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

Assets not fully paid for

Section 240D deals with the transitional adjustments required when a trader enters the cash basis and has previously claimed capital allowances on expenditure that has not been fully paid for.

• When a trader enters the cash basis and has outstanding payments on assets for which capital allowances have already been claimed, a transitional adjustment is needed to reconcile the two systems.
• If the amount actually paid exceeds the capital allowances previously given, the excess is deductible when calculating trade profits for the year of entry to the cash basis.
• If the amount actually paid is less than the capital allowances previously given, the shortfall is treated as a taxable receipt in the year of entry to the cash basis.
• Where capital allowances were reduced because an asset was only partly used for the trade, the amount treated as actually paid is proportionately reduced to match.