Capital Allowances Act 2001 section 477A

Persons leaving cash basis

Section 477A deals with the transitional rules for patent allowances when a trader stops using the cash basis and returns to the accruals basis of accounting, ensuring that expenditure already relieved under the cash basis is not relieved again through capital allowances.

• When a trader leaves the cash basis, any expenditure previously paid on patents that would have qualified for capital allowances is allocated to the patent allowances pool for the first accruals-basis period.
• The pool is then reduced by the "relieved portion" — the amount already deducted when calculating profits under the cash basis — so that only the unrelieved balance attracts future capital allowances.
• For the purposes of calculating disposal receipts on any future sale of patent rights, the original expenditure is treated as qualifying trade expenditure, even though it was incurred during a cash basis period.
• A trader is regarded as leaving the cash basis where the cash basis applied immediately before the start of a chargeable period but does not apply for that period itself.