Finance Act 1985

Sections 64 and 65.

SCHEDULE 18Writing-Down Allowances Etc. in Respect of Patent Rights and Know-How

PART IExpenditure on Purchase of Patent Rights

1(1)For any chargeable period for which a person within subsection (1) of section 378 of the Taxes Act has qualifying expenditure (as defined in paragraph 2 below) which exceeds any disposal value to be brought into account by him in accordance with paragraph 3 below, there shall be made to him,—

(a)except where paragraph (b) or paragraph (c) below applies, a writing-down allowance of an amount equal, subject to sub-paragraph (2) below, to—

(i)25 per cent, of the excess, or

(ii)a proportionately reduced percentage of the excess if the period is part only of a year, or if, in a case where the period is a year of assessment and the allowance falls to be made in taxing a trade, the trade has been carried on for part only thereof;

(b)if an allowance falls to be made to that person in taxing his trade and the period is the chargeable period related to the permanent discontinuance of the trade, a balancing allowance equal to the whole of the excess ; and

(c)if paragraph (b) above does not apply but the period is the chargeable period in which the last of the relevant patent rights comes to an end without any of those rights being revived, a balancing allowance equal to the whole of the excess.

(2)For the purposes of sub-paragraph (1)(c) above, the " relevant patent rights " at any time are those—

(a)on the purchase of which the person concerned has incurred capital expenditure which has been taken into account in determining his qualifying expenditure for any chargeable period ; and

(b)which he has not wholly disposed of.

(3)For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a balancing charge and the amount on which the charge is made shall be an amount equal to the difference.

2For the purposes of paragraph 1 above, a person's qualifying expenditure for a chargeable period is the aggregate of the following amounts—

(a)any capital expenditure incurred by him on the purchase of patent rights, being expenditure incurred during the chargeable period or its basis period or at any previous time, other than expenditure which, or any part of which, has formed part of his qualifying expenditure for any previous chargeable period; and

(b)if, for the chargeable period immediately preceding the chargeable period in question, there was an excess of qualifying expenditure over disposal value, the balance of that excess after deducting any writing-down allowance under paragraph 1(1)(a) above made by reference thereto.

3(1)If, in any chargeable period or its basis period, a person sells the whole or any part of any patent rights on the purchase of which he has incurred capital expenditure, then, for the purposes of paragraphs 1 and 2 above, he is required to bring into account for that chargeable period disposal value equal, subject to sub-paragraphs (2) and (3) below, to the net proceeds to him of that sale.

(2)The disposal value to be brought into account by any person in respect of any patent rights as a result of one or more sales falling within sub-paragraph (1) above shall not (or, as the case may be, shall not in the aggregate) exceed the capital expenditure incurred by him on the purchase of those rights.

(3)Where the person mentioned in sub-paragraph (2) above has acquired the patent rights as a result of a transaction which was, or a series of transactions each of which was, between persons who are connected with each other within the terms of section 533 of the Taxes Act, that sub-paragraph shall have effect as if it referred to the capital expenditure on the purchase of the rights incurred by whichever party to that transaction, or to any of those transactions, incurred the greatest such expenditure.

4Where a person incurs capital expenditure on the purchase of patent rights and either—

(a)he and the seller are connected with each other within the terms of section 533 of the Taxes Act, or

(b)it appears with respect to the sale, or with respect to transactions of which the sale is one, that the sole or main benefit which, but for this paragraph, might have been expected to accrue to the parties was the obtaining of an allowance under section 378 of the Taxes Act,

there shall be disregarded for the purposes of paragraphs 1 and 2 above so much (if any) of that expenditure as exceeds the disposal value to be brought into account by virtue of paragraph 3 above by reason of the sale.

PART IIExpenditure on Acquiring Know-How

5(1)For any chargeable period for which a person within subsection (1) of section 386 of the Taxes Act has qualifying expenditure (as denned in paragraph 6 below) which exceeds any disposal value to be brought into account by him in accordance with paragraph 7 below, there shall be made to him—

(a)unless the period is the chargeable period related to the permanent discontinuance of the trade referred to in that subsection, a writing-down allowance of an amount equal, subject to sub-paragraph (2) below, to—

(i)25 per cent of the excess, or

(ii)a proportionately reduced percentage of the excess if the period is part only of a year, or if the period is a year of assessment but the trade has been carried on for part only thereof; and

(b)if the period is the chargeable period related to the permanent discontinuance of the trade, a balancing allowance equal to the whole of the excess.

(2)For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a balancing charge and the amount on which the charge is made shall be an amount equal to the difference.

6For the purposes of paragraph 5 above, a person's qualifying expenditure for a chargeable period is the aggregate of the following amounts—

(a)any capital expenditure incurred by him on the acquisition of know-how, being expenditure incurred during the chargeable period or its basis period or at any previous time, other than expenditure which, or any part of which, has formed part of his qualifying expenditure for any previous chargeable period; and

(b)if, for the chargeable period immediately preceding the chargeable period in question, there was an excess of qualifying expenditure over disposal value, the balance of that) excess after deducting any writing-down allowance under paragraph 5(1)(a) above made by reference thereto.

7If, in any chargeable period or its basis period, a person sells any know-how, on the acquisition of which for use in a trade carried on by him he has incurred expenditure falling within subsection (1) of section 386 of the Taxes Act, then, for the purposes of paragraphs 5 and 6 above, he is required to bring into account for that chargeable period disposal value equal to the net proceeds to him of that sale.

8Subsections (7) and (8) of section 386 of the Taxes Act (meaning of "know-how" and treatment of certain consideration) apply for the purposes of this Part of this Schedule as they apply for the purposes of that section.