OT21250 - Corporation Tax Ring Fence and Supplementary Charge

First-year Allowances for a Ring Fence Trade: Mineral Extraction Allowance: Disposals of Qualifying Assets: CAA01/s418

Various amendments have been made to the disposal rules in the MEA code to accommodate the introduction of first-year allowances. When originally introduced, the MEA code was drawn up without regard to the possibility of first-year allowances.

Where there is a disposal event in the year in which the expenditure is incurred, the first-year allowance given is taken into account in calculating the balancing charge. This provision, in CAA01/s418(4), is similar to that in the plant and machinery code.

A person cannot claim both first-year allowances and writing down allowances in respect of the same expenditure. The definition in CAA01/s419(1) of unrelieved expenditure in has been amended to ensure any first-year allowances are taken into account.

These rules are modified for the purpose of computing a balancing allowance or charge when there is a disposal in the chargeable period in which the expenditure is incurred. This is necessary, to have regard to the possibility that the first-year allowance claim may not be for the whole of the first-year qualifying expenditure. In such circumstances, the balance of the first-year qualifying expenditure after deducting the first-year allowance is to be treated as unrelieved qualifying expenditure in that period. The effect is that the first-year allowance claimed less any balancing charge or plus any balancing allowance equals the difference between the expenditure incurred and total disposal receipts.