Chapter 4: Giving effect to allowances and charges
Overview
1694.This Chapter deals with the way in which allowances and charges are made. They are treated as trading expenses and receipts if qualifying trade expenditure is involved. They are treated as deductions from patent income or, broadly, as patent income if qualifying non-trade expenditure is involved.
1695.Section 478 deals with allowances and charges for a pool of qualifying trade expenditure.
1696.Section 479 deals, for income tax, with allowances and charges for a pool of qualifying non-trade expenditure.
1697.Section 480 deals, for corporation tax, with allowances and charges for a pool of qualifying non-trade expenditure.
Section 478: Persons having qualifying trade expenditure
1698.This section is based on sections 528(1) and 532(1) of ICTA and sections 140(2), 144(2), and 161(2) and (5) of CAA 1990. It gives effect to allowances and charges in respect of qualifying trade expenditure as trading expenses or receipts. This treatment is what one would expect but the path to it in CAA 1990 is not straightforward. See Note 61 in Annex 2.
Section 479: Persons having qualifying non-trade expenditure: income tax
1699.This section is based on sections 528(2) and (4) of ICTA. It gives effect to allowances and charges for non-trade qualifying expenditure for income tax.
1700.It does not reproduce the words at the end of section 528(2)(b) of ICTA about tax being discharged or repaid accordingly. Nor does it reproduce the closing words of section 528(2) which require a claim for relief to be made under that subsection. See Note 63 in Annex 2.
1701.The second half of section 532(1) of ICTA is not rewritten. See Note 62 in Annex 2.
1702.Subsection (4) treats charges in respect of qualifying non-trade expenditure as income taxable under Case VI of Schedule D. Such charges are treated as income from patents by section 483, which allows the charges to be reduced by allowances in respect of qualifying non-trade expenditure.
Section 480: Persons having qualifying non-trade expenditure: corporation tax
1703.This section is based on sections 528(3) and (4) of ICTA. It gives effect to allowances and charges for non-trade qualifying expenditure for corporation tax.
1704.Subsection (3) provides that excess allowances can be carried forward and deducted from patent income of later accounting periods so long as the company remains within the charge to tax. The second half of section 532(1) of ICTA does not allow a more generous offset of such excess allowances. See Note 62 in Annex 2.
1705.Subsection (4) treats charges in respect of qualifying non-trade expenditure as income from patents. This treatment allows charges to be reduced by allowances in respect of qualifying non-trade expenditure.
