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Section 381 (right to repayment of tax by reference to losses) as extended by section 392 (option to treat capital allowances as creating or augmenting a loss).

(II) the loss referred to in subparagraph (i) of paragraph (a) of that subsection arises from the taking into account for the purposes of section 392(1) of an allowance to be made in respect of excepted expenditure, or

(iii) a loss sustained in the trade in the year of assessment 2001-2002 the year of assessment 2002 or any subsequent year of assessment to the extent that the loss does not arise from the taking into account for the purposes of section 392(1) of an allowance to be made in accordance with the provisions of section 284(3A).

(b) Notwithstanding section 381, where relief is claimed under that section in respect of a loss sustained in a qualifying trade, the amount of that loss, in so far as by virtue of section 392 it is referable to an allowance under this section, shall be treated for the purposes of subsections (1) and (3)(b) of section 381 as reducing income only from a letting to which paragraph (a) refers and shall not be treated as reducing any other income.

(1)(a) In this section “relevant loss” means a loss in a trade or profession (including any amount in respect of allowances which, pursuant to section 392, is to be treated as a loss for the purposes of section 381) but does not include a loss which arises from—

(v) any amount in respect of specified capital allowances, within the meaning of section 531AAE, which pursuant to section 392 is to be treated as a loss.

“relevant loss” means a loss in a trade or profession (including any amount in respect of allowances which, pursuant to section 392, is to be treated as a loss for the purposes of section 381) but does not include a loss which arises from—

(ii) any amount in respect of specified capital allowances, within the meaning of section 531AAE, which by virtue of section 392 is to be treated as a loss;

393 Extent to which capital allowances to be taken into account for purposes of section 392.

(1) The capital allowances for any year of assessment shall be taken into account under section 392(1) only if and in so far as such capital allowances are not required to offset balancing charges for the year, and relief shall not be given by reference to the capital allowances so taken into account in respect of an amount greater than the amount non-effective in the year of assessment for which the claim is made.

(1) Where relief given to a person by virtue of section 392(1) for any year of claim is affected by a subsequent alteration of the law, or by any discontinuance of the trade or other event occurring after the end of the year, any necessary adjustment may be made, and so much of any repayment of tax as exceeded the amount repayable in the events that happened shall, if not otherwise made good, be recovered from the person by assessment under Case IV of Schedule D.

(3) (a) Notwithstanding section 381, where relief is claimed under that section in respect of a loss sustained in a trade of leasing, the amount of that loss, in so far as by virtue of section 392 it is referable to the specified capital allowances, shall be treated for the purposes of subsections (1) and (3)(b) of section 381 as reducing profits or gains of that trade of leasing only and shall not be treated as reducing any other income.

(i) any limitation imposed by section 393 on the amount of capital allowances which may be taken into account under section 392 shall be referred, as far as may be, to the specified capital allowances rather than to any other capital allowances, and

(ii) notwithstanding section 392(2) (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under section 381(3)(b)), the claimant may specify the extent to which any reduction of income treated as occurring by virtue of section 381 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 394 shall apply in accordance with the claimant’s specification and not in accordance with section 392(2).

(ii) notwithstanding section 392(2) (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under section 381(3)(b)), the claimant may specify the extent to which any reduction of income treated as occurring by virtue of section 381 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 394 shall apply in accordance with the claimant’s specification and not in accordance with section 392(2).

then, unless in the basis period for the year of assessment in respect of which that allowance or those allowances is or are to be made the individual is an active partner in relation to the partnership trade, the amount of any such allowance or allowances which is to be taken into account for the purposes of section 392(1) shall not exceed an amount determined by the formula—

where A is the amount of the profits or gains of the individual’s several trade in the year of loss before section 392(1) is applied.

then, unless in the basis period for the year of assessment in respect of which that allowance or those allowances is or are to be made the individual is an active partner in relation to the partnership trade, the amount of any such allowance or allowances which is to be taken into account for the purposes of section 392(1) shall not exceed the amount of the profits or gains of the individual’s several trade in the year of loss before that section is applied.

(i) the amount of the allowance made in the tax year to which effect is given in taxing the individual’s trade or profession for that tax year, other than where effect is given by making a claim under section 381 by virtue of section 392, and

(2)(a) Any loss (including any amount in respect of allowances which by virtue of section 392 is to be treated as a loss) incurred in a trade of farming or market gardening shall not be available for relief under section 381 unless it is shown that, for the year of assessment in which the loss is claimed to have been incurred, the trade was being carried on on a commercial basis and with a view to the realisation of profits in the trade.

(b) Without prejudice to paragraph (a), any loss (including any amount in respect of allowances which by virtue of section 392 is to be treated as a loss) incurred in any year of assessment in a trade of farming or market gardening shall not be available for relief under section 381 if in each of the prior 3 years a loss was incurred in carrying on that trade.

(c) section 392 shall not apply to the capital allowances or any part of such allowances for the relevant year, and

(ii) subsections (3) to (7) of section 381 and section 392 shall apply to relief under paragraph (a) as they apply to relief under section 381.