Income and Corporation Taxes Act 1988

530 Disposal of know-how. U.K.

(1) M1 Subject to section 531, where after 31st March 1986 a person—

(a) acquires know-how for use in a trade carried on by him, or

(b) acquires know-how, and thereafter sets up and commences a trade in which it is used,

allowances and charges shall, in accordance with subsections (2) and (3) below, be made to and on him in respect of his expenditure on the acquisition, so far as not otherwise deducted for the purposes of corporation tax or income tax.

(2) M2 For any chargeable period for which a person within subsection (1) above has qualifying expenditure which exceeds any disposal value to be brought into account by him in accordance with subsection (5) below, there shall be made to him—

(a) unless the period is the chargeable period related to the permanent discontinuance of the trade, a writing-down allowance of an amount equal 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 had been carried on for part only of the year; 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.

(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.

(4) For the purposes of subsections (2) and (3) 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 subsection (2)(a) above made by reference to that excess.

(5) If, 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) above, then, for the purposes of subsections (2) to (4) above, he is required to bring into account for that chargeable period disposal value equal to the net proceeds to him of that sale.

(6) M3 Subject to section 531, where after 19th March 1968 and before 1st April 1986 a person—

(a) acquired know-how for use in a trade carried on by him, or

(b) acquired know-how, and thereafter sets up and commences a trade in which it is used,

writing-down allowances in respect of his expenditure on the acquisition, so far as not otherwise deducted for the purposes of corporation tax or income tax, shall be made in taxing the trade during a writing-down period of six years beginning with the chargeable period related to the expenditure; and if during that period he ceases to carry on the trade, an allowance equal to the amount of that expenditure then unallowed shall be made in taxing the trade for the chargeable period related to the discontinuance.

(7) M4 For the purposes of subsections (1) and (6) above, a person incurring expenditure on know-how before the setting up and commencement of the trade in which it is used shall be treated as incurring it on that setting up and commencement.

(8) [F1 M5 Subsections (2) and (3) of section 146 of the 1990 Act] (effect of providing writing-down allowances during writing-down period of a specified length) shall apply to subsection (6) above as [F1 they apply] to the provisions specified in subsection (1) of that section.

Textual Amendments

F1 Words in s. 530(8) substituted (with effect in accordance with s. 164(1)(2) of the amending Act) by Capital Allowances Act 1990 (c. 1), Sch. 1 para. 8(27) (with s. 164(3))

Marginal Citations

M1 Source-1970 s.386(1); 1985 s.65(1)

M2 Source-1985 Sch.18 Part II 5-7

M3 Source-1970 s.386(1); 1985 s.65(1)

M4 Source-1970 s.386(1)

M5 Source-1970 s.386(9); 1985 s.65(2)