IBA: how allowances and charges are made: carry back of balancing allowances by mining concerns
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.
A balancing allowance may arise when a mine etc ceases to be worked or a foreign concession ends. There is legislation which lets a person whose trade consists of or includes the working of a source of mineral deposits carry back the part of a balancing allowance which exceeds the profits of the last year in which the trade is carried on.
All of the following conditions must be satisfied before a balancing allowance can be carried back:
- a balancing allowance falls to be made for the last chargeable period in which the trade is carried on
- the event giving rise to the balancing allowance is the source of mineral deposits ceasing to be worked, or the coming to an end of a foreign concession
- the balancing allowance is in respect of expenditure on a building constructed for occupation by, or for the welfare of, people employed at or in connection with the working of the source of mineral deposits
- the profits for the last chargeable period in which the trade is carried on are not large enough to cover the balancing allowance.
When the conditions are met the balancing allowance that exceeds the profits of the last chargeable period may be carried back against the profits of earlier chargeable periods. It is set first against the profits of the preceding chargeable period, and then against the one before that etc. There is an overall time limit of five years.
Where a company carries back a balancing allowance it cannot use that allowance to create or augment a loss.
A company may claim both loss relief under Section 37 CTA 2010 (formerly ICTA88/S393A (1)) and to carry back a balancing allowance. In that case the balancing allowance is ignored for the purposes of quantifying the amount of the loss relief due under the claim.
A claim for loss relief under Section 37 CTA 2010 (formerly ICTA88/S393A (1)) takes priority over a claim to carry back a balancing allowance. The loss claim is dealt with first; any remaining profits can then be relieved by the balancing allowance.