Taxes Consolidation Act 1997 section 296

Balancing allowances and balancing charges: wear and tear allowances deemed to have been made in certain cases

Section 296 provides that, when calculating a balancing allowance or balancing charge on machinery or plant, notional wear and tear allowances are deemed to have been made for periods when the asset attracted no allowance or only a restricted allowance.

• When a balancing allowance or charge falls to be calculated, a "normal" wear and tear allowance is deemed to have been made for each prior period in which the asset belonged to the person but no allowance, or only a restricted allowance, was actually given.
• The periods covered include those where the asset was not used for trade purposes, the trade was not carried on, or the trade profits were wholly or partly exempt from tax under various reliefs.
• The notional allowance is calculated as if the person had always carried on the trade, the full profits had always been chargeable to tax, the asset had always been used solely for trade purposes, and proper claims had been made for every relevant period.
• Despite the deemed allowances, a balancing charge can never exceed the total capital allowances actually made in respect of the machinery or plant.