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.

There is a separate pool for each trade in respect of which the person has qualifying expenditure.

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

If TDV exceeds AQE, the person is liable to a balancing charge for the period.

The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.

The final chargeable period is the chargeable period in which the trade is permanently discontinued.

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.

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

If the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDV exceeds AQE.

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.

The following rules apply to the allocation of a person’s qualifying expenditure to a pool.

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.

Qualifying expenditure is not to be allocated to the pool for a chargeable period before that in which the expenditure is incurred.

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

No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.

If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending F2in the previous tax year (or, if there is more than one such period, the latest of them).

A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances.

Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

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.

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

But no disposal value need be brought into account if the consideration received for the sale is treated as a payment for goodwill under F3section 194(2) of ITTOIA 2005 or under F4section 178(2) of CTA 2009 (consideration for know-how on disposal of trade to be treated as payment for goodwill, unless parties otherwise elect).

For the purposes of determining any disposal values (see section 462), the expenditure incurred by the person is to be regarded as qualifying expenditure.

Subsection (11)(za) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.