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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 2

Machinery or plant: initial allowances, wear and tear allowances, balancing allowances and balancing charges

Initial allowances.

ITA67 s251(1), (4)(bb)(ii) and (d), (6) and (7); FA73 s9(2) (apart from the proviso); CTA76 s 21(1) and Sch1 par15 and par61; FA88 s43(b), s51(1)(a) and (cc) (proviso thereto), (2)(a), (c) and (d) and (6); FA89 s13; FA90 s73(a) and (b), s80, s81(1)(a) and (2)(a) and (b); FA93 s33; FA95 s27; FA96 s43]

283. —(1) In this section—

industrial development agency” means the Industrial Development Authority, Shannon Free Airport Development Company Limited or Údarás na Gaeltachta;

new” means unused and not secondhand, but a ship shall be deemed to be new even if it has been used or is secondhand.

(2) Subject to the Tax Acts, where—

(a) a person carrying on a trade, the profits or gains of which are chargeable under Case I of Schedule D, incurs capital expenditure on the provision for the purposes of the trade of new machinery or new plant, other than vehicles suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles,

(b) that machinery or plant is machinery or plant to which subsection (4) or (5) applies, and

(c) that machinery or plant while used for the purposes of that trade is wholly and exclusively so used,

there shall be made to such person for the chargeable period related to the expenditure an allowance (in this Chapter referred to as an “initial allowance”).

(3) An initial allowance shall be of an amount equal to—

(a) in the case of machinery or plant to which subsection (4) applies, 100 per cent of the capital expenditure mentioned in subsection (2), or

(b) in the case of machinery or plant to which subsection (5) applies, 50 per cent of the capital expenditure mentioned in subsection (2).

(4) This subsection shall apply to—

(a) machinery or plant provided—

(i) before the 23rd day of April, 1996, for use for the purposes of trading operations, or

(ii) on or after the 23rd day of April, 1996, by a company for use for the purposes of trading operations carried on by the company,

which are relevant trading operations within the meaning of section 445 or 446 but, in relation to capital expenditure incurred on the provision of machinery or plant on or after the 6th day of May, 1993, excluding machinery or plant provided by a lessor to a lessee other than in the course of the carrying on by the lessor of those relevant trading operations, and

(b) machinery or plant provided for the purposes of a project approved by an industrial development agency in the period from the 1st day of January, 1986, to the 31st day of December, 1988, and in respect of the provision of which expenditure was incurred before the 31st day of December, 1996.

(5) This subsection shall apply to machinery or plant provided for the purposes of a project approved for grant assistance by an industrial development agency in the period from the 1st day of January, 1989, to the 31st day of December, 1990, and in respect of the provision of which expenditure is incurred before the 31st day of December, 1997; but, as respects machinery or plant provided for the purposes of any such project specified in the list referred to in section 133 (8)(c)(iv), this subsection shall apply as if the reference to the 31st day of December, 1997, were a reference to the 31st day of December, 2002.

(6) Where an initial allowance in respect of capital expenditure incurred on or after the 1st day of April, 1989, on the provision of machinery or plant, other than machinery or plant to which subsection (4) applies, is made under this section for any chargeable period—

(a) no allowance for wear and tear of that machinery or plant shall be made under section 284 for that chargeable period, and

(b) an allowance for wear and tear of that machinery or plant which is to be made under section 284 for any chargeable period subsequent to that chargeable period shall not be increased under section 285 .

(7) Any initial allowance under this section made to a person for any chargeable period in respect of machinery or plant shall not exceed such sum as will, when added to—

(a) the amount of any allowance in respect of the machinery or plant made to the person under section 284 for that chargeable period, and

(b) the aggregate amount of any allowances made to the person in respect of the machinery or plant under this section and section 284 for earlier chargeable periods,

equal the amount of the expenditure incurred by such person on the provision of the machinery or plant.

Wear and tear allowances.

[ITA67 s241(1)(a) and (b) and proviso to (1), (6), (6A), (10) and (11); CTA76 s21(1) and Sch1 par6; FA92 s26(4); FA96 s132(1) and Sch5 PtI par1(12)(a); FA97 s22 and s146(1) and Sch9 PtI par1(16)]

284. —(1) Subject to the Tax Acts, where a person carrying on a trade in any chargeable period has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, an allowance (in this Chapter referred to as a “wear and tear allowance”) shall be made to such person for that chargeable period on account of the wear and tear of any of the machinery or plant which belongs to such person and is in use for the purposes of the trade at the end of that chargeable period or its basis period and which, while used for the purposes of the trade, is wholly and exclusively so used.

(2) (a) Subject to subsection (4), the amount of the wear and tear allowance to be made shall be an amount equal to—

(i) in the case of machinery or plant, other than machinery or plant of the type referred to in subparagraph (ii), 15 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement, or

(ii) in the case of machinery or plant which consists of a vehicle suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles, 20 per cent of the value of that machinery or plant at the commencement of the chargeable period.

(b) Where a chargeable period or its basis period consists of a period less than one year in length, the wear and tear allowance shall not exceed such portion of the amount specified in subparagraph (i) or (ii) of paragraph (a), as the case may be, as bears to that amount the same proportion as the length of the chargeable period or its basis period bears to a period of one year.

(3) For the purposes of subsection (2)(a)(ii), the value at the commencement of the chargeable period of the machinery or plant shall be taken to be the actual cost to the person of such machinery or plant reduced by the total of any wear and tear allowances made to that person in relation to the machinery or plant for previous chargeable periods.

(4) No wear and tear allowance or repayment on account of any such allowance shall be made for any chargeable period if such allowance, when added to—

(a) the allowances on that account, and

(b) any initial allowances in relation to the machinery or plant under section 283 ,

made for any previous chargeable periods to the person by whom the trade is carried on, will make the aggregate amount of the allowances exceed the actual cost to that person of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement.

(5) No wear and tear allowance shall be made under this section in respect of capital expenditure incurred on the construction of a building or structure which is or is deemed to be an industrial building or structure within the meaning of section 268 .

(6) Subject to subsection (7), this section shall, with any necessary modifications, apply in relation to the letting of any premises the profits or gains from which are chargeable under Chapter 8 of Part 4 as it applies in relation to trades.

(7) Where by virtue of subsection (6) this section applies to the letting of any premises, it shall apply as respects the year of assessment 1997-98 and subsequent years of assessment in respect of capital expenditure incurred on the provision of machinery or plant within the meaning of subsection (2)(a)(i) where—

(a) such expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling which is or is to be let as a furnished house, and

(b) that furnished house is provided for renting or letting on bona fide commercial terms in the open market.

Acceleration of wear and tear allowances.

[FA67 s11(1), (2), (2A) and (4); FA71 s26(1), (2), (2A) and (4); CTA76 s21(1) and Sch1 par53 and par60; FA78 s22; FA88 s46, s47 and s51(1)(a), (c), (cc) and the proviso thereto and (d), (3) and (6); FA90 s71, s72, s80 and s81(1)(a) and (c) and proviso to (1), and (3); FA95 s26 and s27; FA96 s43 and s132(1) and Sch5 PtI pars2 and 5]

285. —(1) In this section—

designated area” means a designated area for the purposes of the Industrial Development Act, 1969;

industrial development agency” means the Industrial Development Authority, Shannon Free Airport Development Company Limited or Údarás na Gaeltachta;

qualifying building or structure” means a building or structure which is to be an industrial building or structure within the meaning of section 268 (1)(d), and in respect of the provision of which expenditure was incurred before the 31st day of December, 1995, where a binding contract for the provision of the building or structure was entered into before the 31st day of December, 1990;

qualifying machinery or plant” means machinery or plant, other than vehicles suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles, provided—

(a) on or after the 1st day of April, 1967, for use in any designated area, or

(b) on or after the 1st day of April, 1971, for use in any area other than a designated area,

for the purposes of a trade and which at the time it is so provided is unused and not secondhand.

(2) (a) Subject to this section and section 299 (2), where for any chargeable period a wear and tear allowance is to be made under section 284 in relation to any qualifying machinery or plant, the allowance shall, subject to section 284 (4), be increased by such amount as is specified by the person to whom the allowance is to be made and, in relation to a case in which this subsection has applied, any reference in the Tax Acts to an allowance made under section 284 shall be construed as a reference to that allowance as increased under this subsection.

(b) Subject to subsections (4) and (6), as respects any machinery or plant provided for use on or after the 1st day of April, 1988, any wear and tear allowance made under section 284 and increased under paragraph (a) in respect of that machinery or plant, whether claimed for one chargeable period or more than one such period, shall not in the aggregate exceed—

(i) if the machinery or plant was provided for use before the 1st day of April, 1989, 75 per cent,

(ii) if the machinery or plant was provided for use on or after the 1st day of April, 1989, and before the 1st day of April, 1991, 50 per cent, or

(iii) if the machinery or plant was provided for use on or after the 1st day of April, 1991, and before the 1st day of April, 1992, 25 per cent,

of the capital expenditure incurred on the provision of that machinery or plant.

(3) Notwithstanding subsection (2) but subject to subsections (4) and (6)

(a) no allowance made under section 284 for wear and tear of any qualifying machinery or plant provided for use on or after the 1st day of April, 1992, shall be increased under this section, and

(b) as respects chargeable periods ending on or after the 6th day of April, 1999, no allowance made under section 284 for wear and tear of any qualifying machinery or plant provided for use before the 1st day of April, 1992, shall be increased under this section.

(4) This section shall apply in relation to machinery or plant to which subsection (5) applies as if subsections (2)(b) and (3) were deleted.

(5) This subsection shall apply to—

(a) machinery or plant provided—

(i) before the 23rd day of April, 1996, for use for the purposes of trading operations, or

(ii) on or after the 23rd day of April, 1996, by a company for use for the purposes of trading operations carried on by the company,

which are relevant trading operations within the meaning of section 445 or 446 but, in relation to capital expenditure incurred on the provision of machinery or plant on or after the 6th day of May, 1993, excluding machinery or plant provided by a lessor to a lessee other than in the course of the carrying on by the lessor of those relevant trading operations,

(b) machinery or plant the expenditure on the provision of which was incurred before the 31st day of December, 1995, under a binding contract entered into on or before the 27th day of January, 1988,

(c) machinery or plant provided for the purposes of a project approved by an industrial development agency on or before the 31st day of December, 1988, and in respect of the provision of which expenditure was incurred before the 31st day of December, 1995; but, as respects machinery or plant provided for the purposes of a project approved by an industrial development agency in the period from the 1st day of January, 1986, to the 31st day of December, 1988, this paragraph shall apply as if the reference to the 31st day of December, 1995, were a reference to the 31st day of December, 1996,

and

(d) machinery or plant provided before the 1st day of April, 1991, for the purposes of a trade or part of a trade of hotel-keeping carried on in a building or structure or part of a building or structure, including machinery or plant provided by a lessor to a lessee for use in such a trade or part of a trade, where a binding contract for the provision of that building or structure was entered into after the 27th day of January, 1988, and before the 1st day of June, 1988.

(6) This section shall apply in relation to machinery or plant to which subsection (7)(a) applies—

(a) as if in subsection (2)(b)—

(i) the following subparagraph were substituted for subparagraph (ii):

“(ii) if the machinery or plant is provided for use on or after the 1st day of April, 1989, 50 per cent,”,

and

(ii) subparagraph (iii) were deleted,

and

(b) as if subsection (3) were deleted.

(7) (a) This subsection shall apply to—

(i) machinery or plant provided for the purposes of a project approved for grant assistance by an industrial development agency in the period from the 1st day of January, 1989, to the 31st day of December, 1990, and in respect of the provision of which expenditure is incurred before the 31st day of December, 1997; but, as respects machinery or plant provided for the purposes of any such project specified in the list referred to in section 133 (8)(c)(iv), this subparagraph shall apply as if the reference to the 31st day of December, 1997, were a reference to the 31st day of December, 2002,

and

(ii) machinery or plant provided for the purposes of a trade or part of a trade of hotel-keeping carried on in a qualifying building or structure and in respect of the provision of which expenditure was incurred before the 31st day of December, 1995.

(b) Paragraph (a)(ii) shall not apply if the qualifying building or structure is not registered within 6 months after the date of the completion of that building or structure in a register kept by Bord Fáilte Éireann under the Tourist Traffic Acts, 1939 to 1995, and where by virtue of this section any allowance or increased allowance has been granted any necessary additional assessments may be made to give effect to this paragraph.

(8) Where for any chargeable period a wear and tear allowance under section 284 in relation to any machinery or plant is increased under this section, no allowance under section 283 shall be made in relation to the machinery or plant for that or any subsequent chargeable period.

Increased wear and tear allowances for taxis and cars for short-term hire.

[FA87 s24; FA96 s131, s132(1) and Sch5 PtI par16]

286. —(1) (a) In this section—

car” means any mechanically propelled road vehicle, being a vehicle which has been constructed or adapted to be primarily suited to the carriage of passengers and not to the conveyance of goods or burden of any description or to the haulage by road of other vehicles, and which is a vehicle of a type commonly used as a private vehicle and suitable to be so used, and includes a vehicle in use for the purpose referred to in paragraph (ii) of the definition of “qualifying purposes”;

qualifying purposes” means, subject to paragraphs (c) and (d), the use in the ordinary course of trade of a car for the purposes of—

(i) short-term hire to members of the public, or

(ii) the carriage of members of the public while the car is a licensed public hire vehicle fitted with a taximeter in accordance with the Road Traffic (Public Service Vehicles) Regulations, 1963 (S.I. No. 191 of 1963);

short-term hire”, in relation to a car and subject to paragraph (b), means the hire of the car to a person under a hire-drive agreement (within the meaning of section 3 of the Road Traffic Act, 1961 ) for a continuous period which does not exceed 8 weeks.

(b) Where a period of hire of a car to a person by another person is followed within 7 days of the end of that period by a further period of hire of a car (whether the same car or not) to that person by that other person, the 2 periods shall be deemed for the purposes of this section, including any subsequent application of this paragraph, to constitute together a single continuous period of hire so that, where that continuous period of hire exceeds 8 weeks, the period of hire of any car included in that continuous period of hire shall not be treated as a period of short-term hire, and for the purposes of this paragraph any reference to a person shall be treated as including a reference to any other person who is connected with that person.

(c) For the purposes of this section, a car shall be regarded as used by a person for qualifying purposes as respects a chargeable period only if not less than 75 per cent of its use (determined by reference to the periods of time in which the car is used, or available for use, for any purpose) by that person in the chargeable period or its basis period is for qualifying purposes.

(d) Notwithstanding paragraph (c), where as respects a chargeable period the use of a car for qualifying purposes does not satisfy the requirements of that paragraph but would have satisfied those requirements if the reference in that paragraph to 75 per cent were a reference to 50 per cent, the car shall be deemed to be used for qualifying purposes as respects that chargeable period if the use of the car by that person for qualifying purposes satisfied the requirements of that paragraph as respects the immediately preceding chargeable period, or the car shall be deemed to be so used if that use of the car has satisfied those requirements as respects the immediately succeeding chargeable period, and the inspector shall accordingly adjust the amount of capital allowances to be made in taxing the person's trade and any amount of tax overpaid shall be repaid.

(2) In determining what capital allowances are to be made to a person for any chargeable period in taxing a trade which consists of or includes the carrying on of qualifying purposes, section 284 shall apply to a car which as respects that period has been used by the person for qualifying purposes as if the reference in subsection (2)(a)(ii) of that section to 20 per cent were a reference to 40 per cent.

Wear and tear allowances deemed to have been made in certain cases.

[FA 1970 s 14(1),(2) and (3); CTA76 s21(1) and Sch1 par56; FA97 s146(1) and Sch9 PtI par4 (1)]

287. —(1) In this section—

wear and tear allowance” means an allowance made under section 284 otherwise than by virtue of section 285 ;

normal wear and tear allowance” means such wear and tear allowance or greater wear and tear allowance, if any, as would have been made to a person in respect of any machinery or plant used by such person during any chargeable period if all the conditions specified in subsection (3) had been fulfilled in relation to that chargeable period.

(2) Where for any chargeable period during which any machinery or plant has been used by a person no wear and tear allowance or a wear and tear allowance less than the normal wear and tear allowance is made to such person in respect of the machinery or plant, the normal wear and tear allowance shall be deemed for the purposes of subsections (3) and (4) of section 284 to have been made to such person in respect of the machinery or plant for that chargeable period.

(3) The conditions referred to in subsection (1) are—

(a) that the trade had been carried on by the person in question since the date on which such person acquired the machinery or plant and had been so carried on by such person in such circumstances that the full amount of the profits or gains of the trade was liable to be charged to tax,

(b) that the trade had at no time consisted wholly or partly of exempted trading operations within the meaning of Chapter I of Part XXV of the Income Tax Act, 1967 , or Part V of the Corporation Tax Act, 1976 ,

(c) that the machinery or plant had been used by such person solely for the purposes of the trade since that date,

(d) that a proper claim had been duly made by such person for wear and tear allowance in respect of the machinery or plant for every relevant chargeable period, and

(e) that no question arose in connection with any chargeable period as to there being payable to such person directly or indirectly any sums in respect of, or taking account of, the wear and tear of the machinery or plant.

(4) In the case of a company, subsection (3)(a) shall not alter the periods which are to be taken as chargeable periods but if, during any time after the year 1975-76 and after the company acquired the machinery or plant, the company has not been within the charge to corporation tax, any year of assessment or part of a year of assessment falling within that time shall be taken as a chargeable period as if it had been an accounting period of the company.

Balancing allowances and balancing charges.

[ITA67 s272(1) to (4), (5)(a) and (b) and (6) and definition of “scientific research allowance” in ITA67 s271; CTA76 s21(1) and Sch1 par28 and par29; FA94 s24(b); FA95 s25(1)]

288. —(1) Subject to this section, where any of the following events occurs in the case of any machinery or plant in respect of which an initial allowance or a wear and tear allowance has been made for any chargeable period to a person carrying on a trade—

(a) any event occurring after the setting up and before the permanent discontinuance of the trade whereby the machinery or plant ceases to belong to the person carrying on the trade (whether on a sale of the machinery or plant or in any other circumstances of any description),

(b) any event occurring after the setting up and before the permanent discontinuance of the trade whereby the machinery or plant (while continuing to belong to the person carrying on the trade) permanently ceases to be used for the purposes of a trade carried on by the person,

(c) the permanent discontinuance of the trade, the machinery or plant not having previously ceased to belong to the person carrying on the trade,

(d) in the case of machinery or plant consisting of computer software or the right to use or otherwise deal with computer software, any event whereby the person grants to another person a right to use or otherwise deal with the whole or part of the computer software concerned in circumstances where the consideration in money for the grant constitutes (or, if there were consideration in money for the grant, would constitute) a capital sum,

an allowance or charge (in this Chapter referred to as a “balancing allowance” or a “balancing charge”) shall, in the circumstances mentioned in this section, be made to or, as the case may be, on that person for the chargeable period related to that event.

(2) Where there are no sale, insurance, salvage or compensation moneys or where the amount of the capital expenditure of the person in question on the provision of the machinery or plant still unallowed as at the time of the event exceeds those moneys, a balancing allowance shall be made, and the amount of the allowance shall be the amount of the expenditure still unallowed as at that time or, as the case may be, of the excess of that expenditure still unallowed as at that time over those moneys.

(3) Where the sale, insurance, salvage or compensation moneys exceed the amount, if any, of that expenditure still unallowed as at the time of the event, a balancing charge shall be made, and the amount on which it is made shall be an amount equal to—

(a) the excess, or

(b) where the amount still unallowed is nil, those moneys.

(4) (a) In this subsection, “scientific research allowance” means—

(i) in relation to any expenditure incurred before the 6th day of April, 1965, the total amount of any allowances made in respect of that expenditure under section 244 (3) of the Income Tax Act, 1967 , increased by the amount of any allowance made under section 244(4)(b) of that Act or, as the case may be, reduced by any amount treated as a trading receipt in accordance with section 244(4)(c) of that Act, and

(ii) in relation to any expenditure incurred on or after the 6th day of April, 1965, the amount of any allowance made in respect of that expenditure under subsection (1) or (2) of section 765 , reduced by any amount treated as a trading receipt in accordance with section 765 (3)(a).

(b) Notwithstanding anything in subsection (3), in no case shall the amount on which a balancing charge is made on a person exceed the aggregate of the following amounts—

(i) the amount of the initial allowance, if any, made to the person in respect of the expenditure in question,

(ii) the amount of any wear and tear allowance made to the person in respect of the machinery or plant in question,

(iii) the amount of any scientific research allowance made to the person in respect of the expenditure, and

(iv) the amount of any balancing allowance previously made to the person in respect of the expenditure.

(5) (a) Where the aggregate amount of initial allowances and wear and tear allowances made to any person in respect of any machinery or plant exceeds the actual amount of the expenditure incurred by that person on the provision of that machinery or plant, the amount of such excess (in this paragraph referred to as “the excess amount”) shall, on the occurrence of an event within paragraph (a), (b), (c) or (d) of subsection (1), be deemed to be a payment of an equal amount received by that person on account of sale, insurance, salvage or compensation moneys and shall be added to any other such moneys received in respect of that machinery or plant, and a balancing charge shall be made and the amount on which it is made shall be an amount equal to—

(i) where there are no sale, insurance, salvage or compensation moneys, the excess amount, or

(ii) where there are sale, insurance, salvage or compensation moneys, the aggregate of such moneys and the excess amount.

(b) Where as respects any machinery or plant an event within paragraph (a), (b), (c) or (d) of subsection (1) is followed by another event within any of those paragraphs, any balancing allowance or balancing charge made to or on the person by virtue of the happening of the later event shall take account of any balancing allowance or balancing charge previously made to or on that person in respect of the expenditure incurred by the person on the provision of that machinery or plant.

(6) (a) Where—

(i) the sale, insurance, salvage or compensation moneys consist of a payment or payments to a person under the scheme for compensation in respect of the decommissioning of fishing vessels implemented by the Minister for the Marine and Natural Resources in accordance with Council Regulation (EC) No. 3699/93 of 21 December 1993, 1 and

(ii) on account of the receipt by the person of such payment or payments, a balancing charge is to be made on the person for any chargeable period other than by virtue of paragraph (b),

then, the amount on which the balancing charge is to be made for that chargeable period shall be an amount equal to one-third of the amount (in this subsection referred to as “the original amount”) on which the balancing charge would but for this subsection have been made.

(b) Notwithstanding paragraph (a), there shall be made on the person for each of the 2 immediately succeeding chargeable periods a balancing charge, and the amount on which that charge is made for each of those periods shall be an amount equal to one-third of the original amount.

Calculation of balancing allowances and balancing charges in certain cases.

[ITA67 s277]

289. —(1) In this section, “open-market price”, in relation to any machinery or plant, means the price which the machinery or plant would have fetched if sold in the open market at the time of the event in question.

(2) Where—

(a) an event occurs which gives rise or might give rise to a balancing allowance or balancing charge in respect of machinery or plant,

(b) the event is the permanent discontinuance of a trade, and

(c) at or about the time of the discontinuance there occurs in relation to the machinery or plant any event mentioned in paragraphs (a) to (c) of section 318 , not being a sale at less than open-market price other than a sale to which section 312 applies,

then, for the purpose of determining—

(i) whether the discontinuance gives rise to a balancing allowance or balancing charge, and, if so,

(ii) the amount of the allowance or, as the case may be, the amount on which the charge is to be made,

the amount of the net proceeds, compensation, receipts or insurance moneys mentioned in paragraphs (a) to (c) of section 318 which arise on the last-mentioned event shall be deemed to be an amount of sale, insurance, salvage or compensation moneys arising on the permanent discontinuance of the trade.

(3) (a) Subject to subsections (4) and (6), paragraph (b) shall apply where an event occurs which gives rise or might give rise to a balancing allowance or balancing charge in respect of machinery or plant, and—

(i) the event is the permanent discontinuance of the trade and immediately after the time of the discontinuance the machinery or plant continues to belong to the person by whom the trade was carried on immediately before that time and the case is not one within subsection (2),

(ii) the event is the permanent discontinuance of the trade and at the time of the discontinuance the machinery or plant is either sold at less than the open-market price, the sale not being one to which section 312 applies, or the machinery or plant is given away,

(iii) the event is the sale of the machinery or plant at less than the open-market price, not being a sale to which section 312 applies, or is the gift of the machinery or plant, or

(iv) the event is that, after the setting up and before the permanent discontinuance of the trade, the machinery or plant permanently ceases to be used for the purposes of a trade carried on by the person by whom the first-mentioned trade is being carried on, and so ceases either by reason of that person's transferring the machinery or plant to other use or, on a transfer of the trade which is not treated as involving a discontinuance of the trade, by reason of the retention of the machinery or plant by the transferor.

(b) For the purpose of determining whether a balancing allowance or balancing charge is to be made and, if so, the amount of the allowance or, as the case may be, the amount on which the charge is to be made, the event shall be treated as if it had given rise to sale, insurance, salvage or compensation moneys of an amount equal to the open-market price of the machinery or plant.

(4) References in subsection (3) to the sale of machinery or plant at less than the open-market price do not include references to the sale of machinery or plant in such circumstances that there is a charge to income tax under Schedule E by virtue of Chapter 3 of Part 5 , and subsection (3)(b) shall not apply by reason of the gift of machinery or plant if the machinery or plant is given away in any such circumstances.

(5) Subject to subsection (6), where subsection (3)(b) applies by reason of the gift or sale of machinery or plant to any person, and that person receives or purchases the machinery or plant with a view to using it for the purposes of a trade carried on by that person, then, in determining whether any, and if so what, wear and tear allowances, balancing allowances or balancing charges are to be made in connection with that trade, the like consequences shall ensue as if the recipient or purchaser had purchased the machinery or plant at the open-market price.

(6) Where in a case within subsection (5) the recipient or purchaser and the donor or seller, by notice in writing to the inspector, jointly so elect, the following provisions shall apply:

(a) subsections (3)(b) and (5) shall apply as if for the references in those subsections to the open-market price there were substituted references to that price or the amount of the expenditure on the provision of the machinery or plant still unallowed immediately before the gift or sale, whichever is the lower;

(b) notwithstanding anything in this Chapter, such balancing charge, if any, shall be made on the recipient or purchaser on any event occurring after the date of the gift or sale as would have been made on the donor or seller if the donor or seller had continued to own the machinery or plant and had done all such things and been allowed all such allowances in connection with the machinery or plant as were done by or allowed to the recipient or purchaser.

Option in case of replacement.

[ITA67 s273(1)]

290. —Where machinery or plant, in the case of which any of the events mentioned in section 288 (1) has occurred, is replaced by the owner of the machinery or plant and a balancing charge is to be made on that owner by reason of that event, or but for this section a balancing charge would have been made on that owner by reason of that event, then, if by notice in writing to the inspector that owner so elects, the following provisions shall apply:

(a) if the amount on which the charge would have been made is greater than the capital expenditure on providing the new machinery or plant—

(i) the charge shall be made only on an amount equal to the difference,

(ii) no initial allowance, no balancing allowance and no wear and tear allowance shall be made in respect of the new machinery or plant or the expenditure on the provision of the new machinery or plant, and

(iii) in considering whether any, and if so what, balancing charge is to be made in respect of the expenditure on the new machinery or plant, there shall be deemed to have been made in respect of that expenditure an initial allowance equal to the full amount of that expenditure;

(b) if the capital expenditure on providing the new machinery or plant is equal to or greater than the amount on which the charge would have been made—

(i) the charge shall not be made,

(ii) the amount of any initial allowance in respect of that expenditure and the amount of any wear and tear allowance shall be calculated as if the expenditure had been reduced by the amount on which the charge would have been made, and

(iii) in considering whether any, and if so what, balancing allowance or balancing charge is to be made in respect of the new machinery or plant, there shall be deemed to have been granted in respect of the new machinery or plant an initial allowance equal to the amount on which the charge would have been made, in addition to any initial allowance actually granted in respect of the new machinery or plant.

Computer software.

[ITA67 s241A(1) and (2); FA94 s24(a)]

291. —(1) Where a person carrying on a trade incurs capital expenditure in acquiring for the purposes of the trade a right to use or otherwise deal with computer software, then, for the purposes of this Chapter and Chapter 4 of this Part—

(a) the right and the software to which the right relates shall be treated as machinery or plant,

(b) such machinery or plant shall be treated as having been provided for the purposes of the trade, and

(c) for so long as the person is entitled to the right, that machinery or plant shall be treated as belonging to that person.

(2) In any case where—

(a) a person carrying on a trade incurs capital expenditure on the provision of computer software for the purposes of the trade, and

(b) in consequence of the person incurring that expenditure, the computer software belongs to that person but does not constitute machinery or plant,

then, for the purposes of this Chapter and Chapter 4 of this Part, the computer software shall be treated as machinery or plant.

Meaning of “amount still unallowed”.

[ITA67 s274; CTA76 s21(1) and Sch1 par30]

292. —References in this Chapter to the amount still unallowed as at any time of any expenditure on the provision of machinery or plant shall be construed as references to the amount of that expenditure less—

(a) any initial allowance made or deemed under this Chapter to have been made in respect of that expenditure to the person who incurred the expenditure,

(b) any wear and tear allowances made or deemed under this Chapter to have been made to that person in respect of the machinery or plant on the provision of which the expenditure was incurred, being allowances made for any chargeable period such that the chargeable period or its basis period ended before the time in question,

(c) any scientific research allowance (within the meaning of section 288 (4)(a)) made to that person in respect of the expenditure, and

(d) any balancing allowance made to that person in respect of the expenditure.

Application to partnerships.

[ITA67 s275; CTA76 s21(1) and Sch1 par31]

293. —(1) (a) Where, after the setting up and on or before the permanent discontinuance of a trade which at any time is carried on in partnership, any event occurs which gives rise or may give rise to a balancing allowance or balancing charge in respect of machinery or plant—

(i) any balancing allowance or balancing charge which, if the trade had at all times been carried on by one and the same person, would have been made to or on that person in respect of that machinery or plant by reason of that event shall, subject to section 1010 , be made to or on the person or persons carrying on the trade in the chargeable period related to that event (in this paragraph referred to as “the relevant person or persons”), and

(ii) the amount of any such allowance or charge shall be computed as if the relevant person or persons had at all times been carrying on the trade and as if everything done to or by the predecessors of the relevant person or persons in the carrying on of the trade had been done to or by the relevant person or persons.

(b) Notwithstanding paragraph (a), in applying section 288 (4) to any balancing charge to be made in accordance with that paragraph, the allowances made in respect of the machinery or plant for the year beginning on the 6th day of April, 1959, or for any earlier year of assessment shall not be taken to include allowances made to, or attributable to the shares of, persons who were not, either alone or in partnership with other persons, carrying on the trade at the beginning of the year beginning on the 6th day of April, 1959.

(2) (a) In this subsection, “several trade” has the meaning assigned to it by section 1008 .

(b) In taxing the several trade of any partner in a partnership, the same allowances and charges shall be made in respect of machinery or plant used for the purposes of that trade, and belonging to one or more of the partners but not being partnership property, as would be made if the machinery or plant had at all material times belonged to all the partners and been partnership property and everything done by or to any of the partners in relation to the machinery or plant had been done by or to all the partners.

(3) Notwithstanding section 288 , a sale or gift of machinery or plant used for the purposes of a trade carried on in partnership, being a sale or gift by one or more of the partners to one or more of the partners, shall not be treated as an event giving rise to a balancing allowance or balancing charge if the machinery or plant continues to be used after the sale or gift for the purposes of that trade.

(4) References in subsections (2) and (3) to use for the purposes of a trade do not include references to use in pursuance of a letting by the partner or partners in question to the partnership or to use in consideration of the making to the partner or partners in question of any payment which may be deducted in computing under section 1008 (3) the profits or gains of the trade.

Machinery or plant used partly for non-trading purposes.

[ITA67 s276; FA90 s79]

294. —Where an event occurs which gives rise or might give rise to a balancing allowance or balancing charge to or on any person and the machinery or plant concerned is machinery or plant which—

(a) has been used by that person for the purposes of a trade carried on by that person and, in relation to machinery or plant provided for use for the purposes of a trade on or after the 1st day of April, 1990, while so used, was used wholly and exclusively for those purposes, and

(b) has also been used for other purposes,

then, in determining the amount of the allowance or, as the case may be, the amount on which the charge is to be made, regard shall be had to all the relevant circumstances and in particular to the extent of the use for those other purposes, and there shall be made to or on that person an allowance of such an amount or a charge on such an amount, as the case may be, as may be just and reasonable.

Option in case of succession under will or intestacy.

[ITA67 s278]

295. —Where a person succeeds to a trade as a beneficiary under the will or on the intestacy of a deceased person who carried on that trade, the following provisions shall, if the beneficiary by notice in writing to the inspector so elects, apply in relation to any machinery or plant previously owned by the deceased person and used by the deceased person for the purposes of that trade:

(a) the reference in section 313 to the price which the machinery or plant would have fetched if sold in the open market shall, in relation to the succession and any previous succession occurring on or after the death of the deceased, be deemed to be a reference to that price or the amount of the expenditure on the provision of the machinery or plant still unallowed immediately before the succession in question, whichever is the lower, and

(b) notwithstanding anything in that section, such balancing charge, if any, shall be made on the beneficiary on any event occurring after the succession as would have been made on the deceased if he or she had not died and had continued to own the machinery or plant and had done all such things and been allowed all such allowances in connection with the machinery or plant as were done by or allowed to the beneficiary or the successor on any previous succession mentioned in paragraph (a).

Balancing allowances and balancing charges: wear and tear allowances deemed to have been made in certain cases.

[ITA67 s279; CTA76 s21(1) and Sch1 par32]

296. —(1) In determining whether any, and if so what, balancing allowance or balancing charge is to be made to or on any person for any chargeable period in taxing a trade, there shall be deemed to have been made to that person, for every previous chargeable period in which the machinery or plant belonged to that person and which is a chargeable period to be taken into account for the purpose of this section, such wear and tear allowance or greater wear and tear allowance, if any, in respect of the machinery or plant as would have been made to that person if all the conditions specified in subsection (3) had been fulfilled in relation to every such previous chargeable period.

(2) There shall be taken into account for the purposes of this section every previous chargeable period in which the machinery or plant belonged to the person and—

(a) during which the machinery or plant was not used by the person for the purposes of the trade,

(b) during which the trade was not carried on by the person,

(c) during which the trade was carried on by the person in such circumstances that, otherwise than by virtue of Chapter I of Part XXV of the Income Tax Act, 1967 , or Part V of the Corporation Tax Act, 1976 , the full amount of the profits or gains of the trade was not liable to be charged to tax,

(d) for which the whole or a part of the tax chargeable in respect of the profits of the trade was not payable by virtue of Chapter II of Part XXV of the Income Tax Act, 1967 , or

(e) for which the tax payable in respect of the profits of the trade was reduced by virtue of Chapter III or IV of Part XXV of the Income Tax Act, 1967 , or Part IV of the Corporation Tax Act, 1976 .

(3) The conditions referred to in subsection (1) are—

(a) that the trade had been carried on by the person in question since the date on which that person acquired the machinery or plant and had been so carried on by that person in such circumstances that the full amount of the profits or gains of the trade was liable to be charged to tax,

(b) that the trade had at no time consisted wholly or partly of exempted trading operations within the meaning of Chapter I of Part XXV of the Income Tax Act, 1967 , or Part V of the Corporation Tax Act, 1976 ,

(c) that the machinery or plant had been used by that person solely for the purposes of the trade since that date, and

(d) that a proper claim had been duly made by that person for wear and tear allowance in respect of the machinery or plant for every relevant chargeable period.

(4) In the case of a company (within the meaning of section 4 (1)), subsection (3)(a) shall not alter the periods which are to be taken as chargeable periods but, if during any time after the 5th day of April, 1976, and after the company acquired the machinery or plant, the company has not been within the charge to corporation tax, any year of assessment or part of a year of assessment falling within that time shall be taken as a chargeable period as if it had been an accounting period of the company.

(5) Nothing in this section shall affect section 288 (4).

Subsidies towards wear and tear.

[ITA67 s280; CTA76 s21(1) and Sch1 par33]

297. —(1) Where—

(a) an event occurs which gives rise or might give rise to a balancing allowance or balancing charge to or on any person in respect of any machinery or plant provided or used by that person for the purposes of a trade, and

(b) any sums which—

(i) are in respect of, or take account of, the wear and tear to the machinery or plant occasioned by its use for the purposes of the trade, and

(ii) do not fall to be taken into account as that person's income or in computing the profits or gains of any trade carried on by that person,

have been paid, or are to be payable, to that person directly or indirectly,

then, in determining whether any and, if so, what balancing allowance or balancing charge is to be made to or on that person, there shall be deemed to have been made to that person for the chargeable period related to the event a wear and tear allowance in respect of the machinery or plant of an amount equal to the total amount of those sums.

(2) Nothing in this section shall affect section 288 (4).

Allowances to lessors.

[ITA67 s241(5), s252 and s281; CTA76 s21(1) and Sch1 par6 and par16; FA80 s17(3)]

298. —(1) Where machinery or plant is let on such terms that the burden of the wear and tear of the machinery or plant falls directly on the lessor, the lessor shall be entitled, on making a claim to the inspector within 24 months after the end of the chargeable period, to—

(a) an initial allowance under section 283 , and

(b) a wear and tear allowance under section 284 ,

in relation to the machinery or plant, equal to the amount which might have been allowed if during the period of the letting the machinery or plant were in use for the purposes of a trade carried on by the lessor.

(2) Where machinery or plant is let on such terms as are referred to in subsection (1), the preceding provisions of this Chapter, in so far as they relate to balancing allowances and balancing charges, shall apply in relation to the lessor as if the machinery or plant were, during the term of the letting, in use for the purposes of a trade carried on by the lessor.

Allowances to lessees.

[ITA67 s241(2) and s252; FA67 s11(3); FA71 s26(3); CTA76 s21(1) and Sch1 par6, par16, par53 and par60]

299. —(1) Where machinery or plant is let to the person by whom the trade is carried on, on the terms of that person being bound to maintain the machinery or plant and deliver it over in good condition at the end of the lease, and if the burden of the wear and tear of the machinery or plant will in fact fall directly on that person, then, for the purposes of sections 283 and 284 , the capital expenditure on the provision of the machinery or plant shall be deemed to have been incurred by that person and the machinery or plant shall be deemed to belong to that person.

(2) Subsection (2) of section 285 shall not apply to qualifying machinery or plant (within the meaning of that section) which is let to a person on the terms mentioned in subsection (1), unless the contract of letting provides that the person shall or may become the owner of the machinery or plant on the performance of the contract, and, where the contract so provides but without becoming the owner of the machinery or plant the person ceases to be entitled (otherwise than on his or her death) to the benefit of the contract in so far as it relates to the machinery or plant, subsection (2) of section 285 shall be deemed not to have applied in relation to the machinery or plant and accordingly there shall be made all such additional assessments and adjustments of assessments as may be appropriate.

Manner of making allowances and charges.

[ITA67 s241(1)(c), s251(1) and s282; CTA76 s21(1) and Sch1 par15, par34; FA96 s132(1) and Sch5 PtI par1(12)]

300. —(1) Any allowance or charge made to or on any person under the preceding provisions of this Chapter shall, unless it is made under or by virtue of section 298 , be made to or on that person in taxing such person's trade.

(2) Any initial allowance or wear and tear allowance made under or by virtue of section 298 (1) or any balancing allowance made under or by virtue of section 298 (2) shall be made by means of discharge or repayment of tax, and shall be available primarily against income from the letting of machinery or plant.

(3) Any balancing charge made under or by virtue of section 298 (2) shall be made under Case IV of Schedule D.

Application to professions, employments and offices.

[ITA67 s241(10), s241A(3), s253 and s283(1); FA70 s14(4); CTA76 s21(1) and Sch1 par6; FA97 s22, s146(1) and Sch9 PtI par1(17)]

301. —(1) The preceding provisions of this Chapter (other than sections 283 , 285 and 286 ) shall, with any necessary modifications, apply in relation to professions, employments and offices as they apply in relation to trades.

(2) Sections 283 and 285 shall, with any necessary modifications, apply in relation to professions as they apply in relation to trades.

1O.J. No. L 346, 31.12.1993, p.1.