BIM75730 - Trading losses: restriction of relief: inclusion of capital allowances

ICTA88/S384 (6) provides that where a claim to relief under either ICTA88/S380 or S381 is made, and part of that loss derives from capital allowances in respect of expenditure on the provision of machinery or plant for leasing in the course of a trade, that part of the loss cannot be set off against other income, unless:

• the trade is carried on by the claimant(alone or in partnership) for a continuous period of at least six months in, or beginning or ending in, the year that the loss is sustained, and
• they devote substantially the whole of their time to carrying on the trade (alone or in partnership) throughout the year or, if it is set up or permanently discontinued (or both) in that year, for a continuous period of at least six months beginning or ending in that year.

Where ICTA88/S384 (6) applies, so much of any loss deriving from the capital allowances can only be set against the profits of the same trade.

You should accept that an individual devotes substantially the whole of their time to carrying on a trade if the time they spend on it is equivalent to the full-time working week.

You should not readily accept that an individual devotes substantially the whole of their time to carrying on a trade if they:

• are in full-time employment,

or

• run another business,

or

• spend less than 30 hours a week carrying on the trade.

Further guidance on the phrase ‘devotes substantially the whole of his time’ can be found in the case of Palmer v Moloney and Shipleys [1999] 71TC506. Cases of difficulty should be referred to CT&VAT (Technical).

If capital allowances are given in a loss relief claim which contravenes ICTA88/S383 (6) so much of the relief relating to the capital allowances should be withdrawn by making a Case VI assessment (ICTA88/S384 (8)).