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.