Income Tax (Trading and Other Income) Act 2005 section 240C

Unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001

Section 240C deals with what happens to unrelieved capital allowances expenditure when a trader switches to the cash basis of accounting, allowing a deduction for amounts that would qualify under the cash basis.

• When a trader enters the cash basis and has unrelieved qualifying expenditure carried forward from the previous tax year, a deduction is allowed for any amount that would be deductible under cash basis rules, as if the expenditure had been paid in the current tax year.
• The deductible amount must be determined on a just and reasonable basis in all the circumstances.
• This relief does not apply where the asset in question has not been fully paid for — in that case, separate rules under section 240D apply instead.
• Unrelieved qualifying expenditure for this purpose covers expenditure under Part 2 (plant and machinery), Part 7 (know-how) and Part 8 (patents) of the Capital Allowances Act 2001.