Income and Corporation Taxes Act 1988

384 Restrictions on right of set-off. U.K.

(1) M1 Subject to subsection (2) below, a loss F1 . . . shall not be available for relief under section 380 unless F2 . . . , for the year of assessment in which the loss is claimed to have been sustained, the trade was being carried on on a commercial basis and with a view to the realisation of profits in the trade or, where the carrying on of the trade formed part of a larger undertaking, in the undertaking as a whole.

(2) Subsection (1) above shall not apply—

(a) to a loss made F3 . . . by any person in the exercise of functions conferred by or under any enactment (including an enactment contained in a local or private Act); F4 . . .

(b) F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) M2 Where during a year of assessment there is a change in the manner in which a trade is being carried on, it shall be treated for the purposes of this section as having been carried on throughout the year in the way in which it was being carried on by the end of the year.

(4) Subject to subsection (5) below, where

[F5 (a) a trade is carried on for part only of a year of assessment by reason of its being set up and commenced, or discontinued, or both, in that year, or

(b) a person carries on, or is treated as carrying on, a trade for part only of a year of assessment by reason of—

(i) a succession to the trade during the year which involves all the persons carrying it on before the succession permanently ceasing to carry it on, or

(ii) a change of residence within section 17 of ITTOIA 2005,

subsections (1) to (3) above] shall have effect in relation to the trade as regards that part of that year as if any reference to the manner of carrying on the trade for or by the end of that year were a reference to the manner of carrying it on for or by the end of that part of that year.

(5) F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) [F7 M3 There shall be disregarded for the purposes of sections 380 and 381 so much of any loss as derives from any allowances] made to an individual [F8 under Part 2 of the Capital Allowances Act in respect of expenditure incurred on the provision of plant or machinery] for leasing in the course of a trade unless—

(a) the trade is carried on by him (alone or in partnership) for a continuous period of at least six months in, or beginning or ending in, [F9 the year of assessment in which the loss was sustained]; and

(b) he devotes substantially the whole of his time to carrying it on (alone or in partnership) throughout that year or if it is set up or permanently discontinued (or both) in that year, for a continuous period of at least six months beginning or ending in that year.

(7) M4 Subsection (6) above shall apply also to expenditure incurred by an individual on the provision for the purposes of a trade carried on by him (alone or in partnership) of an asset which is not to be leased if payments in the nature of royalties or licence fees are to accrue from rights granted by him in connection with that asset.

(8) M5 Where relief has been given in a case to which subsection (6) above applies it shall be withdrawn by the making of an assessment [F10 to income tax].

[F11 (9) Where at any time a trade is carried on so as to afford a reasonable expectation of profit, it shall be treated for the purposes of subsection (1) above as being carried on at that time with a view to the realisation of profits.]

(10) Subsections (1) to (5) and (9) above—

(a) apply to professions and vocations as they apply to trades, with references to a commercial basis construed accordingly; and

(b) have effect without prejudice to section 397;

F12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F13 (11) Expressions used in subsections (6) to (8) and in Part 2 of the Capital Allowances Act have same meaning in those subsections as in that Part; and those subsections are without prejudice to section 384A.]

Textual Amendments

F1 Words in s. 384(1) repealed (with effect in accordance with ss. 211(2), 218(1)(b) of the repealing Act) by Finance Act 1994 (c. 9), s. 214(1)(c), Sch. 26 Pt. 5(24), Note 5

F2 Words in s. 384(1) repealed (with effect in accordance with s. 134(2) of the repealing Act) by Finance Act 1996 (c, 8), Sch. 20 para. 25(1), Sch. 41 Pt. 5(10), Note

F3 Words in s. 384(2)(a) repealed (with effect in accordance with ss. 211(2), 218(1)(b) of the repealing Act) by Finance Act 1994 (c. 9), s. 214(1)(c), Sch. 26 Pt. 5(24), Note 5

F4 S. 384(2)(b) and preceding word repealed (with effect in accordance with ss. 211(2), 218(1)(b) of the repealing Act) by Finance Act 1994 (c. 9), s. 214(1)(c), Sch. 26 Pt. 5(24), Note 5

F5 S. 384(4)(a)(b) and words substituted for words in s. 384 (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 159(2) (with Sch. 2)

F6 S. 384(5) repealed (with effect in accordance with s. 215(4)(5) of the repealing Act) by Finance Act 1994 (c. 9), s. 216(3)(d), Sch. 26 Pt. 5(24), Note 4(b) (as s. 215(5) of that Act is modified (1.5.1995) by 1995 c. 4, s. 125(1)) (with Sch. 20)

F7 Words in s. 384(6) substituted (with effect in accordance with ss. 211(2), 218 of the amending Act) by Finance Act 1994 (c. 9), s. 214(2)(a)

F8 Words in s. 384(6) substituted (with effect in accordance with s. 579(1) of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 29(1) (with Sch. 3)

F9 Words in s. 384(6)(a) substituted (with effect in accordance with ss. 211(2), 218 of the amending Act) by Finance Act 1994 (c. 9), s. 214(2)(b)

F10 Words in s. 384(8) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 159(3) (with Sch. 2)

F11 S. 384(9) substituted (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 25(2)

F12 Words in s. 384(10) repealed (with effect in accordance with s. 579(1) of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 29(2), Sch. 4 (with Sch. 3)

F13 S. 384(11) inserted (with effect in accordance with s. 579(1) of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 29(2) (with Sch. 3)

Marginal Citations

M1 Source—1970 s.170(1)

M2 Source—1970 s.170(2)-(4)

M3 Source—1980 s.70(1), (5)

M4 Source—1980 s.70(2), (5)

M5 Source—1980 s.70(4)