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Part 7 Know-how allowances

Chapter 3 Allowances and charges

456 Pooling of 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 for each trade in respect of which the person has qualifying expenditure.

457 Determination of entitlement or liability

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 values to be brought into account in that pool for that period (“TDV”).

2

If AQE exceeds TDV, the person is entitled to a writing-down allowance or a balancing allowance for the period.

3

If TDV 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 is the chargeable period in which the trade is permanently discontinued.

458 Amount of allowances and charges

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 TDV.

2

If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

3

If 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 TDV 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 TDV.

459 Available qualifying expenditure

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 460, and

b

any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 461.

460 Allocation of qualifying expenditure to pools

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.

461 Unrelieved qualifying expenditure

1

A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDV.

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.

462 Disposal values

1

A person is required to bring a disposal value into account for the chargeable period in which he sells know-how on which he has incurred qualifying expenditure.

2

The disposal value to be brought into account is the net proceeds of the sale, so far as they consist of capital sums.

3

But no disposal value need be brought into account if the consideration received for the sale is treated as a payment for goodwill under F1section 194(2) of ITTOIA 2005 or underF2section 178(2) of CTA 2009 (consideration for know-how on disposal of trade to be treated as payment for goodwill, unless parties otherwise elect).

463 Giving effect to allowances and charges

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.