Chapter II

Machinery and Plant: Balancing Allowances and Charges

271. —In this Chapter—

“initial allowance” means an allowance made under Chapter I of Part XV;

“scientific research allowance” means—

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

(b) 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 section 244 (3) reduced by any amount treated as a trading receipt pursuant to section 244 (4) (c) as it applies to expenditure incurred on or after that date;

“wear and tear allowance” means a deduction allowed under section 241.

272. —(1) Subject to the provisions of 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 year of assessment 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 as aforesaid 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 him,

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

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 year of assessment in his basis period for which that event occurs.

(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 thereof shall be the amount of the expenditure still unallowed as aforesaid, or, as the case may be, of the excess thereof over the said moneys.

(3) If the sale, insurance, salvage or compensation moneys exceed the amount, if any, of the said 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 the excess or, where the said amount still unallowed is nil, to the said moneys.

(4) 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:

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

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

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

(d) the amount of any balancing allowance previously made to him in respect of the expenditure.

(5) Where, as respects any machinery or plant, an event falling within any of the paragraphs (a), (b) and (c) of subsection (1) is followed by another event falling within any of those paragraphs, the later event shall not be treated as an event giving rise to a balancing allowance or balancing charge in respect of that machinery or plant.

273. —(1) Where machinery or plant in the case of which any of the events mentioned in section 272 (1) has occurred is replaced by the owner thereof and a balancing charge falls to be made on him by reason of that event, or, but for the provisions of this subsection, would have fallen to be made on him by reason thereof, then, if by notice in writing to the inspector he so elects, the following provisions shall have effect:

(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 thereof, and

(iii) in considering whether any, and if so what, balancing charge falls 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 the said 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 falls to be made in respect of the new machinery or plant, there shall be deemed to have been granted in respect thereof 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 thereof.

(2) Where any such election is made as is mentioned in section 243, no balancing allowance shall be made in respect of the machinery or plant which is replaced.

274. —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 thereof to the person who incurred it,

(b) any wear and tear allowances made or deemed under this Chapter to have been made to him in respect of the machinery or plant on the provision of which the expenditure was incurred, being allowances for the year of assessment in the basis period for which the time in question falls or for any previous year of assessment,

(c) any scientific research allowance made to him in respect of the expenditure, and

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

275. —(1) 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, 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 fallen to be made to or on him in respect of that machinery or plant by reason of that event shall, subject to section 72, be made to or on the person or persons carrying on the trade in the year of assessment in the basis period for which that event occurs, and the amount of any such allowance or charge shall be computed as if that person or those persons had at all times been carrying on the trade and as if everything done to or by his or their predecessors in the carrying on thereof had been done to or by him or them:

Provided that in applying the provisions of section 272 (4) to any such balancing charge, the deductions and allowances allowed or 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 deductions or 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) In charging the profits or gains arising to any partner from a trade carried on in partnership, the same allowances, deductions and charges shall be allowed or 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 fall to be allowed or 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 thereto had been done by or to all the partners.

(3) Notwithstanding anything in section 272, 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 a 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 71 (3) the profits or gains of the trade.

276. —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 has been used by that person for the purposes of a trade carried on by him and 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 the said other purposes, and there shall be made to or on him an allowance of such an amount, or, as the case may be, a charge on such an amount, as may be just and reasonable.

277. —(1) Where an event occurs which gives rise or might give rise to a balancing allowance or balancing charge in respect of machinery or plant, the event is the permanent discontinuance of a trade, and at or about the time of the discontinuance there occurs in relation to the machinery or plant any event such as is mentioned in paragraphs (a) to (c) of the definition of “sale, insurance, salvage or compensation moneys” in section 304, not being a sale at less than open-market price other than a sale to which section 299 applies then, for the purpose of determining—

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

(b) 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 the said paragraphs (a) to (c) 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.

(2) (a) Subject to subsections (3) and (5), paragraph (b) of this subsection shall have effect 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 either—

(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 the said time and the case is one not falling within subsection (1),

(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 299 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 299 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 thereof, 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 falls 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.

(3) References in subsection (2) to the sale of machinery or plant at less than the open-market price do not include references to the sale thereof in such circumstances that there is a charge to income tax under Schedule E by virtue of the provisions of Chapter III of Part V and subsection (2) (b) shall not apply by reason of the gift of machinery or plant if the machinery or plant is given away in such circumstances as aforesaid.

(4) Subject to the provisions of subsection (5), where subsection (2) (b) has effect by reason of the gift or sale of machinery or plant to any person, and that person receives or purchases it with a view to using it for the purposes of a trade carried on by him, 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.

(5) Where, in a case falling within subsection (4), the recipient or purchaser and the donor or seller by notice in writing to the inspector jointly so elect the following provisions shall have effect:

(a) subsection (2) (b) and subsection (4) shall have effect as if for the references 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 fallen to be 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 therewith as were done by or allowed to the recipient or purchaser.

(6) 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.

278. —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, have effect in relation to any machinery or plant previously owned by the deceased person and used by him for the purposes thereof:

(a) the reference in section 300 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 his succession as would have fallen to be made on the deceased if he 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 therewith as were done by or allowed to the beneficiary or the successor on any such previous succession as is mentioned in paragraph (a).

279. —(1) In determining whether any, and if so what, balancing allowance or balancing charge falls to be made to or on any person for any year of assessment in charging the profits or gains of a trade, there shall be deemed to have been made to that person, for every previous year of assessment in which the machinery or plant belonged to him and which is a year of assessment 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 fallen to be made to him if all the conditions specified in subsection (3) had been fulfilled in relation to every such previous year.

(2) There shall be taken into account for the purposes of this section every previous year of assessment 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 him,

(c) during which the trade was carried on by him in such circumstances that, otherwise than by virtue of Chapter I of Part XXV, the full amount of the profits or gains thereof was not liable to be charged to income tax,

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

(e) for which the income tax payable in respect of the profits of the trade was reduced by virtue of Chapter III or Chapter IV of Part XXV.

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

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

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

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

(4) Nothing in this section shall affect the provisions of section 272 (4).

280. —(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 him for the purposes of a trade; and

(b) any sums (hereafter in this section referred to as the said 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 his income or in computing the profits or gains of any trade carried on by him,

have been paid, or are to be payable, to him directly or indirectly,

then, in determining whether and, if so what, balancing allowance or balancing charge falls to be made to or on that person, there shall be deemed to have been made to him for the years of assessment during which the machinery or plant was used for the purposes of the trade wear and tear allowances in respect thereof the total amount of which is equal to the total amount of the said sums, over and above the wear and tear allowances, if any, which have been made to him in respect of the machinery or plant.

(2) Nothing in this section shall affect the provisions of section 272 (4).

281. —Where machinery or plant is let upon such terms that the burden of the wear and tear thereof falls directly upon the lessor, the preceding provisions of this Chapter 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 him.

282. —(1) Any balancing allowance or balancing 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 281, be made to or on that person in charging the profits or gains of his trade.

(2) Any wear and tear allowance made under or by virtue of section 241 (5) or any balancing allowance made under or by virtue of section 281 shall be made by way 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 281 shall be made under Case IV of Schedule D.

283. —(1) The preceding provisions of this Chapter shall, with any necessary adaptations, apply in relation to professions, employments and offices, as they apply in relation to trades.

(2) Notwithstanding anything in section 34 or 36, none of the provisions of this Chapter shall apply in relation to the occupation of lands (including woodlands).