Income Tax (Trading and Other Income) Act 2005 section 334D

Assets not fully paid for

Section 334D deals with the transitional adjustment required when a property business enters the cash basis and has plant or machinery that has not been fully paid for but on which capital allowances have already been claimed.

• When a property business switches to the cash basis, any plant or machinery not yet fully paid for but on which capital allowances have been claimed must be adjusted for in the year of transition.
• If the amount actually paid exceeds the capital allowances already given, the excess is allowed as a deduction in the transition year.
• If the capital allowances already given exceed the amount actually paid, the excess is treated as taxable income in the transition year.
• Where capital allowances were previously restricted for partial qualifying use, the amount treated as actually paid is proportionately reduced to match.