Introduction What happens when Chapter applies
47.New section 212N provides that when new Chapter 16A applies, an accounting period of C, or of a partnership P in which C was a member, or which succeeded to the trade previously carried on by C in circumstances in which Chapter 1 of Part 22 of CTA 2010 applies (previously section 343 of ICTA), ends and a new accounting period starts. This section defines what is meant by the terms “the old period” and “the new period”.
48.Subsection (1) gives the rule that the accounting period of C which is current on the relevant day ends with that day and a new accounting period of C begins with the following day.
49.Subsection (2) disapplies the rule in subsection (1) if condition A, B or D in new section 212C is met and the relevant trade was carried on by C in partnership with another company or other companies. In these circumstances, the rule is that the accounting period of the partnership which is current on the relevant day ends on that day. Where the partnership continues after the relevant day a new accounting period begins on the following day, or where condition D applies, and C’s share in the relevant trade is nil after the qualifying change, and the relevant trade is carried on by a company, a new accounting period of that company begins on the following day.
50.Subsection (3) explains that the accounting period which ends on the relevant day is the “old period” when considering the application of new section 212O.
51.Subsection (4) explains that accounting period which begins on the day following the relevant day is the “new period” when considering the application of new section 212P.
52.New section 212O explains how the amount of the excess of allowances in a pool is to be calculated – this is in order to consider the application of new section 212P. The calculation is done in two stages. The first stage requires a comparison of the unrelieved expenditure in each pool with the balance sheet value of the assets in that pool. The unrelieved expenditure is as specified in new section 212K(2) for each single asset pool or class pool (not the total of such pools in either case) and in the main pool. This amount is referred to as “PA” in relation to each pool. The PA value is then compared to the BSVP - a just and reasonable apportionment of the total BSV, calculated under new section 212L - which is appropriate to attribute to that particular pool. If, on a pool by pool basis, PA is more than BSVP, then C or P has an excess of allowances in that pool (called a “relevant pool” in this section and in new section 212P) and the amount of the excess is the difference between PA and BSVP.
53.However, if for any other pool BSVP is greater that PA, then section 212O(5) provides that what would otherwise be the excess in a relevant pool may be reduced by the difference between BSVP and PA provided that difference has not already been taken into account in relation to another relevant pool or under new section 212Q(8). This is the second stage of the calculation. This ensures that the total of excess of allowances in each individual pool does not exceed the figure given by new section 212J.
54.New section 212P is the main provision that sets out what happens when C or P has an amount of excess allowances. Essentially the excess of allowances is treated as qualifying expenditure in a new pool. The way in which relief for allowances in respect of expenditure in new pools, or losses attributable to such allowances, can be claimed is then restricted.
55.Subsection (1) provides that the unrelieved expenditure in each relevant pool is taken to be reduced at the beginning of the new period by the amount of the excess of allowances in relation to the pool.
56.Subsection (2) then provides that the amount of excess is to be treated from the beginning of the new period as if it were qualifying expenditure in a new pool of the same description as the relevant pool.
57.Subsection (3) provides that after a qualifying change has taken place, as defined in new section 212C, any trade or part of a trade transferred into C or P is treated as a separate trade (from C’s or P’s original trade) for the purposes of claiming capital allowances in respect of qualifying expenditure in a new pool. As a result, capital allowances in respect of new pools cannot be claimed against C’s or P’s newly acquired trade (or part trade) activities.
58.Subsection (4) provides that where a claim to capital allowances in respect of a new pool creates or increases a loss, that loss may only be set off under section 37 of CTA 2010 against the profits from qualifying activities carried on by C, or by a company that is a member of P, at the start of the relevant day.
59.Subsection (5) provides also that the amount of loss (created or increased by capital allowances claimed in respect of expenditure in a new pool) set off under section 37 of CTA 2010 cannot exceed the amount that could have been set off in the absence of the qualifying change.
60.Subsection (6) provides that a loss attributable to capital allowances claimed in respect of new pool expenditure cannot be surrendered as group relief unless it could have been so surrendered but for the qualifying change.
61.Subsection (7) provides that the amount of loss surrendered as group relief under subsection (6) cannot exceed the amount that could have been set off in the absence of the qualifying change.
62.Subsection (8) is an anti-avoidance rule that prohibits a qualifying activity not actually carried on by C, or a company that is a member of P, at the start of the relevant day, but which would otherwise be regarded, for corporation tax purposes, as forming part of C or the company’s qualifying activity at that time, from being so regarded for the purposes of subsection (4) above.
63.Subsection (9) provides that where condition C in new section 212C is met, then the reduction of qualifying expenditure in the relevant pools and the allocation of the excess of allowances looks at the pools transferred under section 948 of CTA 2010 (previously section 343 of ICTA) from C.
64.New section 212Q provides comparable rules (to those in new section 212P) in relation to postponed allowances. The legislation starts by treating all postponed allowances as being an excess of allowances (see paragraph 30 above) and calls them relevant postponed allowances. However, the excess of postponed allowances can be reduced if in any pool BSVP is more than PA and the difference between BSVP and PA has not been used to reduce the excess in any relevant pool (see paragraph 53 above). The section only has effect where the relevant day is on or after 9 December 2009.
65.The rules on restricting the set-off of excess postponed allowances are exactly the same as those for allowances from new pools. Subsections (4) to (7) provide that the postponed allowances cannot be included in any section 37 of CTA 2010 loss claim, nor can they be included in any amount surrendered as group relief, unless the amounts would have been available for set off or surrender but for the qualifying change.
66.New section 212R provides a rule that requires the disposal proceeds from the sale of any relevant plant and machinery to be apportioned between the new pool and the relevant pool on a just and reasonable basis.
67.New section 212S is an anti-avoidance provision that stops any person, other than C or P, claiming plant and machinery allowances on any asset acquired from C on the relevant day. This is because new section 212K(4)(c) provides that the disposal is ignored not only when calculating RTWDV, but also for the purposes of Part 2 of CAA. Without this provision it would have been possible for both C and the person acquiring the asset to get relief. The section only has effect where the relevant day is on or after 9 December 2009.
68.Paragraph 4 amends section 247 of CAA by introducing a new subsection that refers to the anti-avoidance rules in new Chapter 16A and so limits the ways in which effect may be given to an allowance.
69.Paragraph 5 explains that the amendments have retrospective effect where the relevant day is on or after 21 July 2009.
70.Paragraph 6 however provides that certain provisions only have effect from 9 December 2009. The provisions are those relating to companies with no principal company at the start of the relevant date, postponed allowances, transactions taking place on the relevant day that reduce the amount of unrelieved expenditure in a pool, and the denial of allowances where a person has acquired plant and machinery from C or P on the relevant day.