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HMRC internal manual

Lloyd's Manual

Corporate members: syndicate capacity: accounting periods ending on or after 1 April 2002: examples

The debits and credits due under FA02/SCH29 are calculated in accordance with the fractions set out in Part 1 of the Schedule. In general these are the accounting adjustment multiplied by the fraction tax value/accounting value. The tax value may be different from the accounting value where, for example, disallowable items (such as entertaining) are reflected in the accounting charge. The tax written down value is in general the cost of the asset less any tax debits (or plus any credits) given since the start of the intangibles regime.

The effect of FA02/SCH29/PARA129 (3) is that the tax written down value is the accounting value of the capacity at the start of the first period ending after 1 April 2002, less any debits or credits given under paragraph 9.

Amortisation and disposal for less than original cost - Example

Company A pays £500,000 for syndicate capacity in the accounting period ended 31 December 1999. It amortises the capacity at 20% per annum on a straight-line basis. It deducts £100,000 in the accounts for each of the periods ended 31 December 2000 and 31 December 2001. These amounts are added back in the Case I computation. The written down value at the start of the period ended 31 December 2002 is £300,000. It deducts £100,000 in these accounts and is entitled to a tax deduction for this amount (FA02/SCH29/PARA9 (5)). In the period ended 31 December 2003 it sells the capacity for £350,000. It is entitled to a deduction of £50,000 (£350,000 proceeds - (£500,000 original cost - £100,000 IP debit)).

Amortisation and disposal for more than original cost - Example

Company B acquires the same amount of capacity and amortises it in the same way. However, it disposes of it for £600,000. Overall it will be taxed on a profit of £100,000. This is made up of £600,000 - £400,000 (the original cost £500,000 less £100,000 IP debit given in APE 2002) = £200,000 profit in APE 2003.

As Company B had a debit of £100,000 in APE 2002, the net effect is tax on £100,000, which equals the commercial profit (£600,000 proceeds less £500,000 original cost).

Pre-entry amortisation to Nil - Example

If Company C had acquired the capacity in APE 31 December 1996 and had wholly written it off by the start of APE 31 December 2002, it would have no writing down allowance in APE 2002. It would be taxed on a profit of £100,000 on disposal in APE 2003 (£600,000 less original cost £500,000). Alternatively, if Company C disposed of the capacity for £350,000, it would get a deduction of £150,000 (£350,000 less original cost £500,000).