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DG 18: Quarantined expenditure: group companies and shareholders
or “Rules for handling limited expenses in company groups and for shareholders”
You could also call this:

“Using previously set-aside money for expenses based on current year's profit”

When you have money set aside from previous years because of rules about how much you can claim for certain expenses, you might be able to use some of it this year. This depends on whether you have made enough profit this year to cover those expenses.

You can only use the set-aside money if you have what’s called an “outstanding profit balance”. This is money left over after you’ve paid for all your allowed expenses for the current year.

The amount of set-aside money you can use is limited. It will be the smaller of two amounts:

  1. The amount you had set aside from before.
  2. The amount left after you take away your current year’s expenses from your outstanding profit balance.

If your current year’s expenses are more than your outstanding profit balance, you can’t use any of the set-aside money.

When figuring out how much set-aside money you can use, you need to recalculate the outstanding profit balance each time. You reduce it by the amount you’re allowed to claim from the set-aside money.

For companies and their shareholders, there are special rules for working out the outstanding profit balance. These rules are explained in other parts of the tax law.

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Next up: DG 20: When income cannot be separately attributed

or “When income from using an asset in business can't be separated out”
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Part D Deductions
Expenditure related to use of certain assets

DG 19Allocation of amounts quarantined under section DG 18

  1. This section applies for an income year (the current year) when—

  2. a person has an amount of excess expenditure quarantined under section DG 18 for an income year before the current year; and
    1. an outstanding profit balance referred to in section DG 17(4) is available for use for the current year.

      1. This section applies sequentially in the order set out in section DG 18(2) and (3) until the outstanding profit balance is reduced to zero.

      2. The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of—

      3. the quarantined amount referred to in subsection (1)(a):
        1. the amount calculated using the formula—
            1. outstanding profit balance − expenditure.

            Where:

            • In the formula,—

            • outstanding profit balance,—
              1. for company B, is the amount of the outstanding profit balance determined for the company for the current year under section DG 18(5), if applicable, or otherwise under section DG 17(4):
                1. for a shareholder, is the amount that is the person's share of the outstanding profit balance for the current year under section DG 18(5), if applicable, or otherwise under section DG 17(4), calculated using the formula in section DG 13(3), treating the outstanding profit balance as if it were the net asset balance:
                2. expenditure is the total amount of deductions that the person is allowed for the current year under sections DG 12 to DG 14, as applicable, and after any necessary apportionment.

                  1. For the purposes of subsections (3) and (4)(a), the amount that is the outstanding profit balance must be recalculated on each application, being reduced by an amount equal to the amount of any deduction for quarantined expenditure counted.

                  2. For the purposes of the formula in subsection (3), if the amount of expenditure for the current year is greater than the amount of the outstanding profit balance for the current year, the result of the formula is treated as zero.

                  Notes
                  • Section DG 19: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on , by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                  • Section DG 19 example: replaced (with effect on 1 April 2013), on , by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).