S343 ICTA 1988 Applies on Purchase

Introduction

Where one company succeeds to a trade formerly carried out by another company and the two are under common ownership s343 ICTA 1988 applies.

The first company is not treated as having discontinued the trade, the succeeding company is not treated as starting a new trade nor do balancing adjustments arise.  Instead:

• the original company receives allowances up until the date of the transfer

• the succeeding company receives allowances from the date of transfer to the end of its accounting period.

Example data

• Pickwick Limited's current account period end date is 31 December

• Account period end dates for 31 December 2001, 2002 and 2003 are entered in IRIS

• The corporation tax computation is being prepared for the 31 December 2003

• On 1 January 2003 Dombey and Sons (Pickwick’s holding company) hived down a trade into Pickwick.  The hive down included an industrial building.  S343 ICTA 1988 applies

• The building was originally purchased for £100,000 and at the date of the transfer its residual value was £40,000
  

Transfer on the first day of the period

1. Select Edit / Building Allowances

2. Click New.

3. Enter the following information for the asset:

1. • Description S343 Building

   • Total £100,000

   • Date 01/01/03

   • Select Building is second hand

   • Select S343 ICTA 88 applies on purchase

   • Remaining tax life 10

   • Qual.Expenditure – residue at purchase £40,000

   • Expenditure incurred by the original owner £100,000

   • Date expenditure incurred by original owner 01/01/1998

4. Click OK.

On the Building Allowances screen the building will appear as an addition of £40,000 with a £4,000 WDA and a £36,000 residue carried forward.

The allowance has been calculated as 4% of £100,000, the qualifying expenditure incurred by the original owner.

The asset was transferred to Pickwick at its residual value of £40,000.  This is treated as the addition value with the allowance of £4,000 deducted to arrive at the £36,000 carried forward.

Transfer part way through the accounting period

The building was transferred on the 1 July 2003, half way through the accounting period.

Dombey and Sons claim the WDA for the first 6 months of the period and Pickwick claims the allowances from 1 July to 31 December (184 days).

The data would be entered in exactly the same way except that the Purchase date and Allowance start date would be 1 July 2003 rather than 1 January 2003.

The allowance has been calculated as 4% of £100,000, the qualifying expenditure incurred by the original owner but then time apportioned to £2,016 as the asset was only owned by Pickwick for 184 days.

On the Building Allowances screen the building will appear as an addition of £40,000 with a £2,016 WDA and a £37,984 residue carried forward.