INTM557085 - Hybrids: hybrid entity double deduction mismatches (Chapter 9): hybrid entity within the charge to CT - Capital Allowances

Capital Allowances – whether claimed or not

When the hybrid entity is within the charge to corporation tax, condition A at 259IA will be met where capital allowances could be claimed if there could also be a similar deduction for depreciation in the investor jurisdiction. The deduction in the investor jurisdiction does not need to be calculated in the same way as UK Capital allowances, and the deduction in the investor jurisdiction does not necessarily need to be made in the same period, for condition A to be met.

If conditions B and C at 259IA are also met there will be a hybrid entity double deduction amount which will be represented as the restricted deduction.

By virtue of 259IC(4) the restricted deduction may not be deducted from the hybrid entity’s income for the hybrid entity deduction period unless it is deducted from dual inclusion income or 259ID income.

It should be noted that, as the counteraction operates to deny the deduction then there can be no counteraction where capital allowances have been disclaimed and in those circumstances there will be no requirement under 259IC(5)(a) and (b) to carry forward an amount.

If, in a subsequent year, capital allowances are claimed then they are computed in the ordinary way.

Where appropriate the capital allowances claimed should be adjusted to deny relief. The method of tracking adjustments is not defined however it is expected that the capital allowances computation would remain unchanged, and the adjustment would be shown as an additional entry in the CT computation.