Commentary on Sections Glossary Structure of Part 2 Section 138: Limit on amount deferred
529.This section is based on part of section 33A(2), (3) and (6) of CAA 1990. It provides the upper limits on the amount of any balancing charge that may be deferred. There is a minor change.
530.Subsection (1)(a) provides that the amount deferred must not exceed the balancing charge which would arise in the appropriate non-ship pool if the claim for deferment had not been made. In CAA 1990, this limit is expressed in terms of what would be the balancing charge for the shipowner’s actual trade ignoring balancing charges from the notional trades (in this Act, pools) provided by sections 41(2), 79(5) and 80(5).
531.This subsection is more direct. Subsection (1)(a) also ensures that balancing charges arising in the “appropriate non-ship pool” applicable to a ship may not affect a claim to defer a balancing charge arising in a different pool. See Change 22 in Annex 1.
532.Subsection (1)(b) provides that the deferred amount is limited to the balancing charge actually attributable to the ship. This amount is quantified in section 139. This ensures that other disposal events in the appropriate non-ship pool do not have the effect of increasing the amount available for deferment.
533.Subsection (1)(c) ensures that the amount of a deferment claim is limited to the expenditure on new shipping that will be incurred in the six years from the disposal event. This expenditure must be incurred either by:
	the shipowner; or
	if the shipowner is a company, a member of the same group as the shipowner.
534.Subsection (1)(d) provides that the amount of the deferment may not exceed the shipowner’s profits or income from the qualifying activity in the relevant chargeable period. This ensures that a deferment claim may not create a loss for the chargeable period in which the balancing charge arises.
535.Subsection (2) provides that for the purposes of subsection (1)(d):
	other deferments for the chargeable period are taken into account; and
	a deferment takes precedence over the provisions dealing with the carry-forward of trading losses.
	Example
	Suppose P has a shipping trade. During the year ending 30 June 2001 P has a taxable profit of £340,000. That figure includes a balancing charge of £500,000 arising on the disposal of a qualifying ship. P also has trading losses of £209,000 available to carry forward at 1 July 2000.
	If no claim for deferment is made, P’s net profit for the year ending 30 June 2001 is:Actual profit£340,000Less:Loss brought forward£209,000________Taxable profit£131,000________
	P would have no further losses available to carry forward to the chargeable period for the year ending 30 June 2002.
	If P is expecting to incur further expenditure on new shipping within six years of the disposal, P will be entitled to defer the balancing charge arising in the year ending 30 June 2001.
	Under subsection (1)(a) the amount qualifying for deferment may not exceed the balancing charge arising (£500,000). Under subsection (1)(d), the deferred amount must also be no more than P’s profit for the year ending 30 June 2001 (£340,000). In accordance with subsection (2), the losses brought forward are ignored for this.
	Suppose P defers £340,000. The balancing charge is effectively reduced by this amount, giving rise to a nil profit in the year ending 30 June 2001. P’s losses of £209,000 will be carried forward to the year ending 30 June 2002.