Finance (No. 2) Act 1997

42 Temporary first-year allowances

(1) In subsection (1) of section 22 of the [1990 c. 1.] Capital Allowances Act 1990 (first-year allowances), after “40 per cent. of that expenditure” there shall be inserted “, in the case of expenditure to which this section applies by virtue only of subsection (3C) below, shall be of an amount equal to the percentage of that expenditure that is given by subsection (1AA) below”.

(2) After that subsection there shall be inserted the following subsection—

“(1AA) In the case of expenditure to which this section applies by virtue only of subsection (3C) below, the percentage mentioned in subsection (1) above is—

(a) in the case of expenditure to which Chapter IVA applies, 12 per cent; and

(b) in the case of any other expenditure, 50 per cent.”

(3) After subsection (3B) of that section there shall be inserted the following subsection—

“(3C) This section applies to—

(a) any expenditure which, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, is incurred by a small company or a small business in the period beginning with 2nd July 1997 and ending with 1st July 1998; and

(b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above.”

(4) In subsection (4) of that section, after “any expenditure” there shall be inserted “to which this section applies otherwise than by virtue only of subsection (3C) above”.

(5) After subsection (6A) of that section there shall be inserted the following subsections—

“(6B) No first-year allowance shall be made in respect of any expenditure to which this section applies by virtue only of subsection (3C) above—

(a) if the chargeable period related to the incurring of the expenditure is also the chargeable period related to the permanent discontinuance of the trade;

(b) if the expenditure (whether or not it is expenditure to which Chapter IVA would apply but for the provisions of section 38B) is expenditure of the kind described in any of subsections (2) to (4) of section 38B;

(c) if the expenditure is expenditure to which Chapter IVA would apply but for the provisions of section 38H; or

(d) if the expenditure is expenditure on the provision of machinery or plant for leasing, whether in the course of a trade or otherwise;

and section 50(2) shall apply for the interpretation of paragraph (d) above as it applies for the interpretation of Chapter V of this Part.

(6C) No first-year allowance shall be made in respect of any expenditure incurred on the provision of machinery or plant to which this section applies by virtue only of subsection (3C) above if—

(a) the provision of the machinery or plant is connected with a change in the nature or conduct of a trade or business carried on by a person other than the person incurring the expenditure; and

(b) the obtaining of a first-year allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change.”

(6) In sections 23(6), 42(9), 44(5), 46(8), 48(7) and 50(3) and (4A) of that Act (which contain provisions referring to the temporary first-year allowances under section 22(3B) of that Act), after the words “subsection (3B)”, in each place where they occur, there shall be inserted the words “or (3C)”.

(7) In section 39(2)(a) of that Act (definition of a qualifying purpose), for “subsections (2) to (3B)” there shall be substituted “subsections (2) to (3C)”.

(8) In section 43 of that Act (provisions relating to joint lessees in cases involving new expenditure), after subsection (4) there shall be added the following subsection—

“(5) Any first-year allowance made in respect of expenditure to which section 22 applies by virtue only of subsection (3C) of that section shall be made on the same assumptions and subject to the same apportionments (if any) as it appears would, by virtue of subsection (3) above, be applicable in the case of a writing-down allowance.”

(9) This section shall have effect in relation to every chargeable period ending on or after 2nd July 1997.