade for the purposes of which the qualifying expenditure was incurred, and
(c) that time falls within the writing-down period.
(2) The writing-down period, in relation to qualifying expenditure incurred by a person, is 25 years beginning with the first day of the chargeable period of that person in which the qualifying expenditure was incurred.
(3) The amount of the writing-down allowance is 4% of the qualifying expenditure.
(4) The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.
(5) The total amount of any writing-down allowances made in respect of any qualifying expenditure, whether to the same or different persons, must not exceed the amount of the expenditure.
(6) A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.
(7) A person is not entitled to a writing-down allowance for the chargeable period in which a balancing allowance is made to him in respect of the qualifying expenditure.
(1) A person is entitled to a balancing allowance for a chargeable period if—
(a) qualifying expenditure has been incurred on dredging,
(b) in that chargeable period, the qualifying trade for the purposes of which the expenditure was incurred has been—
(i) permanently discontinued, or
(ii) sold,
(c) the person is the last person carrying on the qualifying trade before its discontinuance or sale, and
(d) the amount of the expenditure exceeds the amount of the allowances previously made in respect of it, whether to the same or different persons.
(2) The amount of the balancing allowance is the amount of the difference.
(3) For the purposes of subsection (1)—
(a) the permanent discontinuance of a trade does not include an event treated as a permanent discontinuance under section 577(2A) of this Act or section 18 of ITTOIA 2005 (effect of company ceasing to trade etc.), and
(b) a sale does not include a sale which is within subsection (4) or (5).
(4) A sale is within this subsection if any of the following conditions is met—
(a) the buyer is a body of persons over whom the seller has control;
(b) the seller is a body of persons over whom the buyer has control;
(c) both the seller and the buyer are bodies of persons and another person has control over both of them;
(d) the seller and the buyer are connected persons.
In this subsection “body of persons” includes a partnership.
(5) A sale is within this subsection if it appears that the sole or main benefit which might be expected to accrue to the parties, or any of them, from—
(a) the sale, or
(b) transactions of which the sale is one,
is the obtaining of a tax advantage under any of the provisions of this Act apart from Part 2 (plant and machinery allowances).
(1) An allowance to which a person is entitled under this Part is to be given effect in calculating the profits of that person’s trade, by treating the allowance as an expense of the trade.
(2) This section is subject to section 6E (giving effect to allowances and charges: NI rate activity cases).
(1) Allowances are available under this Part if qualifying expenditure has been incurred on a building which consists of or includes a qualifying dwelling-house.
(2) A dwelling house is not a qualifying dwelling-house unless—
(a) it is let on a tenancy which is for the time being an assured tenancy, or
(b) it has been let on an assured tenancy and the conditions in subsection (4) are met.
(3) “Assured tenancy” means—
(a) an assured tenancy within the meaning of section 56 of the Housing Act 1980 (c. 51), or
(b) an assured tenancy (but not an assured shorthold tenancy) for the purposes of the Housing Act 1988 (c. 50).
(4) The conditions referred to in subsection (2)(b) are that—
(a) the dwelling-house is for the time being subject to a regulated tenancy or a housing association tenancy, and
(b) the landlord under the tenancy is an approved body or was an approved body but has ceased to be such for any reason.
(5) In subsection (4) “regulated tenancy” and “housing association tenancy” have the same meaning as in the Rent Act 1977 (c. 42).
(6) Further requirements that have to be met for a dwelling-house to be a qualifying dwelling-house are given in sections 504 and 505; and subsection (2) is subject to section 506(2)(b) (temporary disuse of dwelling-house ignored).
491 Allowances available in relation to old expenditure only
(1) Allowances under this Part are not available unless—
(a) the qualifying expenditure was incurred after 9th March 1982 and before 1st April 1992, and
(b) if the tenancy is an assured tenancy for the purposes of the Housing Act 1988, expenditure has been incurred which is within subsection (2) or (3).
(2) Expenditure is within this subsection if it was incurred by—
(a) a company which was an approved body on 15th March 1988, or
(b) a person who sold the relevant interest in the building, before any of the dwelling-houses comprised in it were used, to a company which was an approved body on 15th March 1988,
and either it was incurred before 15th March 1988 or it consists of the payment of sums under a contract entered into before that date.
(3) Expenditure is within this subsection if it was incurred by a company which—
(a) was an approved body on 15th March 1988, and
(b) bought or contracted to buy the relevant interest in the building before that date.
(1) For the purposes of this Part, expenditure on the construction of a building does not include expenditure on the acquisition of land or rights in or over land.
(2) This Part has effect in relation to capital expenditure incurred by a person on repairs to a part of a building as if it were capital expenditure on the construction of that part of the building for the first time.
This Chapter identifies, in a case where a person has incurred expenditure on the construction of a building which is to be or include a qualifying dwelling-house—
(a) the relevant interest in the building, and
(b) the relevant interest in a dwelling-house comprised in the building.
495 General rule as to what is the relevant interest in the building
(1) The relevant interest in the building is the interest in the building to which the person who incurred the expenditure on the construction of the building was entitled when the expenditure was incurred.
(2) Subsection (1) is subject to the following provisions of this Chapter.
(3) If—
(a) the person who incurred the expenditure on the construction of the building was entitled to more than one interest in the building when the expenditure was incurred, and
(b) one of those interests was reversionary on all the others,
the reversionary interest is the relevant interest.
496 Interest acquired on completion of construction
For the purpose of determining the relevant interest, a person who—
(a) incurs expenditure on the construction of a building, and
(b) is entitled to an interest in the building on or as a result of the completion of the construction,
is treated as having had that interest when the expenditure was incurred.
If the relevant interest is a leasehold interest which is extinguished on—
(a) being surrendered, or
(b) the person entitled to it acquiring the interest which is reversionary on it,
the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished.
(1) This section applies if the relevant interest in relation to expenditure on the construction of a building is a lease.
(2) If, with the consent of the lessor, the lessee of a building remains in possession after the termination of the lease without a new lease being granted to him, the lease is treated as continuing as long as the lessee remains in possession.
(3) If on the termination of the lease a new lease is granted to the lessee as a result of the exercise of an option available to him under the terms of the first lease, the second lease is treated as a continuation of the first.
(4) If on the termination of the lease the lessor pays a sum to the lessee in respect of a building comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment.
(5) If on the termination of the lease—
(a) a new lease is granted to a different lessee, and
(b) in connection with the transaction that lessee makes a payment to the former lessee,
the two leases are treated as if they were the same lease which had been assigned by the former lessee to the new lessee in consideration of the payment.