Commentary on Sections Glossary History Section 488: Balancing allowances
1744.This section is based on section 134(2) and (4) of CAA 1990. It deals with balancing allowances and the events that lead to them.
1745.Subsection (1) sets out the rules for determining whether there is a balancing allowance in any chargeable period.
1746.Subsection (1)(b) sets out the two disposal events for this Part: discontinuance and sale. Section 134(4) of CAA 1990 deals with a sale by deeming it to be a discontinuance. This Act deals with it as a separate circumstance that can lead to a balancing allowance.
1747.As a result this section does not need the reference in section 134(4) of CAA 1990 to section 343(2) of ICTA. There is no longer anything that might look as if it overrides section 343(2) (which provides that, on a company reconstruction in certain circumstances, a trade is not deemed to have been discontinued). See Note 64 in Annex 2.
1748.Subsection (2) deals with the amount of the balancing allowance. The allowance is the unrelieved expenditure. This differs from the approach in other Parts. In those, disposal proceeds are normally taken into account in working out the amount of a balancing adjustment. Doing so brings the net allowances into line with the actual depreciation of an asset. But with dredging there is generally no identifiable asset as a result of the expenditure. There is nothing to which one can point in order to apportion to it proceeds from the sale of a trade. And it would be difficult to put a value on the worth of the dredging. For these reasons this Part gives a balancing allowance equal to the whole of the expenditure. Balancing allowances are also subject to some anti-avoidance rules – see subsections (4), (5) and (6).
1749.Subsection (3) gives rules about permanent discontinuance. The discontinuance rules in sections 113(1) and 337(1) of ICTA do not apply. This means that a change in the persons carrying on a trade will not trigger a disposal event (and a balancing allowance) in this Part.
1750.Subsection (4) prevents the sale of a trade from being a disposal event if the sale is of a type described in either subsection (5) or (6).
1751.Subsection (5) is based on section 157(1)(a) of CAA 1990. It sets out various types of control and connected persons sales to which this subsection applies.
1752.Subsection (6) is based on section 157(1)(b) of CAA 1990. It describes types of sale in which the sole or main benefit is to obtain a tax advantage.