8 |
24A.1.6.1 Taxing the Qualifying Activity: Schedule A Business, Trade, etc |
Where the allowance is given effect in taxing the trade or other qualifying activity, it is treated as a deductible expense for the period of account to which it relates; similarly, a balancing charge is treated as a trading receipt.34 Therefore, the correct profits figure will be profit less capital allowances, and any excess allowances will automatically generate a trading loss. Claims for allowances are normally made in the tax return.35 |
The widest allowance, for Plant and Machinery, is given for any qualifying activity, of which trade is the first example. Other activities include any ordinary schedule A business, furnished holiday lettings, overseas property business, profession or vocation, mining, etc concerns listed in TA 1988, section 55(2), the management of an investment company, special leasing of plant or machinery and an employment or office. Each such source treats the capital allowance in the same way.36 |
The allowance is ‘treated as’ an expense rather than being an expense. Hence, a taxpayer is under no obligation to take allowances available but has a discretion whether or not to take them.37 In relation to non-resident companies, rules direct the separation of sources subject to income tax from those subject to corporation tax.38 |
Allowances are computed by reference to qualifying expenditure and disposals in each chargeable period.39 Since allowances are given on an annual basis they will be increased or reduced if the chargeable period is greater or less than 12 months. The concept of the chargeable period replaced the old concept of the basis period in 1994.40 |
The ‘chargeable period’ is the accounting period of a company or the period of account of someone liable to income tax.41 Where the allowance is made in taxing the trade, profession or vocation the period of account is usually any period for which accounts are made up for the purposes of the trade.42 Where, as in the opening two years, two periods of account overlap, the period common to both is deemed to fall in the first period of account only. If there is an interval between two periods of account, the interval is deemed to be part of the first period of account.43 In this way the allowance—or charge—is given only once. Any period of account greater than 18 months is subdivided; the first subdivision begins with the commencement date of the original period, and later subdivisions are set at 12-month intervals.44 Any net loss is, in the case of a trade, given effect for income tax as an ordinary trading loss and so set off against general income under TA 1988, section 380 or 381, or rolled forward against future profits under section 385 (see above at §20.10). |