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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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IBA: writing down allowances: writing off of qualifying expenditure

Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to those changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.

CAA01/S332 - S340

This is how you write off qualifying expenditure. You write off an amount by deducting it from the qualifying expenditure.

Write off an initial allowance that has been made when the building is first used. This may be later than the time when the initial allowance is made because initial allowances may be made before a building is brought into use.

Write off a writing down allowance at the end of the chargeable period for which it is made.

At the time of a sale of the relevant interest, write off any balancing allowance made.

At the time of a sale of the relevant interest, add back any balancing charge. But check that the add back of the balancing charge does not lead to a resulting balance that exceeds the proceeds of the sale of the building (which could happen if the building was not an industrial building at some time during the seller’s ownership).

Write off a RDA (research and development allowance) at the end of the chargeable period for which it is made. If a building that has been used for research and development begins to be used as an industrial building there is no claw back of the RDA. The writing off of the RDA means that if the relevant interest is transferred after the building has become an industrial building you can take the RDA made into account in calculating the residue of expenditure and so recover them as an IBA balancing charge.

If a building begins to be used not as an industrial building after it has been brought into use as an industrial building, write off allowances called notional writing down allowances. These are equal to the writing down allowances that could have been made if the building had been an industrial building during the period of non-industrial use. For example, if the building had been used as something other than an industrial building for 18 months, deduct an amount equal to 18/12 of the annual writing down allowance.

Alternatively, a building may be first used as something other than an industrial building and then begin to be used as an industrial building, perhaps because its ownership has changed. When that happens you need to calculate the residue of expenditure so that you can apply the CAA01/S312 limit CA34650. You write off notional WDA for the period when the building was in use not as an industrial building.

When capital value is realised CA37700 write off an amount equal to the capital value realised at the time when it is realised.

If the relevant interest has been held by the Crown or some other person not within the charge to tax, write off all the writing down allowances and balancing adjustments that could have been made if the relevant interest had been held by a person within the charge to tax.