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HMRC internal manual

Capital Allowances Manual

Dredging: Balancing allowance


A balancing allowance is made when the trade for which qualifying expenditure has been incurred is permanently discontinued. It is made for the chargeable period in which the trade is discontinued.

You calculate the balancing allowance by deducting all the allowances made up to and including the chargeable period before the one in which the trade is permanently discontinued from the qualifying expenditure. You take account of all allowances including any initial allowance made whoever they were made to. Effectively, the balancing allowance gives relief for the qualifying expenditure which has not already been written off and so once there has been a balancing allowance there are no more allowances due.

If the dredging expenditure was incurred before the introduction of dredging allowances in 1956 write off allowances at an annual rate of 2% for tax years up to and including 1955-56 when you calculate a balancing allowance.

When you decide whether a balancing allowance is due you should not treat a deemed permanent discontinuance under ITTOIA/S18 or ICTA88/S337 (1) as the permanent discontinuance of a trade.

You should treat a sale of the trade as a permanent discontinuance unless:

  • the trade is treated as continuing under ICTA88/S343 (2) (company reconstruction without change of ownership), or
  • the trade is treated as continuing under CAA01/S561 (transfer of UK trade to another EU company), or
  • the sale is a connected person sale or a sole or main benefit sale.


A connected person sale is a sale where:

  • the seller is a body of persons and the buyer controls the seller, or
  • the buyer is a body of persons and the seller controls the buyer, or
  • the seller and the buyer are both bodies of persons and another person controls both of them, or
  • the buyer and seller are connected persons as defined in S575 CA11630.


A sole or main benefit sale is a sale where it appears that the sole or main benefit,which might be expected to accrue to any of the parties, is:

  • the obtaining of an allowance or deduction, or
  • the obtaining of a greater allowance or deduction, or
  • the avoidance or reduction of a charge,


under the Capital Allowance legislation apart from the plant and machinery legislation.