BIM75730 An interpretation please
BIM75730 - Computing the amount to assess: trade losses - restriction of relief: inclusion of capital allowances
ITA07/S75 provides that where a claim to trade loss relief against general income or early trade losses relief is made, and part of that loss derives from capital allowances in respect of expenditure on the provision of machinery or plant for leasing in the course of a trade that part of the loss cannot be set off against other income, unless:
- the trade is carried on by the claimant (alone or in partnership) for a continuous period of at least six months beginning or ending in the basis period for the tax year in which the loss was made, (the loss making basis period) and
- substantially the whole of the claimant’s time is given to carrying on the trade (alone or in partnership) throughout the loss making basis period or, if the trade is set up or permanently discontinued (or both) in the tax year, for a continuous period of at least six months beginning or ending in the loss making basis period.
Where ITA07/S75 applies, so much of any loss deriving from the capital allowances can only be set against the profits of the same trade.
You should accept that an individual devotes substantially the whole of their time to carrying on a trade if the time they spend on it is equivalent to the full-time working week.
You should not readily accept that an individual devotes substantially the whole of their time to carrying on a trade if they:
- are in full-time employment, or
- run another business, or
- spend less than 30 hours a week carrying on the trade.
Further guidance on the phrase ‘devotes substantially the whole of his time’ can be found in the case of Palmer v Moloney and Shipleys  71TC506. Cases of difficulty should be referred to CTIAA (Technical).
If capital allowances are given in a loss relief claim which contravenes ITA07/S75 so much of the relief relating to the capital allowances should be withdrawn by making an assessment to income tax under ITA07/S79.
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