OT21223 - Corporation Tax Ring Fence and Supplementary Charge

Supplementary Charge: Transitional Provisions: Capital Allowances

New rules introduced in FA02/s63 give 100% first-year allowances for expenditure on plant and machinery (24% if it is on long-life assets) and certain expenditure on mineral exploration and access. Broadly speaking, the expenditure must be incurred on or after 17 April 2002 for a ring fence trade subject to the supplementary charge (see OT21230 onwards for guidance on the special P&M and MEA first-year allowances).

A company may incur expenditure that qualifies for normal writing-down allowances or first-year allowances, depending on when it was incurred during the accounting period that includes 17 April 2002.

In these cases, capital allowances should be dealt with as follows when computing the profits of the straddling period.

Capital allowances at the relevant rate should be calculated on qualifying expenditure incurred during the period to 16 April 2002 added, where appropriate, to the relevant pool of unrelieved expenditure brought forwards from earlier accounting periods. Those allowances should be taken into account in computing the total ring fence Case I profits before making the apportionment to compute the profits of the period between 17 April 2002 and the end of the company’s accounting period.

First-year allowances on qualifying ring fence plant and machinery or MEA expenditure should then be allocated in full to the profits of the period between 17 April 2002 and the end of the company’s accounting period.

As with other first-year allowances, the amount of the special ring fence first-year allowances is not reduced even though the deemed accounting period is less than one year.