BIM75755 - Trading losses: restriction of relief: first year allowances: what the legislation does

Remember that ICTA88/S384A only applies to FYAs on plant or machinery. It does not apply to other allowances such as 100% enterprise zone allowance or writing down allowances on plant and machinery.

The legislation refers to a qualifying activity. A qualifying activity is wider than a trade. It also covers a profession or vocation, an employment or office, a Schedule A business, a furnished holiday lettings business, an overseas property business, the management of an investment company, a concern listed in ICTA88/S55 (2) and special leasing. ’Qualifying activity is defined in CAA01/S15 (see CA20010).

First kind of scheme

If a person carries on a qualifying activity in partnership with a company and the partnership incurs expenditure on plant or machinery for leasing, the person may not have sideways loss relief for a loss created by FYAs on the plant and machinery. For these purposes treat letting a ship on charter as leasing.

Sideways loss relief is relief against general income under ICTA88/S380 or S381.

Sideways loss relief is also denied if a scheme is effected or arrangements are made before or after the first year allowance expenditure is incurred for the qualifying activity to be carried on in partnership with a company. This means that an individual cannot start a leasing business, incur expenditure on plant and claim loss relief if the individual has entered into an agreement that a company will join the qualifying activity later on.

Second kind of scheme

Sideways loss relief is not available to an individual for a loss created by excess capital allowances on plant and machinery acquired for a qualifying activity if:

• the individual carries on or will carry on the qualifying activity in partnership, or
• the capital allowances were given on an asset which is transferred to a connected person or sold at a price below market value and,
• a scheme or arrangements are made the sole or main benefit of which might be expected to be the obtaining by the individual of sideways loss relief.

Use the normal definition of connected person in ICTA88/S839.

If you find that loss relief needs to be withdrawn do it by making a Case VI assessment.