What does section 825C of ITTOIA 2005 do?

Section 825C caps the notional expenditure that can be claimed when plant or machinery from a foster carer's capital allowances pool is used for a different qualifying activity after a deemed disposal event under section 825A. The cap is the lower of the assets' market value and the disposal receipts previously brought into account in the pool.

How is the notional expenditure cap calculated under section 825C?

The cap is the smaller of two amounts: the total market value of the plant or machinery on the day it starts being used for the new qualifying activity, and the total disposal receipts brought into account in the pool following the deemed disposal event. This ensures notional expenditure does not exceed what was originally recognised on disposal.

How does section 825C prevent double counting of notional expenditure?

The cap does not apply to assets already treated as brought back into use under section 825B or previously dealt with under section 825C itself. Additionally, when other pool assets have already been recognised, the disposal receipts figure is reduced by the expenditure already claimed, ensuring total notional expenditure never exceeds original disposal receipts.

Can you give an example of how the section 825C cap works in practice?

If a foster carer has £10,000 disposal receipts and uses a van worth £6,000 for a new activity, notional expenditure is capped at £6,000. If she later uses equipment worth £5,000 from the same pool, the disposal receipts reduce to £4,000, so the equipment's notional expenditure is capped at £4,000.

Income Tax (Trading and Other Income) Act 2005 section 825C

Plant or machinery used for other qualifying activities

Section 825C limits the amount of notional expenditure that can be claimed when plant or machinery from a foster carer's capital allowances pool is subsequently used for a different qualifying activity.

When a deemed disposal event has occurred under section 825A and the individual later starts using pool assets for a different qualifying activity, the notional expenditure on those assets is capped
The cap is the lower of the total market value of the assets when they begin to be used for the new activity, and the disposal receipts that were brought into account in the pool
This cap does not apply where the assets have already been treated as brought into use for the care business under section 825B, or where this section has already applied to the same assets since the disposal event
Where other assets from the same pool have already been dealt with under section 825B or under this section, the disposal receipts figure used for the cap must be reduced by the expenditure already recognised in respect of those other assets

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