Paragraph 21 - Carry forward of unused allowances
21. Allowances which exceed the assessable profit for the year of assessment are carried forward and deducted, so far as may be, in the assessment of the profit for the next succeeding year, any balance being carried forward and dealt with in like manner in the following year and so on until exhausted. NB Unused wear and tear allowances under the old system will continue to be carried forward until exhausted.
Paragraph 22 - General
22. A disposal value is to be brought into account by a trader on the first occurrence of one of the following events, namely -
- a. the machinery or plant ceases to belong to him (eg he sells it or gives it away)
- b. he loses possession of the machinery or plant in circumstances where it is reasonable to assume the loss is permanent (eg the asset is stolen)
- c. the machinery or plant ceases to exist as such (as a result of destruction, dismantling or otherwise);
- d. the machinery or plant begins to be used wholly or partly for purposes which are other than those of the trade (eg it is transferred to private use)
- e. the trade is permanently discontinued or is deemed under any provision of the Income Tax Law to be permanently discontinued
The following paragraphs explain what disposal value is to be brought into account in the circumstances shown.
Paragraph 23-25 - Sale of Machinery or Plant
23. If the machinery or plant is sold at arm's length the disposal value normally equals the net proceeds of sale. Most cases will come under this heading and there will generally be no difficulty in determining the disposal value.
24. Exceptionally, insurance moneys or compensation may be receivable in connection with a sale. The Comptroller will need to know about this in order to decide whether such sums affect the disposal value.
25. If the machinery or plant is sold at a price lower than the open market price (for example, the trader sells a motor car to his son for a nominal sum), the disposal value equals the price which the machinery or plant would have fetched if sold in the open market.
Paragraph 26 - Destruction of Machinery or Plant
26. If the machinery or plant is destroyed (or demolished), the disposal value equals the net amount received for the remains of the machinery or plant, together with any insurance monies and sums, of a capital nature, received by way of compensation of any description.
Paragraph 27 - Permanent Loss of Machinery or Plant
27. If the machinery or plant is permanently lost the disposal value equals the insurance moneys received in respect of the loss and, so far as it consists of capital sums, any other compensation of any description.
Paragraph 28 - Other events
28. In any of the other events covered in paragraph 22 (including gifts) the disposal value equals the price which the machinery or plant would have fetched if sold in the open market at the time of the event.
Example
A company which has been trading for many years enters into the following transactions:
- i. In June 1989 it purchases an item of machinery for £20,000, receiving £5,000 for the replaced item in the open market
- ii. In December, 1990 the managing director gives his son one of the company cars for his birthday
Accounts are made up to 31st December each year and the market value of the company car is agreed at £4,000.
The residual value of capital expenditure brought forward after the 1989 capital allowances is £35,000.
The computation is:
| |
£ |
| Residue brought forward |
35,000 |
| Capital expenditure (i) |
20,000 |
| |
55,000 |
| Disposal value (i) |
5,000 |
| |
50,000 |
| 1990 allowances 25% |
12,500 |
| |
37,500 |
| Disposal value (ii) |
4,000 |
| |
33,500 |
| 1991 allowances 25% |
8,375 |
| Residue carried forward |
25,125 |
Paragraph 29 - Important Proviso
29. It is important to note that the disposal value of a particular item cannot exceed its cost. In the event that an item is sold for a sum which exceeds its cost, the disposal value is restricted to the cost.
Capital allowances guide: paragraphs 30 to 33
gov.je