Capital Allowances Act 2001

Part 2 U.K. Plant and machinery allowances

Modifications etc. (not altering text)

C2 Pt. 2 modified (24.2.2003) by Proceeds of Crime Act 2002 (c. 29), s. 458(1), Sch. 10 para. 12 (with Sch. 10 para. 17(1)); S.I. 2003/120, art. 2, Sch. (with arts. 3 4) (as amended (20.2.2003) by S.I. 2003/333, art. 14)

C3 Pt. 2 restricted (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 paras. 10, 22 (with s. 38(2) ); S.I. 2004/2575 , art. 2(1) , Sch. 1

C4 Pt. 2 modified (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 paras. 9(2), 21(2) (with s. 38(2)); S.I. 2004/2575, art. 2(1) , Sch. 1

C5 Pt. 2 restricted (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 4 para. 4 ; S.I. 2004/2575 , art. 2(1) , Sch. 1

C6 Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 19

C7 Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 35

C8 Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 paras. 36, 37

C9 Pt. 2 modified (21.7.2009) by Finance Act 2009 (c. 10), s. 24

C10 Pt. 2 modified (17.7.2013) by Finance Act 2013 (c. 29), s. 73(7)-(11) (with s. 73(6))

C11 Pt. 2 modified (10.6.2021) by Finance Act 2021 (c. 26), s. 9(1)(a)

Chapter 1 U.K. Introduction

11 General conditions as to availability of plant and machinery allowances U.K.

(1) Allowances are available under this Part if a person carries on a qualifying activity and incurs qualifying expenditure.

(2) “Qualifying activity” has the meaning given by Chapter 2.

(3) Allowances under this Part must be calculated separately for each qualifying activity which a person carries on.

(4) The general rule is that expenditure is qualifying expenditure if—

(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, and

(b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.

(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3.

12 Expenditure incurred before qualifying activity carried on U.K.

[F1 (1)] For the purposes of this Part, expenditure incurred for the purposes of a qualifying activity by a person about to carry on the activity is to be treated as if it had been incurred by him on the first day on which he carries on the activity.

[F2 (2) Subsection (3) applies if—

(a) a company that does not have a Northern Ireland regional establishment incurs expenditure for the purposes of a trade,

(b) the activities for the purposes of which the expenditure is incurred would, if the company were a NIRE company, be an NI rate activity treated as a separate trade, and

(c) the company subsequently becomes a NIRE company.

(3) The expenditure is to be treated as incurred on the first day of the first chargeable period in which the company is a NIRE company.

(4) Subsection (5) applies if—

(a) a partnership that does not have a Northern Ireland regional establishment incurs expenditure for the purposes of a trade,

(b) the activities for the purposes of which the expenditure is incurred would, if the partnership were a Northern Ireland Chapter 7 firm, be an NI rate activity treated as a separate trade, and

(c) the partnership subsequently becomes a Northern Ireland Chapter 7 firm.

(5) The expenditure is to be treated for the purposes of this Part so far as relating to the corporate partner calculation as incurred on the first day of the first chargeable period in which the partnership is a Northern Ireland Chapter 7 firm.

(6) In this section “Northern Ireland regional establishment” has the same meaning as in Part 8B of CTA 2010 (see Chapter 5 of that Part as read, in relation to a partnership, with section 357WA(4) of that Act).]

Textual Amendments

F1 S. 12 renumbered as s. 12(1) (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 3(2)

F2 S. 12(2)-(6) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 3(3)

13 Use for qualifying activity of plant or machinery provided for other purposes U.K.

(1) This section applies if a person—

(a) brings plant or machinery into use for the purposes of a qualifying activity carried on by him, and

(b) on the date when he does so, owns the plant or machinery as a result of having incurred capital expenditure (“actual expenditure”) on its provision for purposes other than those of that qualifying activity.

(2) The person is to be treated—

(a) as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result as having incurred that expenditure.

(3) Subject to subsection (4), the amount of the notional expenditure is the market value of the plant or machinery on the date when it is brought into use for the purposes of the qualifying activity.

(4) If the market value is greater than the actual expenditure, the amount of the notional expenditure is the amount of the actual expenditure, less any amount required to be deducted under subsection (5).

(5) The amount to be deducted is any amount that under section 218F3 ... would have been left out of account in determining the person’s available qualifying expenditure if the actual expenditure had been incurred on the provision of the plant or machinery for the purposes of the qualifying activity.

(6) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(a) is wholly or only partly for those purposes.

(7) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

Textual Amendments

F3 Words in s. 13(5) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(2)

Modifications etc. (not altering text)

C12 S. 13 applied (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 827, (with s. 828(2), Sch. 2)

C13 S. 13 applied (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 126(2), 1184(1) (with Sch. 2)

C14 S. 13 modified by 2005 c. 5, s. 825C (as substituted (with effect in accordance with s. 3(4) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 3(3) (with s. 3(5)))

C15 S. 13 modified by 2009 c. 4, s. 18C(2) (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 4, 31)

[F4 13A Use for other purposes of plant or machinery previously used for long funding leasing U.K.

(1) This section applies if a person who has been using plant or machinery for the purpose of leasing it under a long funding lease (see Chapter 6A)—

(a) ceases to use the plant or machinery for that purpose without ceasing to use it for the purposes of a qualifying activity carried on by him, and

(b) on the date of the cessation, owns the plant or machinery as a result of having incurred capital expenditure on its provision for the purposes of the qualifying activity.

(2) The person is to be treated—

(a) as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the qualifying activity on the day after the cessation,

(b) as owning the plant or machinery as a result of having incurred that expenditure, and

(c) as if the plant or machinery on and after that day were different plant or machinery from the plant or machinery before that day.

(3) The amount of the notional expenditure is an amount equal to the termination amount, determined in accordance with section 70YG, in the case of the long funding lease under which the plant or machinery was last leased before the cessation.]

Textual Amendments

F4 S. 13A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 2

[F5 13B Use for other purposes of plant or machinery: property businesses U.K.

(1) This section applies if a person who has been using plant or machinery for the purposes of a relevant qualifying activity—

(a) ceases to use the plant or machinery for that purpose without ceasing to use it for the purposes of another relevant qualifying activity (“the other activity”) carried on by the person, and

(b) on the date of the cessation, owns the plant or machinery as a result of having incurred capital expenditure on its provision for the purposes of the other activity.

(2) The person is to be treated—

(a) as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the other activity on the day after the cessation,

(b) as owning the plant or machinery as a result of having incurred that expenditure, and

(c) as if the plant or machinery on or after that day were different plant or machinery from the plant or machinery before that day.

(3) Subject to subsection (4), the amount of the notional expenditure is the market value of the plant or machinery on the date of cessation.

(4) If the market value is greater than the actual expenditure, the amount of the notional expenditure is the amount of the actual expenditure.

(5) “Relevant qualifying activity” means—

(a) ordinary UK property business or UK furnished holiday lettings business, or

(b) ordinary overseas property business or EEA furnished holiday lettings business,

(as the case may be).]

Textual Amendments

F5 S. 13B inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(2)

14 Use for qualifying activity of plant or machinery which is a gift U.K.

(1) This section applies if a person—

(a) is the owner of plant or machinery as a result of a gift, and

(b) brings the plant or machinery into use for the purposes of a qualifying activity carried on by him.

(2) The person is to be treated—

(a) as having incurred capital expenditure on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result of having incurred that expenditure.

(3) The amount of that capital expenditure is to be treated as being the market value of the plant or machinery on the date when it was brought into use for the purposes of the qualifying activity.

(4) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(b) is wholly or only partly for those purposes.

(5) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

Chapter 2 U.K. Qualifying activities

15 Qualifying activities U.K.

(1) Each of the following is a qualifying activity for the purposes of this Part—

(a) a trade,

(b) an ordinary [F6 UK] [F7 property] business,

(c) a [F8 UK furnished] holiday lettings business,

(d) an [F9 ordinary overseas] property business,

[F10 (da) an EEA furnished holiday lettings business,]

(e) a profession or vocation,

(f) a concern listed in [F11 section 12(4) of ITTOIA 2005 or] [F12 section 39(4) of CTA 2009] (mines, transport undertakings etc.),

[F13 (g) managing the investments of a company with investment business,]

(h) special leasing of plant or machinery, and

(i) an employment or office,

but to the extent only that the profits or gains from the activity are, or (if there were any) would be, chargeable to tax.

(2) Subsection (1) is subject to the following provisions of this Part.

[F14 (2ZA) Where an activity of a company is treated by subsection (1) of section 6D (NI rate activity treated as separate trade) as a separate trade, that activity is an activity separate from any other activity of the company.

(2ZB) Where an activity of a Northern Ireland firm is treated by subsection (2) of section 6D as a separate trade for the purposes of the corporate partner calculation, that activity is for the purposes of this Part, so far as relating to the corporate partner calculation, an activity separate from every other activity of the Northern Ireland firm.]

[F15 (2A) A business carried on through one or more permanent establishments outside the United Kingdom by a company in relation to which an election under section 18A of CTA 2009 has effect—

(a) is an activity separate from any other activity of the company, and

(b) is to be regarded as an activity all the profits and gains from which are not, or (if there were any) would not be, chargeable to tax.]

[F16 (2B) Subsection (2A) does not apply to the business so far as it consists of a plant or machinery lease under which the company is a lessor if any profits or losses arising from the lease are to be left out of account as mentioned in section 18C(3) of CTA 2009.]

(3) This section, in so far as it provides for—

(a) an ordinary [F17 UK] [F18 property] business,

(b) an [F19 ordinary overseas] property business, or

(c) special leasing of plant or machinery,

to be a qualifying activity, needs to be read with section 35 (expenditure on plant or machinery for use in a dwelling-house not qualifying expenditure in certain cases).

(4) Also, subsection (1)(i) needs to be read with sections 36 (restriction on qualifying expenditure in case of employment or office) and 80 (vehicles provided for purposes of employment or office).

Textual Amendments

F6 Word in s. 15(1)(b) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(a)

F7 Word in s. 15(1)(b) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 526(2)(a) (with Sch. 2 )

F8 Words in s. 15(1)(c) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(b)

F9 Words in s. 15(1)(d) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(c)

F10 S. 15(1)(da) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(d)

F11 Words in s. 15(1)(f) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 526(2)(b) (with Sch. 2 )

F12 Words in s. 15(1)(f) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 476 (with Sch. 2 Pts. 1, 2)

F13 S. 15(1)(g) substituted (with effect in accordance with art. 1(2) of the commencing S.I.) by Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendments of Enactments) Order 2004 (S.I. 2004/2310) , art. 1(2) , Sch. para. 52(2)

F14 S. 15(2ZA)(2ZB) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 4

F15 S. 15(2A) inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 15, 31

F16 S. 15(2B) inserted (1.1.2013) by Finance Act 2012 (c. 14), Sch. 20 paras. 9, 55(1)

F17 Word in s. 15(3)(a) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(e)

F18 Word in s. 15(3)(a) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 526(3) (with Sch. 2 )

F19 Words in s. 15(3)(b) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(3)(f)

16 Ordinary [F20 UK] [F21 property] businesses U.K.

In this Part “[F22 ordinary [F23 UK] property] business” [F24 means a UK property business F25 ... ] except in so far as it is a [F26 UK furnished] holiday lettings business.

Textual Amendments

F20 Word in s. 16 heading inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(4)(a)

F21 Word in s. 16 substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 527(4) (with Sch. 2)

F22 Words in s. 16 substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1), Sch. 1 para. 527(2) (with Sch. 2 )

F23 Word in s. 16 inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(4)(b)

F24 Words in s. 16 substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1), Sch. 1 para. 527(3) (with Sch. 2)

F25 Words in s. 16 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 477, Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

F26 Words in s. 16 substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(4)(c)

17 [F27 UK furnished] holiday lettings businesses U.K.

(1) In this Part “[F28 UK furnished] holiday lettings business” means [F29 a UK property businessF30 ... which consists in, or so far as it consists in, the commercial letting of furnished holiday accommodation] as it consists of the commercial letting of furnished holiday accommodation in the United Kingdom.

(2) All [F31 such] commercial lettings of furnished holiday accommodation made by a particular person or partnership or body of persons are to be treated as one qualifying activity.

[F32 (3) For the purposes of income tax the “ commercial letting of furnished holiday accommodation ” has the same meaning as it has for the purposes of Chapter 6 of Part 3 of ITTOIA 2005.

For the purposes of corporation tax the “ commercial letting of furnished holiday accommodation ” [F33 has the same meaning as it has for the purposes of Chapter 6 of Part 4 of CTA 2009 (see section 265)].]

(4) If there is a letting of accommodation only part of which is holiday accommodation, such apportionments are to be made for the purposes of this section as are just and reasonable.

Textual Amendments

F27 Words in s. 17 heading substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(5)(a)

F28 Words in s. 17(1) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(5)(b)

F29 Words in s. 17(1) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 528(2) (with Sch. 2)

F30 Words in s. 17(1) repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 478(2), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

F31 Word in s. 17(2) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(5)(c)

F32 S. 17(3) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 528(3) (with Sch. 2)

F33 Words in s. 17(3) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 478(3) (with Sch. 2 Pts. 1, 2)

[F34 17A Ordinary overseas property business U.K.

In this Part “ordinary overseas property business” means an overseas property business except in so far as it is an EEA furnished holiday lettings business.

Textual Amendments

F34 Ss. 17A, 17B inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(6)

17B EEA furnished holiday lettings businesses U.K.

(1) In this Part “EEA furnished holiday lettings business” means an overseas property business which consists in, or so far as it consists in, the commercial letting of furnished holiday accommodation in one or more EEA states.

(2) All such commercial lettings of furnished holiday accommodation made by a particular person or partnership or body of persons are to be treated as one qualifying activity.

(3) Subsections (3) and (4) of section 17 are to apply for the purposes of this section as they apply for the purposes of that section.]

Textual Amendments

F34 Ss. 17A, 17B inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(6)

18. Managing the investments of a company with investment business U.K.

(1) For the purposes of this Part, managing the investments of a company with investment business consists of pursuing those purposes expenditure on which would be treated as expenses of management within [F35 section 1219 of CTA 2009].

(2) In this Part “company with investment business” has the meaning given by [F36 section 1218B] of CTA 2009.

Textual Amendments

F35 Words in s. 18(1) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 479(2) (with Sch. 2 Pts. 1, 2)

F36 Words in s. 18 substituted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 21(4), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

19 Special leasing of plant or machinery U.K.

(1) In this Part “special leasing”, in relation to plant or machinery, means hiring out the plant or machinery otherwise than in the course of any other qualifying activity (and references to a lessor or lessee in the context of special leasing are to be read accordingly).

(2) A qualifying activity consisting of special leasing of plant or machinery begins when the plant or machinery is first hired out in the circumstances given in subsection (1).

(3) A qualifying activity consisting of special leasing of plant or machinery is permanently discontinued if the lessor permanently ceases to hire out the plant or machinery otherwise than in the course of any other qualifying activity.

(4) A person who has more than one item of plant or machinery that is the subject of special leasing has a separate qualifying activity in relation to each item.

(5) If a company carrying on any [F37 long-term business]—

(a) hires out plant or machinery which is an investment asset (as defined by section 545(2)), and

(b) does not do so in the course of a property business,

the company is to be treated for the purposes of subsection (1) as hiring out the plant or machinery otherwise than in the course of a qualifying activity.

Textual Amendments

F37 Words in s. 19(5) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 95

20 Employments and offices U.K.

(1) In section 15(1)(i) “employment” does not include an employment the performance of the duties of which is treated as the carrying on of a trade under [F38 section 15 of ITTOIA 2005] (divers and diving supervisors in the North Sea etc.).

(2) Subsection (3) applies if the [F39 earnings] for any duties of an employment or office [F40 fall within section 22 or 26 of ITEPA 2003].

(3) This Part applies in relation to—

(a) [F41 those earnings] , or

(b) any [F42 other taxable earnings (as defined by section 10 of ITEPA 2003)] of the employment or office,

as if the performance of the duties did not belong to that employment or office.

Textual Amendments

F38 Words in s. 20(1) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 529 (with Sch. 2 )

F39 Word in s. 20(2) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 248(2)(a) (with Sch. 7 )

F40 Words in s. 20(2) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 248(2)(b) (with Sch. 7 )

F41 Words in s. 20(3) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 248(3)(a) (with Sch. 7 )

F42 Words in s. 20(3) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 248(3)(b) (with Sch. 7 )

Chapter 3 U.K. Qualifying expenditure

Buildings, structures and land U.K.

21 Buildings U.K.

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a building.

(2) The provision of a building includes its construction or acquisition.

(3) In this section, “building” includes an asset which—

(a) is incorporated in the building,

(b) although not incorporated in the building (whether because the asset is moveable or for any other reason), is in the building and is of a kind normally incorporated in a building, or

(c) is in, or connected with, the building and is in list A.

List A

Assets treated as buildings

1.	Walls, floors, ceilings, doors, gates, shutters, windows and stairs.
2.	Mains services, and systems, for water, electricity and gas.
3.	Waste disposal systems.
4.	Sewerage and drainage systems.
5.	Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.
6.	Fire safety systems.

(4) This section is subject to section 23 [F43 (but any reference in list C in subsection (4) of that section to “plant” does not include anything where expenditure on its provision is excluded by this section)].

Textual Amendments

F43 Words in s. 21(4) inserted (with effect in accordance with s. 35(3) of the amending Act) by Finance Act 2019 (c. 1), s. 35(2)

22 Structures, assets and works U.K.

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on—

(a) the provision of a structure or other asset in list B, or

(b) any works involving the alteration of land.

List B

Excluded structures and other assets

1.	A tunnel, bridge, viaduct, aqueduct, embankment or cutting.
2.	A way, hard standing (such as a pavement), road, railway, tramway, a park for vehicles or containers, or an airstrip or runway.
3.	An inland navigation, including a canal or basin or a navigable river.
4.	A dam, reservoir or barrage, including any sluices, gates, generators and other equipment associated with the dam, reservoir or barrage.
5.	A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped.
6.	A dike, sea wall, weir or drainage ditch.
7.	Any structure not within items 1 to 6 other than— (a) a structure (but not a building) within Chapter 2 of Part 3 (meaning of “industrial building”), (b) a structure in use for the purposes of an undertaking for the extraction, production, processing or distribution of gas, and (c) a structure in use for the purposes of a trade which consists in the provision of telecommunication, television or radio services.

(2) The provision of a structure or other asset includes its construction or acquisition.

(3) In this section—

(a) “structure” means a fixed structure of any kind, other than a building (as defined by section 21(3)), and

(b) “land” does not include buildings or other structures, but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(4) This section is subject to section 23 [F44 (but any reference in list C in subsection (4) of that section to “plant” does not include anything where expenditure on its provision is excluded by this section)].

Textual Amendments

F44 Words in s. 22(4) inserted (with effect in accordance with s. 35(3) of the amending Act) by Finance Act 2019 (c. 1), s. 35(2)

23 Expenditure unaffected by sections 21 and 22 U.K.

(1) Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in subsection (2) applies.

(2) The provisions are—

• section 28 (thermal insulation of F45 ...buildings);

• F46 ...

• F47 ...

• F48 ...

• F49 ...

• section 33 (personal security);

• [F50 section 33A (integral features);]

• section 71 (software and rights to software);

• section [F51 143 of ITTOIA 2005 or section] 40D of F(No.2)A 1992 (election relating to tax treatment of films expenditure).

(3) Sections 21 and 22 also do not affect the question whether expenditure on any item described in list C is, for the purposes of this Act, expenditure on the provision of plant or machinery.

(4) But items 1 to 16 of list C do not include any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place.

List C

Expenditure unaffected by sections 21 and 22

1.	Machinery (including devices for providing motive power) not within any other item in this list.
2.	F52 ...Gas and sewerage systems provided mainly— (a) to meet the particular requirements of the qualifying activity, or (b) to serve particular plant or machinery used for the purposes of the qualifying activity.
3.	F53 . . .
4.	Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment.
5.	Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
6.	[F54 Hoists.]
7.	Sound insulation provided mainly to meet the particular requirements of the qualifying activity.
8.	Computer, telecommunication and surveillance systems (including their wiring or other links).
9.	Refrigeration or cooling equipment.
10.	Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
11.	Burglar alarm systems.
12.	Strong rooms in bank or building society premises; safes.
13.	Partition walls, where moveable and intended to be moved in the course of the qualifying activity.
14.	Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
15.	Advertising hoardings; signs, displays and similar assets.
16.	Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).
17.	Any glasshouse constructed so that the required environment (namely, air, heat, light, irrigation and temperature) for the growing of plants is provided automatically by means of devices forming an integral part of its structure.
18.	Cold stores.
19.	Caravans provided mainly for holiday lettings.
20.	Buildings provided for testing aircraft engines run within the buildings.
21.	Moveable buildings intended to be moved in the course of the qualifying activity.
22.	The alteration of land for the purpose only of installing plant or machinery.
23.	The provision of dry docks.
24.	The provision of any jetty or similar structure provided mainly to carry plant or machinery.
25.	The provision of pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.
26.	The provision of towers to support floodlights.
27.	The provision of— (a) any reservoir incorporated into a water treatment works, or (b) any service reservoir of treated water for supply within any housing estate or other particular locality.
28.	The provision of— (a) silos provided for temporary storage, or (b) storage tanks.
29.	The provision of slurry pits or silage clamps.
30.	The provision of fish tanks or fish ponds.
31.	The provision of rails, sleepers and ballast for a railway or tramway.
32.	The provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition.
33.	The provision of fixed zoo cages.

(5) In item 19 of list C, “caravan” includes, in relation to a holiday caravan site, anything that is treated as a caravan for the purposes of—

(a) the Caravan Sites and Control of Development Act 1960 (c. 62), or

(b) the Caravans Act (Northern Ireland) 1963 (c. 17 (N.I.)).

Textual Amendments

F45 Word in s. 23(2) omitted (with effect in accordance with s. 71(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 71(7)

F46 Words in s. 23(2) omitted (with effect in accordance with s. 72(4) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 72(2)

F47 S. 23(2) entry omitted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 39 para. 34(2)(a)

F48 S. 23(2) entry omitted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 39 para. 34(2)(b)

F49 S. 23(2) entry omitted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 39 para. 34(2)(c)

F50 Words in s. 23(2) inserted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 2008 (c. 9), s. 73(1)(a)

F51 Words in s. 23(2) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 530 (with Sch. 2 )

F52 Words in s. 23(4) omitted (with effect in accordance with s. 73(6) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 73(1)(b)(i)

F53 Words in s. 23(4) omitted (with effect in accordance with s. 73(6) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 73(1)(b)(ii)

F54 Word in s. 23(4) substituted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 2008 (c. 9), s. 73(1)(b)(iii)

24 Interests in land U.K.

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the acquisition of an interest in land.

(2) In this section “land” does not include—

(a) buildings or other structures, or

(b) any asset which is so installed or otherwise fixed to any description of land as to become, in law, part of the land,

but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(3) Subject to subsection (2), “interest in land” has the meaning given by section 175 (definitions in connection with provisions about fixtures).

25 Building alterations connected with installation of plant or machinery U.K.

If a person carrying on a qualifying activity incurs capital expenditure on alterations to an existing building incidental to the installation of plant or machinery for the purposes of the qualifying activity, this Part applies as if—

(a) the expenditure were expenditure on the provision of the plant or machinery, and

(b) the works representing the expenditure formed part of the plant or machinery.

Demolition costs U.K.

26 Demolition costs U.K.

(1) This section applies if—

(a) plant or machinery is demolished, and

(b) the last use of the plant or machinery was for the purposes of a qualifying activity.

(2) If the person carrying on the qualifying activity replaces the plant or machinery with other plant or machinery then, for the purposes of this Part, the net cost of the demolition to that person is treated as expenditure incurred on the provision of the other plant or machinery.

(3) If the person carrying on the qualifying activity does not replace the plant or machinery, the net cost of the demolition to that person is allocated to the appropriate pool for the chargeable period in which the demolition takes place.

(4) In subsection (3)—

• “the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been or would be allocated in accordance with this Part, and

• “the net cost of the demolition” means the amount, if any, by which the cost of the demolition exceeds any money received for the remains of the plant or machinery.

(5) Subsection (3) is subject to section 164(4) ([F55 general decommissioning expenditure] before cessation of ring fence trade: election for special allowance) [F56 and sections 165A to 165E (restrictions on allowances: anti-avoidance).]

Textual Amendments

F55 Words in s. 26(5) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 3

F56 Words in s. 26(5) inserted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 3

Expenditure on thermal insulation [F57 and personal security] U.K.

Textual Amendments

F57 Words in s. 27 cross-heading substituted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 34(3)(b)

27 Application of Part to thermal insulation [F58 and personal security] U.K.

(1) Subsection (2) has effect in relation to expenditure if—

(a) it is expenditure to which [F59 section 28 or 33] applies, and

(b) an allowance under Part 2 or a deduction in respect of the expenditure could not, in the absence of this section, be made in calculating the income from the qualifying activity in question.

(2) This Part (including in particular section 11(4)) applies as if—

(a) the expenditure were capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity in question, and

(b) the person who incurred the expenditure owned plant or machinery as a result of incurring it.

Textual Amendments

F58 Words in s. 27 heading substituted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 34(3)(b)

F59 Words in s. 27(1)(a) substituted (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 34(3)(a)

28 Thermal insulation of F60 ... buildings U.K.

(1) This section applies to expenditure if a person carrying on a qualifying activity [F61 other than an ordinary [F62 UK] property business or an [F63 ordinary overseas] property business] has incurred it in adding insulation against loss of heat to [F64 a] building occupied by him for the purposes of [F65 the qualifying activity].

(2) This section also applies to expenditure if a person carrying on a qualifying activity consisting of an ordinary [F62 UK] [F66 property] business [F67 or an [F63 ordinary overseas] property business] has incurred it in adding insulation against loss of heat to [F68 a] building let by him in the course of the business.

[F69 (2A) Subsection (2) is subject to section 35 (expenditure on plant or machinery for use in dwelling-house not qualifying expenditure).

(2B) This section does not apply to expenditure within subsection (2) if a deduction for that expenditure is allowable—

(a) under [F70 section 251 of CTA 2009], or

(b) under section 312 of ITTOIA 2005,

(deductions for expenditure on energy-saving items).

(2C) For the purposes of subsection (2B), whether such a deduction is allowable is to be determined without regard to subsection (1)(e) of the section in question.]

F71 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F60 Word in s. 28 heading omitted (with effect in accordance with s. 71(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 71(6)

F61 Words in s. 28(1) substituted (with effect in accordance with s. 71(8) of the amending Act) by Finance Act 2008 (c. 9), s. 71(2)(a)

F62 Word in s. 28(1)(2) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(7)(a)

F63 Words in s. 28(1)(2) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(7)(b)

F64 Word in s. 28(1) substituted (with effect in accordance with s. 71(8) of the amending Act) by Finance Act 2008 (c. 9), s. 71(2)(b)

F65 Words in s. 28(1) substituted (with effect in accordance with s. 71(8) of the amending Act) by Finance Act 2008 (c. 9), s. 71(2)(c)

F66 Word in s. 28(2) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), , Sch. 1 para. 531 (with Sch. 2)

F67 Words in s. 28(2) inserted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 1

F68 Word in s. 28(2) substituted (with effect in accordance with s. 71(8) of the amending Act) by Finance Act 2008 (c. 9), s. 71(3)

F69 S. 28(2A)-(2C) inserted (with effect in accordance with s. 71(8) of the amending Act) by Finance Act 2008 (c. 9), s. 71(4)

F70 Words in s. 28(2B)(a) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 480 (with Sch. 2 Pts. 1, 2)

F71 S. 28(3) omitted (with effect in accordance with s. 71(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 71(5)

F72 29 Fire safety U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F72 S. 29 omitted (with effect in accordance with s. 72(4) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 72(1)

F73 30 Safety at designated sports grounds U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F73 S. 30 repealed (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 33(a)

F74 31 Safety at regulated stands at sports grounds U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F74 S. 31 repealed (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 33(b)

F75 32 Safety at other sports grounds U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F75 S. 32 repealed (with effect in accordance with Sch. 39 para. 35 of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 33(c)

33 Personal security U.K.

(1) This section applies to expenditure if—

(a) it is incurred by an individual or partnership of individuals in connection with the provision for, or for use by, the individual, or any of the individuals, of a security asset,

(b) the individual or partnership is carrying on a relevant qualifying activity, and

(c) the special threat conditions are met.

(2) The special threat conditions are that—

(a) the asset is provided or used to meet a threat which—

(i) is a special threat to the individual’s personal physical security, and

(ii) arises wholly or mainly because of the relevant qualifying activity, and

(b) the person incurring the expenditure—

(i) has the sole object of meeting that threat in incurring that expenditure, and

(ii) intends the asset to be used solely to improve personal physical security.

(3) If—

(a) the person incurring the expenditure intends the asset to be used solely to improve personal physical security, but

(b) there is another use which is incidental to improving personal physical security,

that other use is ignored for the purposes of this section.

(4) The fact that an asset improves the personal physical security of any member of the family or household of the individual concerned, as well as that of the individual, does not prevent this section from applying.

(5) If—

(a) the asset is not intended to be used solely to improve personal physical security, but the expenditure incurred on it would otherwise be expenditure to which this section applies, and

(b) the person incurring the expenditure intends the asset to be used partly to improve personal physical security,

this section applies only to the proportion of the expenditure attributable to the intended use to improve personal physical security.

(6) In this section “security asset” means an asset which improves personal security; and here “asset”—

(a) does not include—

(i) a car, ship or aircraft, or

(ii) a dwelling or grounds appurtenant to a dwelling, but

(b) subject to paragraph (a), includes equipment, a structure (such as a wall) and an asset which becomes fixed to land.

F76 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) In this section “relevant qualifying activity” means a qualifying activity consisting of—

(a) a trade,

(b) an ordinary [F77 UK] [F78 property] business,

(c) a [F79 UK furnished] holiday lettings business,

(d) an [F80 ordinary overseas] property business, F81 ...

[F82 (da) an EEA furnished holiday lettings business, or]

(e) a profession or vocation.

Textual Amendments

F76 S. 33(7) omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 13 (with Sch. 11 paras. 30-32)

F77 Word in s. 33(8)(b) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(8)(a)

F78 Word in s. 33(8)(b) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 532 (with Sch. 2 )

F79 Words in s. 33(8)(c) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(8)(b)

F80 Words in s. 33(8)(d) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(8)(c)

F81 Word in s. 33(8)(d) omitted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by virtue of Finance Act 2011 (c. 11), Sch. 14 para. 12(8)(d)

F82 S. 33(8)(da) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(8)(d)

[F83 Expenditure on integral features] U.K.

Textual Amendments

F83 Ss. 33A, 33B and cross-heading inserted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 2008 (c. 9), s. 73(2)

[F83 33A Expenditure on provision or replacement of integral features U.K.

(1) This section applies where a person carrying on a qualifying activity incurs expenditure on the provision or replacement of an integral feature of a building or structure used by the person for the purposes of the qualifying activity.

(2) This Part (including in particular section 11(4)) applies as if—

(a) the expenditure were capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity, and

(b) the person who incurred the expenditure owned plant or machinery as a result of incurring it.

(3) If the expenditure is qualifying expenditure, it may not be deducted in calculating the income from the qualifying activity.

(4) If the expenditure is not qualifying expenditure, whether it may be so deducted is to be determined without regard to this section.

(5) For the purposes of this section each of the following is an integral feature—

(a) an electrical system (including a lighting system),

(b) a cold water system,

(c) a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,

(d) a lift, an escalator or a moving walkway,

(e) external solar shading.

(6) The items listed in subsection (5) do not include any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place.

(7) The Treasury may by order—

(a) provide that subsection (5) does not include a feature of a building or structure specified in the order, expenditure on which would (if not within subsection (5)) be qualifying expenditure other than special rate expenditure, and

(b) add to the list in subsection (5) a feature of a building or structure expenditure on the provision of which would not (apart from the order) be expenditure on the provision of plant or machinery.

(8) An order under subsection (7) may make such incidental, supplemental, consequential and transitional provision as the Treasury thinks fit.

Modifications etc. (not altering text)

C16 S. 33A(3) excluded by 2005 c. 5, s. 55A(2) (as inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 11(3)

33B Meaning of “replacement” in section 33A U.K.

(1) Expenditure to which this section applies is to be treated for the purposes of section 33A as expenditure on the replacement of an integral feature.

(2) This section applies to expenditure incurred by a person on an integral feature if the amount of the expenditure is more than 50% of the cost of replacing the integral feature at the time the expenditure is incurred.

(3) Subsection (4) applies where—

(a) a person incurs expenditure (“initial expenditure”) on an integral feature which is not more than 50% of the cost of replacing the integral feature at the time it is incurred, but

(b) in the period of 12 months beginning with the initial expenditure being incurred the person incurs further expenditure on the integral feature.

(4) If the aggregate of—

(a) the amount of the initial expenditure, and

(b) the amount (or the aggregate of the amounts) of the further expenditure,

is more than 50% of the cost of replacing the integral feature at the time the initial expenditure was incurred, this section applies to the initial expenditure and the further expenditure.

(5) Where section 33A applies because of subsection (4), all such assessments and adjustments of assessments are to be made as are necessary to give effect to that section.]

Exclusion of certain types of expenditure U.K.

34 Expenditure by MPs and others on accommodation U.K.

(1) Expenditure is not qualifying expenditure if it is incurred by—

(a) a member of the House of Commons,

(b) a member of the Scottish Parliament,

(c) a member of the National Assembly for Wales, or

(d) a member of the Northern Ireland Assembly,

in or in connection with the provision or use of residential or overnight accommodation for the purpose given in subsection (2).

(2) The purpose is enabling the member to perform the duties of a member of the body in or about—

(a) the place where the body sits, or

(b) the constituency or region for which the member has been returned.

[F84 34A Expenditure on plant or machinery for long funding leasing not qualifying expenditure U.K.

Expenditure is not qualifying expenditure if it is incurred on the provision of plant or machinery for leasing under a long funding lease (see Chapter 6A).]

Textual Amendments

F84 S. 34A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 3

35 Expenditure on plant or machinery for use in dwelling-house not qualifying expenditure in certain cases U.K.

(1) This section applies if a person is carrying on a qualifying activity consisting of—

(a) an ordinary [F85 UK] [F86 property] business,

(b) an [F87 ordinary overseas] property business, or

(c) special leasing of plant or machinery.

(2) The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.

(3) If plant or machinery is provided partly for use in a dwelling-house and partly for other purposes, such apportionment of the expenditure incurred in providing that plant or machinery is to be made for the purposes of subsection (2) as is just and reasonable.

Textual Amendments

F85 Word in s. 35(1)(a) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(9)(a)

F86 Word in s. 35(1)(a) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), , Sch. 1 para. 533 (with Sch. 2)

F87 Words in s. 35(1)(b) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(9)(b)

[F88 36 Restriction on qualifying expenditure in case of employment or office U.K.

(1) Where the qualifying activity consists of an employment or office—

(a) expenditure on the provision of a mechanically propelled road vehicle, or a cycle, is not qualifying expenditure, and

(b) other expenditure is qualifying expenditure only if the plant or machinery is necessarily provided for use in the performance of the duties of the employment or office.

(2) In this section “ cycle ” has the meaning given by section 192(1) of the Road Traffic Act 1988. ]

Textual Amendments

F88 S. 36 substituted (with effect as mentioned in s. 59(3)(4) of the amending Act) by Finance Act 2001 (c. 9), s. 59(1)(3)(4)

37 Exclusion where sums payable in respect of depreciation U.K.

(1) Expenditure incurred by a person in providing plant or machinery for the purposes of a qualifying activity is not qualifying expenditure if it appears—

(a) that during the period during which the plant or machinery will be used for the purposes of the qualifying activity sums are, or are to be, payable to that person directly or indirectly, and

(b) that those sums are in respect of, or take account of, the whole of the depreciation of the plant or machinery resulting from its use for those purposes.

(2) Subsection (1) does not apply if the sums fall to be taken into account as income of the person or in calculating the profits of a qualifying activity carried on by him.

38 Production animals etc. U.K.

Expenditure is not qualifying expenditure if it is incurred on—

[F89 (a) animals or other creatures to which section 30 of ITTOIA 2005 or section 50 of CTA 2009 (animals kept for trade purposes) applies,

(b) animals or other creatures to which Chapter 8 of Part 2 of ITTOIA 2005 or Chapter 8 of Part 3 of CTA 2009 (herd basis rules) applies, or

(c) shares in animals or creatures such as are mentioned in paragraph (a) or (b).]

Textual Amendments

F89 S. 38(a)-(c) substituted for s. 38(a)(b) (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 481 (with Sch. 2 Pts. 1, 2)

[F90 38ZA Vehicles for which deductions allowed at fixed rate under Part 2 of ITTOIA 2005 U.K.

Expenditure is not qualifying expenditure if—

(a) it is incurred in respect of a vehicle in a period, and

(b) a deduction is made for the period in respect of the expenditure under section 94D of ITTOIA 2005 (deduction allowable at fixed rate for expenditure on vehicles).]

Textual Amendments

F90 S. 38ZA inserted (with effect in accordance with Sch. 5 para. 6 of the amending Act) by Finance Act 2013 (c. 29), Sch. 5 para. 5(2)

[F91 Chapter 3A U.K. AIA qualifying expenditure

Textual Amendments

F91 Pt. 2 Ch. 3A inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 2

38A AIA qualifying expenditure U.K.

(1) An annual investment allowance is not available unless the qualifying expenditure is AIA qualifying expenditure.

(2) Expenditure is AIA qualifying expenditure if—

(a) it is incurred by a qualifying person on or after the relevant date, and

(b) it is not excluded by any of the general exclusions in section 38B.

(3) “Qualifying person” means—

(a) an individual,

(b) a partnership of which all the members are individuals, or

(c) a company.

(4) In determining whether expenditure is AIA qualifying expenditure, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded.

(5) “The relevant date” means—

(a) for corporation tax purposes, 1 April 2008, and

(b) for income tax purposes, 6 April 2008.

38B General exclusions applying to section 38A U.K.

Expenditure within any of the following general exclusions is not AIA qualifying expenditure.

• General exclusion 1

  The expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued.

• General exclusion 2

  The expenditure is incurred on the provision of a car (as defined by section [F92 268A]).

• General exclusion 3

  The expenditure is incurred wholly for the purposes of a ring fence trade in respect of which tax is chargeable under [F93 section 330(1) of CTA 2010] (supplementary charge in respect of ring fence trades).

• General exclusion 4

  The circumstances of the incurring of the expenditure are that—

  (a)

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

  (b)

  the obtaining of an annual investment allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change.

• General exclusion 5

  Any of the following sections applies—

  • section 13 (use for qualifying activity of plant or machinery provided for other purposes);

  • section 13A (use for other purposes of plant or machinery provided for long funding leasing);

  • section 14 (use for qualifying activity of plant or machinery which is a gift).

  This is subject to section 161 (pre-trading expenditure on mineral exploration and access).]

Textual Amendments

F92 Word in s. 38B substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 2 (with Sch. 11 paras. 30-32)

F93 Words in s. 38B substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 324 (with Sch. 2)

Chapter 4 U.K. First-year qualifying expenditure

General U.K.

39 First-year allowances available for certain types of qualifying expenditure only U.K.

A first-year allowance is not available unless the qualifying expenditure is first-year qualifying expenditure under [F94 any of the following provisions]—

F95 . . .	F95 . . .
F96 . . .	F96 . . .
F95 . . .	F95 . . .
F97 . . .	F97 . . .
[F98 section 45D	expenditure on cars with low CO2 emissions,]
[F99 section 45DA	expenditure on zero-emission goods vehicles,]
[F100 section 45E	expenditure on plant or machinery for gas refuelling station] F101 ...
[F102 section 45EA	expenditure on plant or machinery for electric vehicle charging point]
[F103 section 45F	expenditure on plant and machinery for use wholly in a ring fence trade.]
F104 . . .	F104 . . .
[F105 section 45K	expenditure on plant and machinery for use in designated assisted areas.]
[F106 section 45O	expenditure on plant and machinery for use in freeport tax sites.]

Textual Amendments

F94 Words in s. 39 inserted (with effect in accordance with s. 167 of the amending Act) by Finance Act 2003 (c. 14), Sch. 30 para. 2(a)

F95 S. 39 entries omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(a) (with s. 76(7)(8))

F96 S. 39 entry omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(a)

F97 Words in s. 39 omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(iii)(a)

F98 Words in s. 39 inserted (with effect as mentioned in s. 59 of the amending Act) by Finance Act 2002 (c. 23), s. 59, Sch. 19 para. 2

F99 Words in s. 39 inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 2

F100 Words in s. 39 inserted (with effect as mentioned in s. 61 of the amending Act) by Finance Act 2002 (c. 23), s. 61, Sch. 20 para. 2

F101 Word in s. 39 repealed (with effect in accordance with s. 167 of the amending Act) by Finance Act 2003 (c. 14), Sch. 30 para. 2(b), Sch. 43 Pt. 3(9)

F102 Words in s. 39 inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 38(2)

F103 Words in s. 39 inserted (with effect as mentioned in s. 63 of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 2

F104 Words in s. 39 omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(iii)(b)

F105 Words in s. 39 inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 2

F106 Words in s. 39 inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 2

Types of expenditure which may qualify for first-year allowances U.K.

F107 40 Expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F107 Ss. 40-43 omitted (with application in accordance with s. 76(7) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 76(2) (with s. 76(8))

F107 41 Miscellaneous exclusions from section 40 (expenditure for Northern Ireland purposes etc.) U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F107 Ss. 40-43 omitted (with application in accordance with s. 76(7) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 76(2) (with s. 76(8))

F107 42 Exclusion of plant or machinery partly for use outside Northern Ireland U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F107 Ss. 40-43 omitted (with application in accordance with s. 76(7) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 76(2) (with s. 76(8))

F107 43 Effect of plant or machinery subsequently being primarily for use outside Northern Ireland U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F107 Ss. 40-43 omitted (with application in accordance with s. 76(7) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 76(2) (with s. 76(8))

F108 44 Expenditure incurred by small or medium-sized enterprises U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F108 S. 44 omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(2)

F109 45 ICT expenditure incurred by small enterprises U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F109 S. 45 omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(3) (with s. 76(7)(8))

F110 45A Expenditure on energy-saving plant or machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F110 Ss. 45A-45C repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(a)

F110 45AA Section 45A exclusion: feed-in tariffs and renewable heat incentives U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F110 Ss. 45A-45C repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(a)

F110 45B Certification of energy-saving plant and machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F110 Ss. 45A-45C repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(a)

F110 45C Energy-saving components of plant or machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F110 Ss. 45A-45C repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(a)

45D Expenditure on cars with low carbon dioxide emissions U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred in the period beginning with 17th April 2002 and ending with 31st March [F111 2025],

(b) it is expenditure on a car which is first registered on or after 17th April 2002 and which is unused and not second-hand,

[F112 (c) the car—

(i) is electrically-propelled, or

(ii) has low CO₂ emissions, and]

(d) the expenditure is not excluded by section 46 (general exclusions).

[F113 (1A) The Treasury may by order amend subsection (1)(a) so as to extend the period specified.]

(2) For the purposes of this section [F114 a car has low CO₂ emissions if it] satisfies the conditions in subsections (3) and (4).

(3) The first condition is that, when the car is first registered, it is so registered on the basis of [F115 a qualifying emissions certificate.]

(4) The second condition is that the applicable CO ₂ emissions figure [F116 in relation to] the car does not exceed [F117 0] grams per kilometre driven.

F118 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F118 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) The Treasury may by order amend the amount from time to time specified in subsection (4).

(8) In this section any reference to a car [F119 is to a car within the meaning of section 268A, except that it]—

(a) includes a reference to a mechanically propelled road vehicle of a type commonly used as a hackney carriage, F120 ...

F120 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F121 (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F121 (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F122 (11) In this section—

• “applicable CO₂ emissions figure” and “qualifying emissions certificate” have the meanings given in section 268C;

• “electrically-propelled” has the meaning given in section 268B.]

Textual Amendments

F111 Word in s. 45D(1)(a) substituted (1.4.2021) by The Capital Allowances Act 2001 (Car Emissions) (Extension of First-year Allowances) (Amendment) Order 2021 (S.I. 2021/120), arts. 1(1), 3(a)

F112 S. 45D(1)(c) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(2) (with Sch. 11 paras. 30-32)

F113 S. 45D(1A) inserted (17.7.2014) by Finance Act 2014 (c. 26), s. 64(2)

F114 Words in s. 45D(2) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(3) (with Sch. 11 paras. 30-32)

F115 Words in s. 45D(3) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(4) (with Sch. 11 paras. 30-32)

F116 Words in s. 45D(4) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(5) (with Sch. 11 paras. 30-32)

F117 Word in s. 45D(4) substituted (with effect in accordance with art. 1(2)(a) of the amending S.I.) by The Capital Allowances Act 2001 (Car Emissions) (Extension of First-year Allowances) (Amendment) Order 2021 (S.I. 2021/120), arts. 1(1), 3(b)

F118 S. 45D(5)(6) omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 14(6) (with Sch. 11 paras. 30-32)

F119 Words in s. 45D(8) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(7)(a) (with Sch. 11 paras. 30-32)

F120 S. 45D(8)(b) and preceding word omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 14(7)(b) (with Sch. 11 paras. 30-32)

F121 S. 45D(9)(10) omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 14(8) (with Sch. 11 paras. 30-32)

F122 S. 45D(11) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 14(9) (with Sch. 11 paras. 30-32)

[F123 45DA Expenditure on zero-emission goods vehicles U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred in the period of [F124 15 years] beginning with the relevant date,

(b) it is incurred on the provision of a zero-emission goods vehicle,

(c) the vehicle is unused and not second-hand,

(d) the vehicle is registered, and

(e) the expenditure is not excluded by section 46 (general exclusions).

[F125 (1A) The Treasury may by order amend subsection (1)(a) so as to extend the period specified.]

(2) For the purposes of subsection (1)(d) it does not matter whether the vehicle is first registered before or after the expenditure is incurred.

(3) In this section—

• “goods vehicle” means a mechanically propelled road vehicle which is of a design primarily suited for the conveyance of goods or burden of any description;

• “the relevant date” means—

  (a)

  in the case of expenditure incurred by a person within the charge to corporation tax, 1 April 2010, and

  (b)

  in the case of expenditure incurred by a person within the charge to income tax, 6 April 2010;

• “zero-emission goods vehicle” means a goods vehicle which cannot in any circumstances emit CO₂ by being driven.

(4) The Treasury may by order amend this Chapter so as to provide for specified descriptions of vehicles to be treated, or not to be treated, as goods vehicles for the purposes of this section.

(5) This section is subject to section 45DB.

Textual Amendments

F123 Ss. 45DA, 45DB inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 3

F124 Words in s. 45DA(1)(a) substituted (1.4.2021) by The Capital Allowances Act 2001 (Car Emissions) (Extension of First-year Allowances) (Amendment) Order 2021 (S.I. 2021/120), arts. 1(1), 4

F125 S. 45DA(1A) inserted (17.7.2014) by Finance Act 2014 (c. 26), s. 64(3)

45DB Exclusions from allowances under section 45DA U.K.

(1) Expenditure incurred by a person is not first-year qualifying expenditure under section 45DA if it is within subsection (2), (4) or (6).

(2) Expenditure is within this subsection if, at the time a claim is made under section 3 for a section 45DA allowance in respect of the expenditure, the person who incurred the expenditure is, or forms part of, an undertaking within subsection (3).

(3) An undertaking is within this subsection if one or both of the following conditions are met—

(a) it is reasonable to assume that the undertaking would be regarded as [F126 an undertaking in difficulty for the purposes of the General Block Exemption Regulation];

(b) the undertaking is subject to an outstanding recovery order made by virtue of Article 108(2) of the Treaty on the Functioning of the European Union (Commission Decision declaring aid illegal and incompatible with the common market).

(4) Expenditure is within this subsection if it is incurred for the purposes of a qualifying activity—

(a) in the fishery or aquaculture sector, as covered by [F127 Regulation (EU) No 1379/2013 of the European Parliament and of the Council], or

(b) relating to the management of waste of undertakings.

(5) In subsection (4)(b) the reference to waste of undertakings does not include waste of the person who incurred the expenditure or of any other person forming part of the same undertaking as that person.

(6) Expenditure is within this subsection to the extent that it is taken into account for the purposes of a relevant grant, or relevant payment, made towards that expenditure.

(7) A grant or payment is relevant if it is—

(a) a F128 ... State aid, other than an allowance under this Part, or

(b) a grant or subsidy, other than a F128 ... State aid, which the Treasury by order declares to be relevant for the purposes of the withholding of a section 45DA allowance.

(8) If a relevant grant or relevant payment towards the expenditure is made after the making of a section 45DA allowance, the allowance is to be withdrawn F129 ....

(9) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (8).

(10) Any such assessment or adjustment is not out of time if it is made within 3 years of the end of the chargeable period in which the grant or payment was made.

(11) In this section—

• “General Block Exemption Regulation” means Commission Regulation [F130 (EU) No 651/2014] (General block exemption Regulation) [F131 as it had effect in the United Kingdom immediately before IP completion day];

• “management” and “waste” have the meaning given by Article 1 of Directive 2006/12/EC of the European Parliament and of the Council;

• F132 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “section 45DA allowance” means a first year allowance in respect of expenditure that is first-year qualifying expenditure under section 45DA;

• “undertaking” means—

  (a)

  an autonomous enterprise, or

  (b)

  an enterprise (not within paragraph (a)) and its partner enterprises (if any) and its linked enterprises (if any),

  and for this purpose “enterprise”, “autonomous enterprise”, “partner enterprises” and “linked enterprises” have the meaning given by Annex 1 to the General Block Exemption Regulation.

[F133 (11A) Nothing in this section limits references to “State aid” to State aid which is required to be notified to and approved by the European Commission.]

(12) The Treasury may by order make such provision amending this section as appears to them appropriate for the purpose of giving effect to any future amendments of or instrument replacing—

(a) the General Block Exemption Regulation,

(b) the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02),

[F134 (c) Regulation (EU) No 1379/2013 of the European Parliament and of the Council,]

(d) Directive 2006/12/EC of the European Parliament and of the Council, or

(e) the Treaty on the Functioning of the European Union.]

Textual Amendments

F123 Ss. 45DA, 45DB inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 3

F126 Words in s. 45DB(3)(a) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 2(2)

F127 Words in s. 45DB(4)(a) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 2(3)

F128 Word in s. 45DB(7) omitted (with effect in accordance with s. 45(8)(9) of the amending Act) by virtue of Finance Act 2015 (c. 11), s. 45(4)

F129 Words in s. 45DB(8) omitted (with effect in accordance with s. 45(8)(9) of the amending Act) by virtue of Finance Act 2015 (c. 11), s. 45(5)

F130 Words in s. 45DB(11) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 2(4)

F131 Words in s. 45DB(11) inserted (31.12.2020) by The Taxes (State Aid) (Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1499), regs. 1, 3(2)

F132 Words in s. 45DB(11) omitted (with effect in accordance with s. 45(8)(9) of the amending Act) by virtue of Finance Act 2015 (c. 11), s. 45(6)

F133 S. 45DB(11A) inserted (with effect in accordance with s. 45(8)(9) of the amending Act) by Finance Act 2015 (c. 11), s. 45(7)

F134 S. 45DB(12)(c) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 2(5)

[F135 45E Expenditure on plant or machinery for gas refuelling station U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred in the period beginning with 17th April 2002 and ending with 31st March [F136 2025],

(b) it is expenditure on plant or machinery for a gas refuelling station where the plant or machinery is unused and not second-hand, and

(c) it is not excluded by section 46 (general exclusions).

[F137 (1A) The Treasury may by order amend subsection (1)(a) so as to extend the period specified.]

(2) For the purposes of this section expenditure on plant or machinery for a gas refuelling station is expenditure on plant or machinery installed at a gas refuelling station for use solely for or in connection with refuelling vehicles with natural gas[F138 , biogas] or hydrogen fuel.

(3) For the purposes of subsection (2) the plant or machinery which is for use for or in connection with refuelling vehicles with natural gas[F138 , biogas] or hydrogen fuel includes—

(a) any storage tank for natural gas [F138 , biogas] or hydrogen fuel,

(b) any compressor, pump, control or meter used for or in connection with refuelling vehicles with natural gas[F138 , biogas] or hydrogen fuel, and

(c) any equipment for dispensing natural gas[F138 , biogas] or hydrogen fuel to the fuel tank of a vehicle.

(4) For the purposes of this section—

• [F139 “biogas” means gas produced by the anaerobic conversion of organic matter and used for propelling vehicles;]

• “gas refuelling station” means any premises, or that part of any premises, where vehicles are refuelled with natural gas[F138 , biogas] or hydrogen fuel;

• “hydrogen fuel” means a fuel consisting of gaseous or cryogenic liquid hydrogen which is used for propelling vehicles;

• “vehicle” means a mechanically propelled road vehicle.]

Textual Amendments

F135 S. 45E inserted (with effect as mentioned in s. 61 of the amending Act) by Finance Act 2002 (c. 23), s. 61, Sch. 20 para. 3

F136 Word in s. 45E(1)(a) substituted (1.4.2021) by The Capital Allowances Act 2001 (Car Emissions) (Extension of First-year Allowances) (Amendment) Order 2021 (S.I. 2021/120), arts. 1(1), 5

F137 S. 45E(1A) inserted (17.7.2014) by Finance Act 2014 (c. 26), s. 64(4)

F138 Word in s. 45E inserted (with effect in accordance with s. 78(5) of the amending Act) by Finance Act 2008 (c. 9), s. 78(3)

F139 Words in s. 45E(4) inserted (with effect in accordance with s. 78(5) of the amending Act) by Finance Act 2008 (c. 9), s. 78(4)

[F140 45EA Expenditure on plant or machinery for electric vehicle charging point U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred in the relevant period,

(b) it is expenditure on plant or machinery for an electric vehicle charging point where the plant or machinery is unused and not second-hand, and

(c) it is not excluded by section 46 (general exclusions).

(2) For the purposes of this section expenditure on plant or machinery for an electric vehicle charging point is expenditure on plant or machinery installed solely for the purpose of charging electric vehicles.

(3) The “relevant period” is the period beginning with 23 November 2016 and ending with—

(a) in the case of expenditure incurred by a person within the charge to corporation tax, 31 March [F141 2023], and

(b) in the case of expenditure incurred by a person within the charge to income tax, 5 April [F141 2023].

(4) The Treasury may by regulations amend subsection (3) so as to extend the relevant period.

(5) In this section—

• “electric vehicle” means a road vehicle that can be propelled by electrical power (whether or not it can also be propelled by another kind of power);

• “electric vehicle charging point” means a facility for charging an electric vehicle.]

Textual Amendments

F140 S. 45EA inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 38(3)

F141 Word in s. 45EA(3) substituted (12.2.2019) by Finance Act 2019 (c. 1), s. 34

[F142 45F Expenditure on plant and machinery for use wholly in a ring fence trade U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred on or after 17th April 2002,

(b) it is incurred by a company,

(c) it is incurred on the provision of plant or machinery for use wholly for the purposes of a ring fence trade, and

(d) it is not excluded by section 46 (general exclusions).

(2) This section is subject to section 45G (plant or machinery used for less than five years in a ring fence trade).

(3) In this section “ ring fence trade ” means a ring fence trade in respect of which tax is chargeable under [F143 section 330(1) of CTA 2010] (supplementary charge in respect of ring fence trades). ]

Textual Amendments

F142 S. 45F inserted (with effect as mentioned in s. 63 of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 3

F143 Words in s. 45F(3) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 325 (with Sch. 2)

[F144 45G Plant or machinery used for less than five years in a ring fence trade U.K.

(1) Expenditure incurred by a company on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 45F if the plant or machinery—

(a) is at no time in the relevant period used in a ring fence trade carried on by the company or a company connected with it, or

(b) is at any time in the relevant period used for a purpose other than that of a ring fence trade carried on by the company or a company connected with it.

(2) For the purposes of this section “ the relevant period ” means whichever of the following periods, beginning with the incurring of the expenditure, first ends, namely—

(a) the period ending with the fifth anniversary of the incurring of the expenditure, or

(b) the period ending with the day preceding the first occasion on which the plant or machinery, after becoming owned by the company which incurred the expenditure, is not owned by a company which is either that company or a company connected with it.

(3) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (1).

(4) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, he must give notice to [F145 an officer of Revenue and Customs] specifying how the return needs to be amended.

(5) The notice must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.

(6) In this section “ ring fence trade ” has the same meaning as in section 45F. ]

Textual Amendments

F144 S. 45G inserted (with effect as mentioned in s. 63 of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 4

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F146 45H Expenditure on environmentally beneficial plant or machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F146 Ss. 45H-45J repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(b)

F146 45I Certification of environmentally beneficial plant and machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F146 Ss. 45H-45J repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(b)

F146 45J Environmentally beneficial components of plant or machinery U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F146 Ss. 45H-45J repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(b)

[F147 45K Expenditure on plant and machinery for use in designated assisted areas U.K.

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred by a company on the provision of plant or machinery for use primarily in an area which at the time the expenditure is incurred is a designated assisted area,

(b) it is incurred in the period F148 ... beginning with [F149 the date on which the area is (or is treated as) designated under subsection (2)(a)] [F150 and ending with whichever is the later of the day immediately before the eighth anniversary of that date or 31st March 2021],

(c) Conditions A to E are met.

[F151 (1A) The Treasury may by order amend subsection (1)(b) so as to extend the period specified.]

(2) “Designated assisted area” means an area which—

(a) is designated by an order made by the Treasury, and

(b) falls wholly within an assisted area.

(3) An area may be designated by an order under subsection (2)(a) only if at the time the order is made—

(a) the area falls wholly within an enterprise zone, and

(b) a memorandum of understanding, in respect of the area, relating to the availability of allowances in respect of expenditure to which this section applies has been entered into by the Treasury and the responsible authority for the area.

(4) An order made under subsection (2)(a) may provide that an area designated by the order is to be treated as having been so designated at times falling before the order is made.

(5) But where an area has previously been designated by an order under subsection (2)(a), section 14 of the Interpretation Act 1978 does not apply, by virtue of subsection (4), so as to imply a power to make an order (“the new order”) treating that area (or any part of it) as if it were not so designated at times falling before the new order is made.

(6) Condition A is that the company is within the charge to corporation tax.

(7) Condition B is that the expenditure is incurred for the purposes of a qualifying activity within section 15(1)(a) or (f).

(8) Condition C is that the expenditure is incurred for the purposes of—

(a) a business of a kind not previously carried on by the company,

(b) expanding a business carried on by the company, or

(c) starting up an activity which relates to a fundamental change in a product or production process of, or service provided by, a business carried on by the company.

[F152 (8A) Condition C is met by virtue of subsection (8)(c) only if the amount of the expenditure exceeds the amount by which the relevant plant or machinery is depreciated in the period of 3 years ending immediately before the beginning of the chargeable period in which the expenditure is incurred.

(8B) “Relevant plant or machinery” means the plant or machinery being used at the end of the period of 3 years mentioned in subsection (8A) for the purposes of the product, process or service mentioned in subsection (8)(c).]

(9) Condition D is that the plant or machinery is unused and not second-hand.

(10) Condition E is that the expenditure is not replacement expenditure.

(11) “Replacement expenditure” means expenditure incurred on the provision of plant or machinery (“new plant or machinery”) intended to perform the same or a similar function, for the purposes of the qualifying activity of the company, as other plant or machinery (“replaced plant or machinery”)—

(a) on which the company has previously incurred qualifying expenditure, and

(b) which has been superseded by the new plant or machinery.

(12) But if and to the extent that—

(a) the expenditure is incurred on the provision of new plant or machinery that is capable of and intended to perform a significant additional function, when compared to the replaced plant or machinery, and

(b) the additional function enhances the capacity or productivity of the qualifying activity in question,

so much of the expenditure as is attributable to the additional function is not to be regarded as replacement expenditure.

(13) The part of the expenditure attributable to the additional function is to be determined on a just and reasonable basis.

(14) In this section—

• “assisted area” means—

  (a)

  an area specified as a development area under section 1 of the Industrial Development Act 1982, or

  (b)

  Northern Ireland;

• “enterprise zone” means an area recognised by the Treasury as an area in respect of which there is a special focus on economic development and identified on a map published by the Treasury for the purposes of this section;

• “the responsible authority”, for an area, means—

  (a)

  if the area is in England, a local authority for all or part of the area or two or more such local authorities,

  (b)

  if the area is in Scotland, the Scottish Ministers,

  (c)

  if the area is in Wales, the Welsh Ministers, and

  (d)

  if the area is in Northern Ireland, the Department of Enterprise, Trade and Investment in Northern Ireland.

(15) The Treasury may by order amend the definition of “assisted area” in subsection (14) in consequence of any changes made to the areas in the United Kingdom granted assisted area status by virtue of Article 107(3) of the Treaty on the Functioning of the European Union.

(16) This section is subject to—

• section 45L (plant or machinery partly for use outside designated assisted areas),

• section 45M (exclusions from section 45K allowances),

• section 45N (effect of plant or machinery subsequently being primarily used in an area other than a designated assisted area), and

• section 46 (general exclusions).

Textual Amendments

F147 Ss. 45K-45N inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 3

F148 Words in s. 45K(1)(b) omitted (1.4.2020) by virtue of The Capital Allowances Act 2001 (Amendment of Section 45K) Order 2020 (S.I. 2020/260), arts. 1, 2(2)(a)

F149 Words in s. 45K(1)(b) substituted (15.9.2016) by Finance Act 2016 (c. 24), s. 69

F150 Words in s. 45K(1)(b) inserted (1.4.2020) by The Capital Allowances Act 2001 (Amendment of Section 45K) Order 2020 (S.I. 2020/260), arts. 1, 2(2)(b)

F151 S. 45K(1A) inserted (17.7.2014) by Finance Act 2014 (c. 26), s. 64(5)(b)

F152 S. 45K(8A)(8B) inserted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 3

45L Exclusion of plant or machinery partly for use outside designated assisted areas U.K.

(1) Expenditure on plant or machinery is not first-year qualifying expenditure under section 45K if—

(a) at the time when it is incurred, the company incurring it intends the plant or machinery to be used partly in a non-designated area, and

(b) the main purpose, or one of the main purposes, for which any person is a party to the relevant arrangements is the obtaining of a first-year allowance, or a greater first-year allowance, in respect of the part of the expenditure that is attributable to that intended use in a non-designated area.

(2) For the purposes of subsection (1)(b), the part of the expenditure that is attributable to that intended use in a non-designated area is to be determined on a just and reasonable basis.

(3) In this section—

• “non-designated area” means an area which is not a designated assisted area within the meaning of section 45K;

• “the relevant arrangements” means—

  (a)

  the transaction under which the expenditure is incurred, and

  (b)

  any scheme or arrangements of which that transaction forms part.

Textual Amendments

F147 Ss. 45K-45N inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 3

45M Exclusions from allowances under section 45K U.K.

(1) Expenditure incurred by a person is not first-year qualifying expenditure under section 45K if it is within subsection (2), (4), [F153 (7) or (7A)].

(2) Expenditure is within this subsection if, at the time a claim is made under section 3 for a section 45K allowance in respect of the expenditure, the person who incurred the expenditure is, or forms part of, an undertaking within subsection (3).

(3) An undertaking is within this subsection if one or both of the following conditions are met—

(a) it is reasonable to assume that the undertaking would be regarded as [F154 an undertaking in difficulty for the purposes of the General Block Exemption Regulation];

(b) the undertaking is subject to an outstanding recovery order made by virtue of Article 108(2) of the Treaty on the Functioning of the European Union (Commission Decision declaring aid illegal and incompatible with the common market).

(4) Expenditure is within this subsection if it is incurred for the purposes of a qualifying activity—

(a) in the fishery or aquaculture sector, as covered by [F155 Regulation (EU) No 1379/2013 of the European Parliament and of the Council],

(b) in the coal sector, steel sector, shipbuilding sector or synthetic fibres sector,

[F156 (ba) in the transport sector or related infrastructure,

(bb) relating to energy generation, distribution or infrastructure,

(bc) relating to the development of broadband networks,]

(c) relating to the management of waste of undertakings, or

(d) relating to—

(i) the primary production of agricultural products,

(ii) on-farm activities necessary for preparing an animal or plant product for the first sale, or

(iii) the first sale of agricultural products by a primary producer to wholesalers, retailers or processors, in circumstances where that sale does not take place on separate premises reserved for that purpose.

[F157 (4A) Expressions used in subsection (4)(b), (ba), (bb) or (bc) and in the General Block Exemption Regulation have the same meaning as in that Regulation.]

(5) In subsection (4)(c) the reference to waste of undertakings does not include waste of the person who incurred the expenditure or of any other person forming part of the same undertaking as that person.

F158 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) Expenditure is within this subsection if a relevant grant or relevant payment is made towards—

(a) that expenditure, or

(b) any other expenditure which is incurred by any person in respect of the same designated assisted area, and on the same single investment project, as that expenditure.

[F159 (7A) Expenditure is within this subsection if—

(a) the area by reference to which the condition in section 45K(1)(a) is met is not an area which falls within Article 107(3)(a) of the Treaty on the Functioning of the European Union,

(b) the condition in section 45K(8)(a) is not met in relation to the expenditure, and

(c) at the time the expenditure is incurred the company is not an SME for the purposes of the General Block Exemption Regulation.]

(8) A section 45K allowance made in respect of first-year qualifying expenditure is to be withdrawn if—

(a) after it is made, a relevant grant or relevant payment is made towards that expenditure, or

(b) within the period of 3 years beginning when that expenditure was incurred, a relevant grant or relevant payment is made towards any other expenditure which is incurred by any person in respect of the same designated assisted area, and on the same single investment project, as that expenditure.

(9) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (8).

(10) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, that person must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.

(11) The notice must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.

(12) In this section—

• “agricultural product”, [F160 has] the same meaning as in the General Block Exemption Regulation;

• “General Block Exemption Regulation” means Commission Regulation [F161 (EU) No 651/2014] (General block exemption Regulation)[F162 as it had effect in the United Kingdom immediately before IP completion day];

• “management” and “waste” have the meaning given by Article 1 of Directive 2006/12/EC of the European Parliament and of the Council;

• “relevant grant or relevant payment” means a grant or payment which is—

  (a)

  a State aid, other than an allowance under this Part, or

  (b)

  a grant or subsidy, other than a State aid, which the Treasury by order declares to be relevant for the purposes of the witholding of a section 45K allowance;

• “section 45K allowance” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45K;

• “single investment project” has the same meaning as in the General Block Exemption Regulation;

• “undertaking” means—

  (a)

  an autonomous enterprise, or

  (b)

  an enterprise (not within paragraph (a)) and its partner enterprises (if any) and its linked enterprises (if any),

  and for this purpose “enterprise”, “autonomous enterprise”, “partner enterprises” and “linked enterprises” have the meaning given by Annex 1 to the General Block Exemption Regulation.

(13) Nothing in this section limits references to “State aid” to State aid which is required to be notified to and approved by the European Commission.

(14) For the purposes of this section references to expenditure incurred in respect of a designated assisted area includes expenditure incurred on the provision of things for use primarily in that area or on services to be provided primarily in that area.

(15) The Treasury may by order make such provision amending this section as appears to them appropriate for the purpose of giving effect to any future amendments of or instruments replacing—

(a) the General Block Exemption Regulation,

(b) the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02),

[F163 (c) Regulation (EU) No 1379/2013 of the European Parliament and of the Council,]

(d) Directive 2006/12/EC of the European Parliament and of the Council, or

(e) the Treaty on the Functioning of the European Union.

Textual Amendments

F147 Ss. 45K-45N inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 3

F153 Words in s. 45M(1) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(2)

F154 Words in s. 45M(3)(a) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(3)

F155 Words in s. 45M(4)(a) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(4)(a)

F156 Ss. 45M(4)(ba)-(bc) inserted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(4)(b)

F157 S. 45M(4A) inserted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(5)

F158 S. 45M(6) omitted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 13 para. 4(6)

F159 S. 45M(7A) inserted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(7)

F160 Word in s. 45M(12) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(8)(a)

F161 Words in s. 45M(12) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(8)(b)

F162 Words in s. 45M(12) inserted (31.12.2020) by The Taxes (State Aid) (Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1499), regs. 1, 3(3)

F163 S. 45M(15)(c) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 4(9)

45N Effect of plant or machinery subsequently being primarily for use outside designated assisted areas U.K.

(1) Expenditure on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 45K if, at any relevant time—

(a) the primary use to which the plant and machinery is put is other than in an area which was a [F164 relevant area] at the time the expenditure was incurred, or

(b) the plant or machinery is held for use otherwise than primarily in an area which was [F165 a relevant] area at that time.

(2) “Relevant time” means a time which—

(a) falls within the relevant period, and

(b) is a time when the plant or machinery is owned by—

(i) the person who incurred the expenditure, or

(ii) a person who is, or at any time in that period has been, connected with that person.

(3) “The relevant period” means the period of 5 years beginning with—

(a) the day on which the plant or machinery in question is first brought into use for the purposes of a qualifying activity carried on by the company, or

(b) if earlier, the day on which it is first held for such use.

[F166 (3A) “Relevant area” means—

(a) in relation to expenditure which would be within subsection (7A) of section 45M if paragraph (a) of that subsection were omitted, a designated assisted area within the meaning of section 45K which falls within Article 107(3)(a) of the Treaty on the Functioning of the European Union, and

(b) in relation to any other expenditure, a designated assisted area within the meaning of section 45K.]

(4) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (1).

(5) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, that person must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.

(6) The notice must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.]

Textual Amendments

F147 Ss. 45K-45N inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 3

F164 Words in s. 45N(1) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 5(2)(a)

F165 Words in s. 45N(1) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 5(2)(b)

F166 S. 45N(3A) inserted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 5(3)

[F167 45O Expenditure on plant and machinery for use in freeport tax sites U.K.

(1) Expenditure incurred by a company on the provision of plant or machinery is first-year qualifying expenditure if conditions A to E are met.

(2) Condition A is that the plant or machinery is for use primarily in an area which, at the time the expenditure is incurred, is a freeport tax site.

(3) Condition B is that the plant or machinery is unused and is not second-hand.

(4) Condition C is that the expenditure is incurred for the purposes of a qualifying activity within section 15(1)(a) or (f).

(5) Condition D is that the expenditure is incurred on or before 30 September 2026.

(6) Condition E is that the company is within the charge to corporation tax.

(7) This section is subject to—

• regulations under section 45P,

• section 45Q (exclusion of plant or machinery partly for use outside freeport tax sites),

• [F168 section 45R (effect of failing to comply with ongoing requirements) and regulations under that section, and]

• section 46 (general exclusions).

Textual Amendments

F167 Ss. 45O-45R inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 3

F168 Words in s. 45O(7) substituted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 2

45P Power to amend conditions U.K.

(1) The Treasury may by regulations change the conditions that must be met in order for expenditure to be first-year qualifying expenditure under section 45O (whether by adding, removing or altering conditions).

(2) Regulations under this section may not remove the requirement for the plant or machinery to be for use primarily in an area which, at the time the expenditure is incurred, is a freeport tax site.

(3) Regulations under this section may, among other things—

(a) make provision by reference to the expenditure, the plant or machinery, the company that incurred the expenditure or a person who is or has been connected with that company;

(b) impose conditions relating to accounts or other records;

(c) impose other conditions requiring a person to take steps specified in the regulations;

(d) make different provision for different purposes;

(e) include incidental, supplementary, consequential, transitional or transitory provision.

(4) Regulations under this section—

(a) may amend, repeal or otherwise modify section 45O and other provisions of this Part, and

(b) where made under subsection (3)(e), may amend, repeal or otherwise modify other provisions of this Act or provisions of another Act.

Textual Amendments

F167 Ss. 45O-45R inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 3

45Q Exclusion of plant or machinery partly for use outside freeport tax sites U.K.

(1) This section applies if—

(a) at the time when expenditure on plant or machinery is incurred, the company incurring it intends the plant or machinery to be used partly in an area which is not a freeport tax site, and

(b) the main purpose, or one of the main purposes, for which a person is party to the relevant arrangements is the obtaining of a first-year allowance, or a greater first-year allowance, in respect of the part of the expenditure that is attributable to that intended use in an area which is not a freeport tax site (the “non-freeport part” of the expenditure).

(2) The non-freeport part of the expenditure is not first-year qualifying expenditure under section 45O.

(3) For the purposes of this section, the non-freeport part of the expenditure is to be determined on a just and reasonable basis.

(4) In this section, “the relevant arrangements” means—

(a) the transaction under which the expenditure on the plant or machinery is incurred, and

(b) any scheme or arrangements of which that transaction forms part.

Textual Amendments

F167 Ss. 45O-45R inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 3

45R Effect of [F169 failing to comply with ongoing requirements] U.K.

(1) Expenditure on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 45O if, at any relevant time—

(a) the primary use to which the plant or machinery is put is other than in an area which, at the time the expenditure was incurred, was a freeport tax site, or

(b) the plant or machinery is held for use otherwise than primarily in an area which was a freeport tax site at that time.

(2) “Relevant time” means a time within the relevant period when the plant or machinery is owned by—

(a) the company that incurred the expenditure, or

(b) a person who is, or at any time in that period has been, connected with that company.

(3) “The relevant period” means the period of 5 years beginning with—

(a) the day on which the plant or machinery in question is first brought into use for the purposes of a qualifying activity carried on by the company, or

(b) if earlier, the day on which it is first held for such use.

[F170 (3A) The Treasury may by regulations make provision adding, removing or altering, or otherwise about, circumstances in which expenditure on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 45O.

(3B) The power to make regulations under subsection (3A) may be exercised only in relation to expenditure incurred on or after the date on which the regulations come into force.

(3C) Subsections (3) and (4) of section 45P apply in relation to regulations under subsection (3A) as they apply in relation to regulations under that section.]

(4) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (1) [F171 or regulations under subsection (3A)].

(5) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section [F172 or of regulations under subsection (3A)], that person must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.

(6) The notice must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section [F173 or of regulations under subsection (3A)].]

Textual Amendments

F167 Ss. 45O-45R inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 3

F169 Words in s. 45R heading substituted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 3(2)

F170 S. 45R(3A)-(3C) inserted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 3(3)

F171 Words in s. 45R(4) inserted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 3(4)

F172 Words in s. 45R(5) inserted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 3(5)

F173 Words in s. 45R(6) inserted (24.2.2022) by Finance Act 2022 (c. 3), Sch. 16 para. 3(6)

46 F174 General exclusions ... U.K.

(1) Expenditure within any of the general exclusions in subsection (2) is not first-year qualifying expenditure under [F175 any of the following provisions]—

• F176 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F177 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F176 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F179 section 45D (expenditure on cars with low CO₂ emissions),]

• [F180 section 45DA (expenditure on zero-emission goods vehicles), ]

• [F181 section 45E (expenditure on plant or machinery for gas refuelling station)], F182 ...

• [F183 section 45EA (expenditure on plant or machinery for electric vehicle charging point)]

• [F184 section 45F (expenditure on plant and machinery for use wholly in a ring fence trade)]

  F178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F185 section 45K (expenditure on plant and machinery for use in designated assisted areas).]

• [F186 section 45O (expenditure on plant and machinery for use in freeport tax sites).]

(2) The general exclusions are—

• General exclusion 1

  The expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued.

• General exclusion 2

  The expenditure is incurred on the provision of a car (as defined by section [F187 268A]).

• F188 ...

• F189 ...

• General exclusion 5

  The expenditure would be long-life asset expenditure but for paragraph 20 of Schedule 3 (transitional provisions).

• General exclusion 6

  The expenditure is on the provision of plant or machinery for leasing (whether in the course of a trade or otherwise).

  For this purpose, the letting of a ship on charter, or of any other asset on hire, is to be regarded as leasing (whether or not it would otherwise be so regarded).

• General exclusion 7

  The circumstances of the incurring of the expenditure are that—

  (a)

  the provision of the plant or machinery on which the expenditure is incurred 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.

• General exclusion 8

  [F190 Any] of the following sections applies—

  • section 13 (use for qualifying activity of plant or machinery provided for other purposes);

  • [F191 section 13A (use for other purposes of plant or machinery provided for long funding leasing);]

  • section 14 (use for qualifying activity of plant or machinery which is a gift).

  This is subject to section 161 (pre-trading expenditure on mineral exploration and access).

[F192 (3) Subsection (1) is subject to the following provisions of this section.

(4) General exclusion 2 does not prevent expenditure being first-year qualifying expenditure under section 45D.]

F193 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F193 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F174 Words in s. 46 heading omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(b)(ii) (with s. 76(7)(8))

F175 Words in s. 46(1) inserted (with effect in accordance with s. 167 of the amending Act) by Finance Act 2003 (c. 14) , Sch. 30 para. 4(1)(a)

F176 S. 46(1) entries omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(b)(i) (with s. 76(7)(8))

F177 S. 46(1) entry omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(b)

F178 Words in s. 46(1) omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(iv)(a)

F179 Entry in s. 46(1) relating to s. 45D inserted (with effect as mentioned in s. 59 of the amending Act) by Finance Act 2002 (c. 23), s. 59, Sch. 19 para. 4(2)

F180 Words in s. 46(1) inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 4

F181 Entry in s. 46(1) relating to s. 45E inserted (with effect as mentioned in s. 61of the amending Act) by Finance Act 2002 (c. 23), s. 61, Sch. 20 para. 4

F182 Word in s. 46(1) repealed (with effect in accordance with s. 167 of the amending Act) by Finance Act 2003 (c. 14) , Sch. 30 para. 4(1)(b) , 43 Pt. 3(9)

F183 Words in s. 46(1) inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 38(4)

F184 Entry in s. 46(1) relating to s. 45F inserted (with effect as mentioned in s. 63 of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 5

F185 Words in s. 46(1) inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 4

F186 Words in s. 46(1) inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 4

F187 Word in s. 46(2) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 3 (with Sch. 11 paras. 30-32)

F188 Words in s. 46(2) omitted (with effect in accordance with s. 70(2) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 70(1)(a)

F189 Words in s. 46(2) omitted (with effect in accordance with s. 70(2) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 70(1)(b)

F190 Word in s. 46(2) substituted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 4(2)(a)

F191 Words in s. 46(2) inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 4(2)(b)

F192 Entry relating to s. 46(3)(4) inserted (with effect as mentioned in s. 59 of the amending Act) by Finance Act 2002 (c. 23), s. 59, Sch. 19 para. 4(3)

F193 S. 46(5)(6) omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(iv)(b)

Modifications etc. (not altering text)

C17 S. 46(2) restricted (10.6.2021) by Finance Act 2021 (c. 26), s. 9(9)

Expenditure of small or medium-sized enterprises U.K.

F194 47 Expenditure of small or medium-sized enterprises: companies U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F194 Ss. 47-49 omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(c)

F194 48 Expenditure of small or medium-sized enterprises: businesses U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F194 Ss. 47-49 omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(c)

F194 49 Whether company is a member of a large or medium-sized group U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F194 Ss. 47-49 omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(c)

Supplementary U.K.

50 Time when expenditure is incurred U.K.

In determining whether expenditure is first-year qualifying expenditure under this Chapter, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded.

F195 51 Disclosure of information between UK tax authorities U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F195 S. 51 omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(c) (with s. 76(7)(8))

Chapter 5 U.K. Allowances and charges

Modifications etc. (not altering text)

C18 Pt. 2 modified (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 para. 21(2) (with s. 38(2) ); S.I. 2004/2575 , art. 2(1) , Sch. 1

C19 Pt. 2 restricted (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 para. 10 (with s. 38(2) ); S.I. 2004/2575 , art. 2(1) , Sch. 1

[F196 Annual investment allowance U.K.

Textual Amendments

F196 Ss. 51A-51N and cross-heading inserted (with effect in accordance with Sch. 24 para. 23 to the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 3

51A Entitlement to annual investment allowance U.K.

(1) A person is entitled to an allowance (an “annual investment allowance”) in respect of AIA qualifying expenditure if—

(a) the expenditure is incurred in a chargeable period to which this Act applies, and

(b) the person owns the plant and machinery at some time during that chargeable period.

(2) Any annual investment allowance is made for the chargeable period in which the AIA qualifying expenditure is incurred.

(3) If the AIA qualifying expenditure incurred in a chargeable period is less than or equal to the maximum allowance, the person is entitled to an annual investment allowance in respect of all the AIA qualifying expenditure.

(4) If the AIA qualifying expenditure incurred in a chargeable period is more than the maximum allowance, the person is entitled to an annual investment allowance in respect of so much of the AIA qualifying expenditure as does not exceed the maximum allowance.

(5) The maximum allowance is [F197 £200,000].

(6) But if the chargeable period is more or less than a year, the maximum allowance is proportionately increased or reduced.

(7) A person may claim an annual investment allowance in respect of all the AIA qualifying expenditure in respect of which the person is entitled to an allowance, or in respect of only some of it.

(8) The Treasury may by order substitute for the amount for the time being specified in subsection (5) such [F198 greater] amount as it thinks fit.

(9) An order under subsection (8) may make such incidental, supplemental, consequential and transitional provision as the Treasury thinks fit.

(10) This section is subject to—

(a) sections 51B to 51N (restrictions on entitlement to annual investment allowance),

[F199 section 70DA(2) (transfer and long funding leaseback: no annual investment allowance for lessee),]

(b) section 205 (reduction of allowance if plant or machinery provided partly for purposes other than those of qualifying activity),

(c) section 210 (reduction of allowance if it appears that a partial depreciation subsidy is or will be payable), and

(d) sections 217, 218A[F200 , 229A(2)] and 241 (anti-avoidance: no allowance in certain cases),

and needs to be read with section 236 (additional VAT liabilities).

Textual Amendments

F197 Word in s. 51A(5) substituted (with effect in accordance with s. 8(2)(3) of the amending Act) by Finance (No. 2) Act 2015 (c. 33), s. 8(1)

F198 Word in s. 51A(8) substituted (with effect in accordance with s. 11(5)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 11(3)

F199 Words in s. 51A(10) inserted (as an unnumbered paragraph) (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 12

F200 Word in s. 51A(10) inserted (with effect in accordance with Sch. 32 para. 22 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 18

Modifications etc. (not altering text)

C20 S. 51A(5) modified (temp.) (17.7.2013) by Finance Act 2013 (c. 29), s. 7, Sch. 1

C21 S. 51A(5) modified (temp.) (17.7.2014) by Finance Act 2014 (c. 26), s. 10, Sch. 2

C22 S. 51A(5) modified (temp.) (12.2.2019) by Finance Act 2019 (c. 1), s. 32, Sch. 13 (as amended by Finance Act 2021 (c. 26), s. 15(1))

51B First restriction: companies U.K.

(1) A company is entitled to a single annual investment allowance in respect of all the qualifying activities carried on by the company in a chargeable period.

(2) The company may allocate the annual investment allowance to the relevant AIA qualifying expenditure as it thinks fit.

(3) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the company in the chargeable period mentioned in subsection (1).

(4) This section is subject to sections 51C, 51D and 51E.

51C Second restriction: groups of companies U.K.

(1) This section applies in relation to—

(a) a company which, in a financial year, is a parent undertaking of one or more other companies, and

(b) those other companies.

(2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure.

(3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit.

(4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1).

(5) A company (“P”) is a parent undertaking of another company (“C”) in a financial year if P is a parent undertaking of C at the end of C's chargeable period ending in that financial year.

(6) In this section “parent undertaking” has the same meaning as in section 1162 of the Companies Act 2006.

(7) This section is subject to section 51D.

51D Third restriction: groups of companies under common control U.K.

(1) Where in a financial year two or more groups of companies are—

(a) controlled by the same person (see section 51F), and

(b) related to one another (see section 51G),

this section applies in relation to the companies which are members of those groups.

(2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure.

(3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit.

(4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1).

(5) In this section and in sections 51F and 51G, a group of companies means—

(a) a company which, in the financial year mentioned in subsection (1), is a parent undertaking of one or more other companies, and

(b) those other companies,

(and the members of the group are the company which is the parent undertaking and those other companies).

(6) A company (“P”) is a parent undertaking of another company (“C”) in a financial year if P is a parent undertaking of C at the end of C's chargeable period ending in that financial year.

(7) In this section “parent undertaking” has the same meaning as in section 1162 of the Companies Act 2006.

51E Fourth restriction: other companies under common control U.K.

(1) This section applies in relation to two or more companies which in a financial year are—

(a) controlled by the same person (see section 51F), and

(b) related to one another (see section 51G),

and in relation to which to neither section 51C nor section 51D applies.

(2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure.

(3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit.

(4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1).

51F Companies and groups: meaning of “control” U.K.

(1) A company is controlled by a person in a financial year if it is controlled by that person at the end of its chargeable period ending in that financial year.

(2) A group of companies is controlled by a person in a financial year if the company which is the parent undertaking is controlled by that person at the end of its chargeable period ending in that financial year.

(3) Section 574(2) defines “control” in relation to a company which is a body corporate.

(4) In relation to a company (“C”) which is not a body corporate, control means the power of a person (“P”) to secure—

(a) by means of the holding of shares or the possession of voting power in relation to C or another body, or

(b) as a result of any powers conferred by the constitution of C or another body,

that the affairs of C are conducted in accordance with P's wishes.

(5) In subsection (4) “shares” has the meaning given by section 1161(2) of the Companies Act 2006.

51G Companies and groups: meaning of “related” U.K.

(1) A company (“C1”) is related to another company (“C2”) in a financial year if one or both of—

(a) the shared premises condition, and

(b) the similar activities condition,

are met in relation to the companies in that financial year.

(2) Where C1 is related to C2 in a financial year, C1 is also related to any other company to which C2 is related in that financial year.

(3) A group of companies (“G1”) is related to another group of companies (“G2”) in a financial year if in that financial year a company which is a member of G1 is related to a company which is a member of G2.

(4) Where G1 is related to G2 in a financial year, G1 is also related to any other group of companies to which G2 is related in that financial year.

(5) The shared premises condition is met in relation to two companies in a financial year if, at the end of the relevant chargeable period of one or both of the companies, the companies carry on qualifying activities from the same premises.

(6) The similar activities condition is met in relation to two companies in a financial year if—

(a) more than 50% of the turnover of one company for the relevant chargeable period is derived from qualifying activities within a particular NACE classification, and

(b) more than 50% of the turnover of the other company for the relevant chargeable period is derived from qualifying activities within that NACE classification.

(7) In this section—

• “NACE classification” means the first level of the common statistical classification of economic activities in the European Union established by Regulation (EC) No 1893/2006 of the European Parliament and the Council of 20 December 2006 (as that Regulation has effect [F201 in EU law]), and

• “relevant chargeable period”, in relation to a company and a financial year, means the chargeable period of the company ending in that financial year.

Textual Amendments

F201 Words in s. 51G(7) substituted (31.12.2020) by The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 10(2) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

51H Fifth restriction: qualifying activities under common control U.K.

(1) This section applies in relation to two or more qualifying activities which, in a tax year—

(a) are carried on by a qualifying person other than a company,

(b) are controlled by the same person (see section 51I), and

(c) are related to one another (see section 51J).

(2) A qualifying activity is carried on by a qualifying person in a tax year if it is carried on by the person at the end of the chargeable period for the activity ending in the tax year.

(3) Where all the qualifying activities are carried on by one qualifying person, that person is entitled to a single annual investment allowance in respect of the relevant AIA qualifying expenditure.

(4) Where the qualifying activities are carried on by more than one qualifying person, those persons are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure.

(5) The person or persons carrying on the qualifying activities may allocate the annual investment allowance to the relevant AIA qualifying expenditure as the person or persons think fit.

(6) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred for the purposes of the qualifying activities in the chargeable periods for those activities ending in the tax year mentioned in subsection (1).

51I Qualifying activities: meaning of control U.K.

(1) A qualifying activity is controlled by a person in a tax year if it is controlled by the person at the end of the chargeable period for that activity which ends in that tax year.

(2) A qualifying activity carried on by an individual is controlled by the individual who carries it on.

(3) A qualifying activity carried on by a partnership is controlled by the person (if any) who controls the partnership.

(4) Section 574(3) defines “control” in relation to a partnership.

(5) Where partners who between them control one partnership also between them control another partnership, the qualifying activities carried on by the partnerships are to be treated as controlled by the same person.

51J Qualifying activity: meaning of “related” U.K.

(1) A qualifying activity (“A1”) is related to another qualifying activity (“A2”) in a tax year if one or both of—

(a) the shared premises condition, and

(b) the similar activities condition,

are met in relation to the activities in the tax year.

(2) Where A1 is related to A2 in a tax year, A1 is also related to any other qualifying activity to which A2 is related in that tax year.

(3) The shared premises condition is met in relation to two qualifying activities in a tax year if, at the end of the relevant chargeable period for one or both of the activities, the activities are carried on from the same premises.

(4) The similar activities condition is met in relation to two qualifying activities in a tax year if, at the end of the relevant chargeable period for one or both of the activities, the activities are within the same NACE classification.

(5) In this section—

• “NACE classification” has the same meaning as in section 51G, and

• “relevant chargeable period”, in relation to a qualifying activity and a tax year, means the chargeable period for that activity ending in that tax year.

[F202 51JA Sixth restriction: allocation where profits chargeable at NI rate U.K.

(1) This section applies if—

(a) section 51B, 51C, 51D or 51E applies, and

(b) the relevant AIA qualifying expenditure for the purposes of the section in question includes expenditure incurred in a low-rate year in respect of an NI rate activity.

(2) For the purposes of this section expenditure is “incurred in a low-rate year” if it is incurred in a financial year for which the Northern Ireland rate is lower than the main rate.

(3) The maximum annual investment allowance that may be allocated under section 51B, 51C, 51D or 51E to AIA qualifying expenditure incurred in a low-rate year in respect of qualifying activities other than NI rate activities is determined by the formula—

where—

A is the amount of the single annual investment allowance that would otherwise be available for allocation;

T is so much of the relevant AIA qualifying expenditure for the purposes of the section in question as is incurred in a low-rate year;

NI is so much of the relevant AIA qualifying expenditure for the purposes of the section in question as is expenditure incurred in a low-rate year in respect of an NI rate activity.]

Textual Amendments

F202 S. 51JA inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 5

51K Operation of annual investment allowance where restrictions apply U.K.

(1) This section applies where because of section 51B, 51C, 51D, 51E or 51H a person is (or persons between them are) entitled to a single annual investment allowance in respect of relevant AIA qualifying expenditure.

(2) If the relevant AIA qualifying expenditure is less than or equal to the maximum allowance, the person is (or the persons between them are) entitled to an annual investment allowance in respect of all the relevant AIA qualifying expenditure.

(3) If the relevant AIA qualifying expenditure is more than the maximum allowance, the person is (or the persons between them are) entitled to an annual investment allowance in respect of so much of the relevant AIA qualifying expenditure as does not exceed the maximum allowance.

(4) The maximum allowance is the amount for the time being specified in section 51A(5); but this is subject to sections 51M and 51N (which provide that in certain cases an additional amount of annual investment allowance may be available).

(5) The person or persons may claim an annual investment allowance in respect of all the relevant AIA qualifying expenditure in respect of which the person is (or the persons between them are) entitled to an allowance, or in respect of only some of it.

(6) The amount of the annual investment allowance allocated to relevant AIA qualifying expenditure incurred in a chargeable period must not exceed the amount of the annual investment allowance to which a person would be entitled in respect of that expenditure under section 51A(5) and (6) if section 51B, 51C, 51D, 51E or 51H did not apply.

51L Special provision for short chargeable periods U.K.

(1) This section applies where—

(a) more than one chargeable period of a company ends in a financial year, or

(b) more than one chargeable period for a qualifying activity ends in a tax year.

(2) Whether section 51C, 51D or 51E applies in relation to the company, or section 51H applies in relation to the qualifying activity, is to be determined in relation to each chargeable period ending in that year as if it were the only chargeable period ending in that year.

(3) AIA qualifying expenditure incurred in a chargeable period in relation to which the section in question does not apply is not relevant AIA qualifying expenditure for the purposes of that section.

51M Special provision for long chargeable periods U.K.

(1) This section applies where—

(a) section 51H applies in relation to two or more qualifying activities controlled by a person (“P”) in a tax year, and

(b) the relevant chargeable period for one of those qualifying activities (“A1”) is longer than a year.

(2) An additional amount of annual investment allowance may be allocated to relevant AIA qualifying expenditure incurred for the purposes of A1.

(3) That additional amount is the amount, or the aggregate of the amounts, of any relevant unused allowance for each tax year (a “previous tax year”)—

(a) which falls before the tax year mentioned in subsection (1)(a), and

(b) in which part of A1's relevant chargeable period falls.

(4) The amount of the relevant unused allowance for a previous tax year is (subject to subsections (7) and(8))—

but where the amount given by that formula is less than nil, the amount of the relevant unused allowance for the previous tax year is nil.

(5) In subsection (4)—

• MA is the amount specified in section 51A(5) in relation to the previous tax year, and

• AM is the amount of any annual investment allowance made under section 51A or 51K in respect of AIA qualifying expenditure incurred for the purposes of a relevant qualifying activity in the chargeable period for that activity ending in the previous tax year.

(6) “Relevant qualifying activity” means—

(a) any qualifying activity carried on by a qualifying person other than a company which was controlled by P in the previous tax year (see section 51I) and related to A1 in that tax year (see section 51J), and

(b) if A1 was controlled by P in the previous tax year (see section 51I), A1.

(7) Where any part of the amount calculated under subsection (4) has, on a previous application of this section, been allocated to AIA qualifying expenditure incurred for the purposes of a qualifying activity controlled by P in a tax year before that mentioned in subsection (1)(a), the amount of the relevant unused allowance is reduced accordingly.

(8) Where the amount of the relevant unused allowance for a previous tax year would (apart from this subsection) exceed—

the amount of the relevant unused allowance for that tax year is limited to the amount given by that formula.

(9) In subsection (8)—

• DCPY is the number of days in A1's relevant chargeable period falling in the previous tax year,

• DY is the number of days in that tax year, and

• MA has the meaning given by subsection (5).

(10) Nothing in this section prevents section 51K(6) applying in relation to relevant AIA qualifying expenditure incurred for the purposes of A1.

(11) In this section references to a relevant chargeable period, in relation to a qualifying activity, are to the chargeable period for that activity ending in the tax year mentioned in subsection (1)(a).

51N Special provision for long chargeable periods: supplementary U.K.

(1) This section applies where—

(a) section 51H applies in relation to two or more qualifying activities controlled by a person (“P”) in a tax year, and

(b) the relevant chargeable period for more than one of those qualifying activities is longer than a year.

(2) Section 51M applies in relation to each of the qualifying activities mentioned in subsection (1)(b) and the tax year mentioned in subsection (1)(a), as it applies in relation to A1 and the tax year mentioned in subsection (1)(a) of that section.

(3) But where two or more of the qualifying activities mentioned in subsection (1)(b) were related in a previous tax year, section 51M applies with the following modifications.

(4) The amount of any relevant unused allowance for that tax year is to be calculated under section 51M(4) to (7) (without regard to section 51M(8)).

(5) For that purpose section 51M(6) applies as if the references to A1 were references to any of the qualifying activities mentioned in subsection (1)(b).

(6) The amount of the relevant unused allowance may be allocated between those activities, but this is subject to subsection (7).

(7) The amount of the relevant unused allowance allocated to any one of those activities may not exceed the amount given by the formula in section 51M(8).]

First-year allowances U.K.

52 First-year allowances U.K.

(1) A person is entitled to a first-year allowance in respect of first-year qualifying expenditure if—

(a) the expenditure is incurred in a chargeable period to which this Act applies, and

(b) the person owns the plant or machinery at some time during that chargeable period.

(2) Any first-year allowance is made for the chargeable period in which the first-year qualifying expenditure is incurred.

(3) The amount of the allowance is a percentage of the first-year qualifying expenditure in respect of which the allowance is made, as shown in the Table—

Table

Amount of first-year allowances

Type of first-year qualifying expenditure	Amount
F203 . . .	F203 . . .
F204 . . .	F204 . . .
F203 . . .	F203 . . .
F205 . . .	F205 . . .
[F206 Expenditure qualifying under section 45D (expenditure on cars with low CO2 emissions)	100%]
[F207 Expenditure qualifying under section 45DA (expenditure on zero-emission goods vehicles)	100%]
[F208 Expenditure qualifying under section 45E (expenditure on plant or machinery for gas refuelling station)	100%]
[F209 Expenditure qualifying under section 45EA (expenditure on plant or machinery for electric vehicle charging point)	100%]
[F210 Expenditure qualifying under section 45F (expenditure for use wholly in a ring fence trade)	100%]
F211 . . .	F211 . . .
[F212 Expenditure qualifying under section 45K (expenditure on plant and machinery for use in designated assisted areas)	100%]
[F213 Expenditure qualifying under section 45O (expenditure on plant and machinery for use in freeport tax sites)	100%]

F214 ...

[F215 (3A) Subsection (3B) applies where the Treasury make regulations under section 45EA(4) (power to extend relevant period).

(3B) The regulations may amend the amount specified in column 2 of the Table in subsection (3) for expenditure qualifying under section 45EA, but only in relation to expenditure incurred after the date on which the relevant period would have ended but for the regulations.]

(4) A person who is entitled to a first-year allowance may claim the allowance in respect of the whole or a part of the first-year qualifying expenditure.

(5) Subsection (1) needs to be read with section 236 (first-year allowances in respect of additional VAT liabilities) and is subject to—

• [F216 section 70DA(2) (transfer and long funding leaseback: no first-year allowance for lessee),]

• section 205 (reduction of first-year allowance if plant or machinery provided partly for purposes other than those of qualifying activity),

• section 210 (reduction of first-year allowance if it appears that a partial depreciation subsidy is or will be payable), F217 ...

• [F218 section 212T (cap on first-year allowances: zero-emission goods vehicles), F219 ...]

• [F220 section 212U (cap on first-year allowances: expenditure on plant and machinery for use in designated assisted areas), and ]

• sections 217[F221 , 229A(2) ] F222 ... and 241 (anti-avoidance: no first-year allowance in certain cases).

Textual Amendments

F203 S. 52(3) entries omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(d) (with s. 76(7)(8))

F204 S. 52(3) entry omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(d)(i)

F205 Words in s. 52(3) omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(v)(a)

F206 S. 52(3): words in Table added (with effect as mentioned in s. 59 of the amending Act) by Finance Act 2002 (c. 23), s. 59, Sch. 19 para. 5

F207 Words in s. 52(3) Table inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 5(2)

F208 S. 52(3): words in Table added (with effect as mentioned in s. 61 of the amending Act) by Finance Act 2002 (c. 23), s. 61, Sch. 20 para. 5

F209 Words in s. 52(3) inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 38(5)(a)

F210 Words in s. 52(3) substituted (with effect in accordance with s. 108(2) of the amending Act) by Finance Act 2008 (c. 9), s. 108(1)

F211 Words in s. 52(3) omitted (with effect in accordance with s. 33(5) of the amending Act) by virtue of Finance Act 2019 (c. 1), s. 33(2)(b)(v)(b)

F212 Words in s. 52(3) inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 5(2)

F213 Words in s. 52(3) inserted (10.6.2021) by Finance Act 2021 (c. 26), Sch. 22 para. 5

F214 Words in s. 52(3) omitted (with effect in accordance with s. 75(5)-(8) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 75(3)(d)(ii)

F215 S. 52(3A)(3B) inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 38(5)(b)

F216 Words in s. 52(5) inserted (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 13

F217 Word in s. 52(5) omitted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by virtue of Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 5(3)(a)

F218 Words in s. 52(5) inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 5(3)(b)

F219 Word in s. 52(5) omitted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 11 para. 5(3)(a)

F220 S. 52(5) entry inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 5(3)(b)

F221 Word in s. 52(5) inserted (with effect in accordance with Sch. 32 para. 22 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 19

F222 Words in s. 52(5) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(3)

Modifications etc. (not altering text)

C23 S. 52(3) modified (temp.) (with effect in accordance with s. 30(2) of the amending Act) by Finance Act 2006 (c. 25), s. 30(1)

[F223 Prevention of double relief] U.K.

Textual Amendments

F223 S. 52A and cross-heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 4

52A Prevention of double relief U.K.

A person may not [F224 claim— ]

[F224 (a) an annual investment allowance and a first-year allowance in respect of the same expenditure, or

(b) first-year allowances under two or more of the provisions listed in section 39 in respect of the same expenditure.]

Textual Amendments

F224 Words in s. 52A substituted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 6

Pooling U.K.

53 Pooling of qualifying expenditure U.K.

(1) Qualifying expenditure has to be pooled for the purpose of determining a person’s entitlement to writing-down allowances and balancing allowances and liability to balancing charges.

(2) If a person carries on more than one qualifying activity, expenditure relating to the different activities must not be allocated to the same pool.

54 The different kinds of pools U.K.

(1) There are single asset pools, class pools and the main pool.

(2) A single asset pool may not contain expenditure relating to more than one asset.

(3) The following provide for qualifying expenditure to be allocated to a single asset pool—

• F225 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ;

• section 86 (short-life asset);

• section 127 (ship);

• section 206 (plant or machinery provided or used partly for purposes other than those of qualifying activity);

• section 211 (payment of partial depreciation subsidy);

• section 538 (contribution allowances: plant and machinery).

(4) A class pool is a pool which may contain expenditure relating to more than one asset.

(5) The following provide for qualifying expenditure to be allocated to a class pool—

• [F226 section 104C (special rate expenditure); ]

• section 107 (overseas leasing).

(6) Qualifying expenditure may be allocated to the main pool only if it does not fall to be allocated to a single asset pool or a class pool.

Textual Amendments

F225 Words in s. 54(3) omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1), 29(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 15 (with Sch. 11 paras. 30-32)

F226 Words in s. 54(5) substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 3

Writing-down and balancing allowances and balancing charges U.K.

55 Determination of entitlement or liability U.K.

(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on—

(a) the available qualifying expenditure in that pool for that period (“AQE”), and

(b) the total of any disposal receipts to be brought into account in that pool for that period (“TDR”).

(2) If AQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period.

(3) If TDR exceeds AQE, the person is liable to a balancing charge for the period.

(4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.

(5) The final chargeable period is given by section 65.

(6) Subsection (2) is subject to [F227 section 104F (special rate cars: discontinued activity continued by relevant company) and] section 110(1) (overseas leasing: allowances prohibited in certain cases).

Textual Amendments

F227 Words in s. 55(6) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 16 (with Sch. 11 paras. 30-32)

56 Amount of allowances and charges U.K.

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is [F228 18%] of the amount by which AQE exceeds TDR.

[F229 (1A) But in relation to qualifying expenditure incurred wholly for the purposes of a ring fence trade in respect of which tax is chargeable under [F230 section 330(1) of CTA 2010] (supplementary charge in respect of ring fence trades), the amount of the writing-down allowance to which a person is entitled for a chargeable period is 25% of the amount by which AQE exceeds TDR.]

(2) [F231 Subsections (1) and (1A) are] subject to—

[F232 (za) section 56A (small main pools and special rate pools),]

[F233 (a) section 104D (special rate expenditure: [F234 [F235 6%] or] 10%), and]

(b) section 109 (overseas leasing: 10%).

(3) If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

(4) If the qualifying activity has been carried on for part only of the chargeable period, the amount is proportionately reduced.

(5) A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

(6) The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDR exceeds AQE.

(7) The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDR.

Textual Amendments

F228 Word in s. 56(1) substituted (with effect in accordance with s. 10(8)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 10(2)

F229 S. 56(1A) inserted (with effect in accordance with s. 80(8)-(12) of the amending Act) by Finance Act 2008 (c. 9), s. 80(3)

F230 Words in s. 56(1A) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 326 (with Sch. 2)

F231 Words in s. 56(2) substituted (with effect in accordance with s. 80(8) of the amending Act) by Finance Act 2008 (c. 9), s. 80(4)

F232 S. 56(2)(za) inserted (with effect in accordance with s. 81(5) of the amending Act) by Finance Act 2008 (c. 9), s. 81(2)

F233 S. 56(2)(a) substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 4

F234 Words in s. 56(2)(a) inserted (with effect in accordance with s. 10(8)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 10(4)(b)

F235 Word in s. 56(2)(a) substituted (with effect in accordance with s. 31(4)(8) of the amending Act) by Finance Act 2019 (c. 1), s. 31(3)(a)

[F236 56A Writing-down allowances for small pools U.K.

(1) This section applies in relation to the main pool and the special rate pool.

(2) Where the amount by which AQE exceeds TDR is less than or equal to the small pool limit, the amount of the writing-down allowance to which a person is entitled for a chargeable period is the amount by which AQE exceeds TDR.

(3) The small pool limit is £1,000, except that—

(a) if the chargeable period is more or less than a year, it is proportionately increased or reduced, and

(b) if the qualifying activity has been carried on for part only of the chargeable period, it is proportionately reduced.

(4) A person claiming a writing-down allowance under this section may require the allowance to be reduced to a specified amount.

(5) The Treasury may by order substitute for the amount for the time being specified in subsection (3) such other amount as it thinks fit.

(6) An order under subsection (5) may make such incidental, supplemental, consequential and transitional provision as the Treasury thinks fit.]

Textual Amendments

F236 S. 56A inserted (with effect in accordance with s. 81(5) of the amending Act) by Finance Act 2008 (c. 9), s. 81(3)

Available qualifying expenditure U.K.

57 Available qualifying expenditure U.K.

(1) The general rule is that a person’s available qualifying expenditure in a pool for a chargeable period consists of—

(a) any qualifying expenditure allocated to the pool for that period in accordance with section 58, and

(b) any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 59.

(2) A person’s available qualifying expenditure in a pool for a chargeable period also includes any amount allocated to the pool for that period under—

• section 26(3) (net costs of demolition);

• section 86(2) or 87(2) (allocation of expenditure in short-life asset pool);

• section 111(3) (overseas leasing: standard recovery mechanism);

• section 129(1), 132(2), 133(3) or 137 (provisions relating to operation of single ship pool and deferment of balancing charges in respect of ships);

• [F237 section 161C(2)(decommissioning expenditure incurred by person carrying on trade of oil extraction);]

• section 165(3) ([F238 general decommissioning expenditure] incurred after cessation of ring fence trade);

• section 206(3) (plant or machinery used partly for purposes other than those of the qualifying activity);

• section 211(4) (partial depreciation subsidy paid).

(3) A person’s available qualifying expenditure does not include any expenditure excluded by—

• section 8(4) or 9(1) (rules against double relief);

• [F239 section 70DA (transfer and long funding leaseback);]

• [F240 sections 165A to 165E (restrictions on allowances: anti-avoidance);]

• section 166(2) (transfers of interests in oil fields: anti-avoidance);

• section 185(2), 186(2)[F241 , 186A(2)] or 187(2) (restrictions where other claims made in respect of fixture);

• section 218(1), [F242 218ZA(1) or (3),] F243 ... 228(2)[F244 , 229A], 242(2), or 243(2) (general anti-avoidance provisions).

(4) Subsection (1) is also subject to section 220 (allocation to chargeable periods of expenditure incurred on plant or machinery for leasing under finance lease).

Textual Amendments

F237 Words in s. 57(2) inserted (with effect as mentioned in Sch. 20 para. 9(1)-(4)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 para. 5(2)

F238 Words in s. 57(2) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 4

F239 Words in s. 57(3) inserted (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 14

F240 Words in s. 57(3) inserted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 4

F241 Words in s. 57(3) inserted (with effect in accordance with Sch. 10 para. 12 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 8

F242 Words in s. 57(3) inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 2

F243 Word in s. 57(3) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(4)

F244 Words in s. 57(3) inserted (with effect in accordance with Sch. 32 para. 22 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 20

58 Initial allocation of qualifying expenditure to pools U.K.

(1) The following rules apply to the allocation of a person’s qualifying expenditure to the appropriate pool.

(2) An amount of qualifying expenditure is not to be allocated to a pool for a chargeable period if that amount has been taken into account in determining the person’s available qualifying expenditure for an earlier chargeable period.

(3) Qualifying expenditure is not to be allocated to a pool for a chargeable period before that in which the expenditure is incurred.

(4) Qualifying expenditure is not to be allocated to a pool for a chargeable period unless the person owns the plant or machinery at some time in that period.

[F245 (4A) If an annual investment allowance is made to a person for a chargeable period—

(a) the AIA qualifying expenditure in respect of which the allowance is made must be allocated to the appropriate pool (or pools) in that chargeable period, and

(b) the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the amount of that expenditure.]

(5) If a first-year allowance is made in respect of an amount of first-year qualifying expenditure—

(a) subject to subsection (6), none of that amount is to be allocated to a pool for the chargeable period in which the expenditure is incurred, and

(b) the amount that may be allocated to a pool for any chargeable period is limited to the balance left after deducting the first-year allowance.

(6) If—

(a) a first-year allowance is made in respect of an amount of first-year qualifying expenditure,

(b) a disposal event occurs in respect of the plant or machinery in any chargeable period, and

(c) none of the balance left after deducting the first-year allowance has been allocated to a pool for an earlier chargeable period,

the balance (or some of it) must be allocated to a pool for the chargeable period in which the disposal event occurs.

(7) Subsection (6) applies even if the balance is nil (because of a 100% first-year allowance).

(8) “The appropriate pool” means whichever pool is applicable under the provisions of this Part apart from this section.

Textual Amendments

F245 S. 58(4A) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 5

59 Unrelieved qualifying expenditure U.K.

(1) A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period—

[F246 (a)] AQE exceeds TDR[F247 , and

( b) where section 56A(2) applies, the person does not claim a writing-down allowance of the amount by which AQE exceeds TDR.]

(2) The amount of the unrelieved qualifying expenditure is—

(a) the excess less the writing-down allowance made for the period, or

(b) if no writing-down allowance is claimed for the period, the excess.

(3) No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.

[F248 (4) If a person carrying on a trade, profession or vocation enters the cash basis for a tax year, [F249 any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for the trade, profession or vocation] from the chargeable period ending with the basis period for the previous tax year.

[F250 (4A) If a person carrying on a property business enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for a relevant qualifying activity from the chargeable period which is the previous tax year.]

F251 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F252 (5A) A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade, profession, vocation or property business (as the case may be) on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.]

(6) Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, [F253 any cash basis deductible amount] is to be determined on such basis as is just and reasonable in all the circumstances.

[F254 (7) Subsections (9), (10) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.]

(7A) In subsection (4A) “relevant qualifying activity” means—

(a) in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business, and

(b) in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business.]

[F255 (8) Subsection (9) applies if—

(a) a person carrying on a trade, profession or vocation incurs expenditure in relation to a vehicle,

(b) at the end of the basis period for a tax year, the person has unrelieved qualifying expenditure incurred in relation to the vehicle to carry forward from the chargeable period ending with that basis period (“the relevant chargeable period”), [F256 and]

(c) in calculating the profits of a trade, profession or vocation of a person for the following tax year, a deduction is made under section 94D of ITTOIA 2005 in respect of expenditure incurred in relation to the vehicle, F257 ...

F257 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) None of the unrelieved qualifying expenditure incurred in relation to the vehicle may be carried forward as unrelieved qualifying expenditure from the relevant chargeable period.

[F258 (9A) Subsection (9B) applies if—

(a) a person carrying on a property business incurs expenditure in relation to a vehicle,

(b) at the end of a tax year, the person has unrelieved qualifying expenditure incurred in relation to the vehicle to carry forward from the chargeable period ending with that tax year (“the relevant chargeable period”), and

(c) in calculating the profits of a property business of a person for the following tax year, a deduction is made under section 94D of ITTOIA 2005 (as applied by section 271E of that Act) in respect of expenditure incurred in relation to the vehicle.

(9B) None of the unrelieved qualifying expenditure incurred in relation to the vehicle may be carried forward as unrelieved qualifying expenditure from the relevant chargeable period.]

(10) Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of the unrelieved qualifying expenditure incurred in relation to the vehicle is to be determined on such basis as is just and reasonable in all the circumstances.]

Textual Amendments

F246 Word in s. 59(1) inserted (with effect in accordance with s. 81(5) of the amending Act) by Finance Act 2008 (c. 9), s. 81(4)(a)

F247 Words in s. 59(1) inserted (with effect in accordance with s. 81(5) of the amending Act) by Finance Act 2008 (c. 9), s. 81(4)(b)

F248 S. 59(4)-(7) inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 47

F249 Words in s. 59(4) substituted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(2)

F250 S. 59(4A) inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(3)

F251 S. 59(5) omitted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(4)

F252 S. 59(5A) inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(5)

F253 Words in s. 59(6) substituted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(6)

F254 S. 59(7)(7A) substituted for s. 59(7) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 52(7)

F255 S. 59(8)-(10) inserted (with effect in accordance with Sch. 5 para. 6 of the amending Act) by Finance Act 2013 (c. 29), Sch. 5 para. 5(3)

F256 Word in s. 59(8)(b) inserted (with effect in accordance with s. 36(7) of the amending Act) by Finance Act 2018 (c. 3), s. 36(6)(a)(i)

F257 S. 59(8)(d) and preceding word omitted (with effect in accordance with s. 36(7) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 36(6)(a)(ii)

F258 S. 59(9A)(9B) inserted (with effect in accordance with s. 36(8) of the amending Act) by Finance Act 2018 (c. 3), s. 36(6)(b)

Modifications etc. (not altering text)

C24 S. 59(1)(2) applied by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 240C(6) (as inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 38)

C25 S. 59(4) excluded by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 240C(5A) (as inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(7))

Disposal events and disposal values: general U.K.

60 Meaning of “disposal receipt” and “disposal event” U.K.

(1) In this Part “disposal receipt” means a disposal value that a person is required to bring into account in accordance with—

(a) sections 61, 62 and 63 (disposal events, disposal values and the general limit on the amount of a disposal value),

(b) any of the provisions of this Part listed in section 66, or

(c) [F259 section 614BS of ITA 2007] or [F260 section 918 of CTA 2010 (cases where expenditure taken into account under Part 2, 5 or 8 of this Act) or] any other enactment,

when read with sections 64 and 264(3) (cases in which no disposal value need be brought into account).

(2) In this Part “disposal event” means any event of a kind that requires a disposal value to be brought into account under this Part (whether under section 61(1) or otherwise).

(3) If—

(a) qualifying expenditure has been allocated to a pool, and

(b) more than one disposal event occurs in respect of the plant or machinery,

a disposal value is required to be brought into account in the pool in connection with the first event only.

(4) In subsection (3) “disposal event” does not include a disposal event arising under—

• section 72 (computer software),

• sections 140 and 143 (attribution of deferred balancing charge), or

• section 238(2) (additional VAT rebates).

Textual Amendments

F259 Words in s. 60(1)(c) substituted (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 234 (with Sch. 9 paras. 1-9, 22)

F260 Words in s. 60(1)(c) inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 327 (with Sch. 2)

61 Disposal events and disposal values U.K.

(1) A person who has incurred qualifying expenditure is required to bring the disposal value of the plant or machinery into account for the chargeable period in which—

(a) the person ceases to own the plant or machinery;

(b) the person loses possession of the plant or machinery in circumstances where it is reasonable to assume that the loss is permanent;

(c) the plant or machinery has been in use for mineral exploration and access and the person abandons it at the site where it was in use for that purpose;

(d) the plant or machinery ceases to exist as such (as a result of destruction, dismantling or otherwise);

(e) the plant or machinery begins to be used wholly or partly for purposes other than those of the qualifying activity;

[F261 (ee) the plant or machinery begins to be leased under a long funding lease (see Chapter 6A);]

(f) the qualifying activity is permanently discontinued.

(2) The disposal value to be brought into account depends on the disposal event, as shown in the Table—

Table

Disposal values: general

1. Disposal event	2. Disposal value
1. Sale of the plant or machinery, except in a case where item 2 [F262 or 2A] applies.	The net proceeds of the sale, together with— (a) any insurance money received in respect of the plant or machinery as a result of an event affecting the price obtainable on the sale, and (b) any other compensation of any description so received, so far as it consists of capital sums.
2. Sale of the plant or machinery where— (a) the sale is at less than market value, (b) there is no charge to tax under [F263 ITEPA 2003], and (c) the condition in subsection (4) is met by the buyer.	The market value of the plant or machinery at the time of the sale.
[F264 2A. Sale of the plant or machinery where— (a) the sale is at less than market value, (b) the condition in subsection (4A) is met by the seller, and (c) the condition in subsection (4B) is met by the buyer.	The market value of the plant or machinery at the time of the sale.]
3. Demolition or destruction of the plant or machinery.	The net amount received for the remains of the plant or machinery, together with— (a) any insurance money received in respect of the demolition or destruction, and (b) any other compensation of any description so received, so far as it consists of capital sums.
4. Permanent loss of the plant or machinery otherwise than as a result of its demolition or destruction.	Any insurance money received in respect of the loss and, so far as it consists of capital sums, any other compensation of any description so received.
5. Abandonment of the plant or machinery which has been in use for mineral exploration and access at the site where it was in use for that purpose.	Any insurance money received in respect of the abandonment and, so far as it consists of capital sums, any other compensation of any description so received.
[F265 5A. Commencement of the term of a long funding finance lease of the plant or machinery.	The greater of— (a) the market value of the plant or machinery at the commencement of the term of the lease, and (b) the qualifying lease payments.]
[F266 5B. Commencement of the term of a long funding operating lease of the plant or machinery.	An amount equal to the market value of the plant or machinery at the commencement of the term of the lease.]
6. Permanent discontinuance of the qualifying activity followed by the occurrence of an event within any of items 1 to [F267 5B].	The disposal value for the item in question.
[F268 6A. Disposal event to which section 62A applies.	The relevant transition value (see section 62A).]
7. Any event not falling within any of items 1 to [F269 6A].	The market value of the plant or machinery at the time of the event.

(3) The amounts referred to in column 2 of the Table are those received by the person required to bring the disposal value into account.

(4) The condition referred to in item 2 of the Table is met by the buyer if—

(a) the buyer’s expenditure on the acquisition of the plant or machinery cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

(b) the buyer is a dual resident investing company which is connected with the seller.

[F270 (4A) The condition referred to in paragraph (b) of item 2A in the Table is met by the seller if—

(a) the seller is—

(i) a company, or

(ii) a partnership whose partners include one or more companies, and

(b) before the sale the plant or machinery is used wholly or partly for the purposes of a qualifying activity that is not an NI rate activity.

(4B) The condition referred to in paragraph (c) of item 2A in the Table is met by the buyer if—

(a) the buyer is [F271 an SME (Northern Ireland employer) company], a NIRE company or a Northern Ireland firm in the chargeable period of the buyer in which the plant or machinery is bought,

(b) the buyer's expenditure on the acquisition of the plant or machinery is qualifying expenditure under this Part or Part 6 (research and development allowances), and

(c) the plant or machinery is used by the buyer wholly or partly for the purposes of an NI rate activity.]

(5) In this section “mineral exploration and access” has the same meaning as in Chapter 13 (provisions affecting the mining and oil industries) and Part 5 (mineral extraction allowances).

[F272 (5A) In item 5A of the Table “qualifying lease payments” means the minimum payments under the lease (including any initial payment), excluding the following—

(a) so much of any payment as, under generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment in respect of the lease,

(b) so much of any payment as represents charges for services, and

(c) so much of any payment as represents qualifying UK or foreign tax (within the meaning of section 70YE) to be paid by the lessor.]

F273 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F273 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F273 (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F273 (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F261 S. 61(1)(ee) inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 5(2)

F262 Words in s. 61(2) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 6(2)(a)

F263 Words in s. 61(2) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), s. 723, Sch. 6 para. 249 (with Sch. 7)

F264 Words in s. 61(2) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 6(2)(b)

F265 Words in s. 61(2) substituted (with effect in accordance with Sch. 32 para. 5(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 1(2)

F266 Words in s. 61(2) Table inserted (with effect in accordance with Sch. 8 para. 15 to the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 5(3)

F267 Word in s. 61(2) substituted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 5(4)

F268 S. 61 Table Item 6A inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 16, 31

F269 Word in s. 61 Table Item 7 substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 16, 31

F270 S. 61(4A)(4B) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 6(3)

F271 Words in s. 61(4B)(a) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(d)

F272 S. 61(5A) inserted (with effect in accordance with Sch. 32 para. 5(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 1(3)

F273 S. 61(6)-(9) omitted (with effect in accordance with Sch. 32 para. 5(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 32 para. 1(4)

Modifications etc. (not altering text)

C26 S. 61 modified (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 para. 9(4) (with s. 38(2) ); S.I. 2004/2575 , art. 2(1) , Sch. 1

C27 S. 61 modified (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 2; S.I. 2005/1444, art. 2(1), Sch. 1

C28 S. 61 modified (E.W.S.) (24.7.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 22; S.I. 2005/1909, art. 2, Sch.

C29 S. 61(2)-(4) excluded (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(a); S.I. 2005/1444, art. 2(1), Sch. 1

62 General limit on amount of disposal value U.K.

(1) The amount of any disposal value required to be brought into account by a person in respect of any plant or machinery is limited to the qualifying expenditure incurred by the person on its provision.

(2) Subsection (3) applies if a person who is required to bring a disposal value into account has acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons.

(3) The amount of the disposal value is limited to the amount of the qualifying expenditure on the provision of the plant or machinery incurred by whichever party to the transaction, or to any of the transactions, incurred the greatest such expenditure.

(4) This section is subject to section 239 (limit on disposal value where additional VAT rebate or rebates has or have been made in respect of original expenditure).

[F274 62A Cases in which disposal value is transition value U.K.

(1) Subject as follows, this section applies where an election under section 18A of CTA 2009 has effect in relation to a company and the operation of section 15(2A) brings about a disposal event consisting of plant or machinery beginning to be used for purposes other than those of a qualifying activity.

(2) Where this section applies to a disposal event, the disposal value is the transition value.

(3) The transition value is such amount as gives rise to neither a balancing allowance nor a balancing charge.

(4) This section does not apply if—

(a) the qualifying expenditure in respect of the plant or machinery, or of the group of assets of which it forms part at any time during a relevant accounting period, exceeds £5 million, and

(b) the company has used the plant or machinery otherwise than for the purposes of a permanent establishment in a territory outside the United Kingdom at any time during a relevant preceding accounting period.

(5) For the purposes of subsection (4)(a) plant or machinery used together constitutes a group of assets.

(6) In subsection (4) “relevant preceding accounting period” means the accounting period in which the election under section 18A is made or an earlier accounting period ending less than 6 years before the end of that accounting period.]

Textual Amendments

F274 S. 62A inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 17, 31 (with Sch. 13 para. 36)

63 Cases in which disposal value is nil U.K.

(1) If a person disposes of plant or machinery by way of gift in circumstances such that there is a charge to tax under [F275 ITEPA 2003], the disposal value of the plant or machinery is nil.

(2) If a person carrying on a relevant qualifying activity makes a gift of plant or machinery used in the course of the activity—

(a) to a [F276 charitable trust F277 ...],

[F278 (aa) to a charitable company F279 ...,

(ab) to a registered club within the meaning of Chapter 9 of Part 13 of CTA 2010 (community amateur sports clubs),]

(b) to a body listed in [F280 section 468 of CTA 2010] (various heritage bodies and museums), or

(c) for the purposes of a designated educational establishment within the meaning of [F281 section 110 of ITTOIA 2005 or] [F282 section 106 of CTA 2009] (gifts to educational establishments),

the disposal value of the plant or machinery is nil.

(3) In subsection (2) “relevant qualifying activity” means a qualifying activity consisting of—

(a) a trade,

(b) an ordinary [F283 UK] [F284 property] business,

(c) a [F285 UK furnished] holiday lettings business,

(d) an [F286 ordinary overseas] property business, F287 ...

[F288 (da) an EEA furnished holiday lettings business, or]

(e) a profession or vocation.

(4) Subsection (2) [F289 —

(a)] needs to be read with [F290 section 109 of ITTOIA 2005 and] [F291 section 108 of CTA 2009] (which provide for a charge to tax if subsection (2) applies in circumstances in which the donor or a connected person receives a benefit attributable to the gift)[F292 , and

(b) is subject to section 809ZM of ITA 2007 and section 939F of CTA 2010 (removal of tax relief in respect of tainted charity donations etc).]

(5) If expenditure is treated under section 27(2) (expenditure on thermal insulation, safety measures, etc.) as having been incurred on plant or machinery, the disposal value of the plant or machinery is nil.

Textual Amendments

F275 Words in s. 63(1) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 250 (with Sch. 7 )

F276 Words in s. 63(2)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 328(a) (with Sch. 2)

F277 Words in s. 63(2)(a) omitted (with effect in accordance with art. 12 of the commencing S.I.) by virtue of Finance Act 2010 (c. 13), Sch. 6 paras. 16(a)34(2); S.I. 2012/736, art. 12

F278 S. 63(2)(aa)(ab) inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 328(b) (with Sch. 2)

F279 Words in s. 63(2)(aa) omitted (with effect in accordance with art. 12 of the commencing S.I.) by virtue of Finance Act 2010 (c. 13), Sch. 6 paras. 16(b)34(2); S.I. 2012/736, art. 12

F280 Words in s. 63(2)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 328(c) (with Sch. 2)

F281 Words in s. 63(2)(c) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 535(2) (with Sch. 2 )

F282 Words in s. 63(2)(c) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 482(2) (with Sch. 2 Pts. 1, 2)

F283 Word in s. 63(3)(b) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(10)(a)

F284 Word in s. 63(3)(b) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 535(3) (with Sch. 2 )

F285 Words in s. 63(3)(c) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(10)(b)

F286 Words in s. 63(3)(d) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(10)(c)

F287 Word in s. 63(3)(d) omitted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by virtue of Finance Act 2011 (c. 11), Sch. 14 para. 12(10)(d)

F288 S. 63(3)(da) inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(10)(d)

F289 Words in s. 63(4) renumbered as s. 63(4)(a) (with effect in accordance with Sch. 3 para. 27 of the amending Act) by Finance Act 2011 (c. 11), Sch. 3 para. 4(a)

F290 Words in s. 63(4) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 535(4) (with Sch. 2 )

F291 Words in s. 63(4) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 482(3) (with Sch. 2 Pts. 1, 2)

F292 S. 63(4)(b) and word inserted (with effect in accordance with Sch. 3 para. 27 of the amending Act) by Finance Act 2011 (c. 11), Sch. 3 para. 4(b)

Modifications etc. (not altering text)

C30 S. 63(2) modifed (with effect as mentioned in s. 58(4) of the amending Act) by Finance Act 2002 (c. 23), s. 58, Sch. 18 para. 9(3)(c)

64 Case in which no disposal value need be brought into account U.K.

(1) A person is not required to bring a disposal value into account in a pool for a chargeable period in respect of plant or machinery if none of the qualifying expenditure is or has been taken into account in a claim in determining the person’s available qualifying expenditure in the pool for that or any previous chargeable period.

(2) Subsection (3) applies if—

(a) a person (“C”) has incurred qualifying expenditure on plant or machinery,

(b) C acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons,

(c) any connected person (apart from C) who was a party to the transaction, or one of the series of transactions, is or has been required to bring a disposal value into account as a result of the transaction,

(d) a disposal event (“the relevant disposal event”) occurs in respect of the plant or machinery at a time when it is owned by C, and

(e) none of C’s qualifying expenditure is or has been taken into account in a claim in determining C’s available qualifying expenditure for the chargeable period in which the relevant disposal event occurs or any previous chargeable period.

(3) If this subsection applies—

(a) subsection (1) does not apply in relation to the relevant disposal event, and

(b) C’s qualifying expenditure is to be treated as allocated to the appropriate pool for the chargeable period in which the relevant disposal event occurs.

(4) In subsection (3)—

(a) “qualifying expenditure” means, if a first-year allowance has been made to C, the amount (including a nil amount) remaining after deducting the allowance, and

(b) “the appropriate pool” means whichever pool is applicable in relation to C under the provisions of this Part.

(5) A person takes expenditure into account in a claim if he takes it into account—

(a) in a tax return;

(b) by giving notice of an amendment of a tax return;

(c) in any other claim under this Part.

[F293 64A Leased assets: arrangements reducing disposal value of asset U.K.

(1) Where—

(a) plant or machinery (“the asset”) is subject to a lease,

(b) a disposal event occurs with the result that a disposal value in respect of the asset is to be brought into account under Item 1, 2 or 7 of the Table in section 61(2), and

(c) arrangements have been entered into that have the effect of reducing the disposal value of the asset in so far as it is attributable to rentals payable under the lease,

the disposal value is to be determined as if the arrangements had not been entered into.

(2) Subsection (1) does not apply if—

(a) the arrangements take the form of a transfer of relevant receipts within section 809AZA of ITA 2007 and the relevant amount has been treated as income under section 809AZB of that Act, or

(b) the arrangements take the form of a transfer of relevant receipts within section 752 of CTA 2010 and the relevant amount has been treated as income under section 753 of that Act.]

Textual Amendments

F293 S. 64A inserted (8.4.2010) (with effect in accordance with Sch. 5 para. 3(2) to the amending Act) by Finance Act 2010 (c. 13), Sch. 5 para. 3(1)

The final chargeable period U.K.

65 The final chargeable period U.K.

(1) The final chargeable period for—

(a) the main pool, or

[F294 (b) a special rate pool,]

is the chargeable period in which the qualifying activity is permanently discontinued.

(2) The final chargeable period for a single asset pool is the first chargeable period in which any disposal event given in section 61(1) occurs.

(3) Subsection (2) is subject to—

• [F295 section] 206(4) (no final chargeable period merely because plant or machinery begins to be used partly for purposes other than those of qualifying activity);

• sections 86(2) and 87(2) (ending of short-life asset pool at [F296 relevant] cut-off without final chargeable period);

• section 132(2) (no final chargeable period for single ship pool).

(4) The final chargeable period for a class pool under section 107 (overseas leasing) is the chargeable period at the end of which the circumstances are such that there can be no more disposal receipts in any subsequent chargeable period.

Textual Amendments

F294 S. 65(1)(b) substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 5

F295 Word in s. 65(3) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1), 29(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 17 (with Sch. 11 paras. 30-32)

F296 Word in s. 65(3) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(3)

List of provisions outside this Chapter about disposal values U.K.

66 List of provisions outside this Chapter about disposal values U.K.

The provisions of this Part referred to in section 60(1)(b) are—

section 68	hire-purchase etc.: disposal value on cessation of notional ownership
[F297 section 70E	long funding leases: disposal events and disposal values]
sections 72 and 73	grant of new software right: disposal value
F298 . . .	F298 . . .
sections 88 and 89	short-life assets: disposal at under-value or to connected person
[F299 section 104E	special rate expenditure: avoidance cases]
sections 108, 111 and 114	overseas leasing: disposal values in various cases
sections 132 and 143	ships: ship used for overseas leasing etc.; attribution of amount where balancing charge deferred
section 171	oil production sharing contracts: disposal values on cessation of ownership
sections 196 and 197	fixtures: disposal values on cessation of notional ownership and in avoidance cases
section 208	effect of significant reduction in use of plant or machinery for purposes of qualifying activity
[F300 section 208A	cars: disposal value in avoidance cases]
section 211	effect of payment of partial depreciation subsidy
F301 . . .	F301 . . .
[F302 section 218ZB	disposal of plant or machinery in avoidance cases]
[F303 sections 228K to 228M	Disposal of plant or machinery subject to lease where income retained]
section 229	hire-purchase: disposal values in finance leasing and anti-avoidance cases
sections 238 and 239	additional VAT rebates

Textual Amendments

F297 Words in s. 66 inserted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 6

F298 S. 66 entry omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1), 29(2) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 18(a) (with Sch. 11 paras. 30-32)

F299 Words in s. 66 substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 6

F300 Words in s. 66 inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 18(b) (with Sch. 11 paras. 30-32)

F301 S. 66 entry omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(5)

F302 Words in s. 66 inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(10)

F303 Words in s. 66 inserted (with effect in accordance with s. 84(5)(6) of the amending Act) by Finance Act 2006 (c. 25), s. 84(2)

[F304 Application of Chapter to person leaving cash basis U.K.

Textual Amendments

F304 S. 66A and cross-heading inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 48

66A Persons leaving cash basis U.K.

[F305 (1) This section applies if—

(a) a person carrying on a trade, profession, vocation or property business (“the business”) leaves the cash basis in a chargeable period,

(b) the person has incurred expenditure at a time when the profits of the business are calculated on the cash basis,

(c) some or all of the expenditure was brought into account in calculating the profits of the business on the cash basis, and

(d) the expenditure would have been qualifying expenditure if the profits of the business had not been calculated on the cash basis at the time the expenditure was incurred.]

(2) In this section—

(a) the “relieved portion” of the expenditure is the [F306 higher of the following]—

(i) [F307 the amount of that expenditure for which] a deduction was allowed in calculating the profits of the trade, profession[F308 , vocation or property business], or

(ii) [F307 the amount of that expenditure for which] a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade, profession[F308 , vocation or property business];

(b) the “unrelieved portion” of the expenditure is any remaining amount of the expenditure.

(3) For the purposes of determining any entitlement of the person to an annual investment allowance or a first-year allowance, the person is to be treated as incurring the unrelieved portion of the expenditure in the chargeable period.

(4) For the purposes of determining the person's available qualifying expenditure in a pool for the chargeable period (see section 58)—

(a) the whole of the expenditure must be allocated to the appropriate pool (or pools) in that chargeable period, and

(b) the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the relieved portion of that expenditure.

(5) For the purposes of determining any disposal receipts (see section 60), the expenditure incurred by the person is to be regarded as qualifying expenditure.

(6) For the purposes of this section a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period if—

(a) immediately before the beginning of the chargeable period an election under section 25A had effect in relation to the trade, profession or vocation, and

(b) such an election does not have effect in relation to the trade, profession or vocation for the chargeable period.

[F309 (7) For the purposes of this section a person carrying on a property business leaves the cash basis in a chargeable period (“tax year X”) if the profits of the business are calculated—

(a) in accordance with GAAP (see section 271B of ITTOIA 2005) for tax year X, and

(b) on the cash basis (see section 271D of that Act) for the previous tax year.

(8) Subsection (11) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.]]

Textual Amendments

F305 S. 66A(1) substituted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 53(2)

F306 Words in s. 66A(2)(a) substituted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 53(3)(a)

F307 Words in s. 66A(2)(a)(i)(ii) inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 53(3)(b)

F308 Words in s. 66A(2)(a) substituted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 53(3)(c)

F309 S. 66A(7)(8) inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 53(4)

[F310 Effect of changes in Northern Ireland status of SME company or SME partnership U.K.

Textual Amendments

F310 Ss. 66B-66E and cross-heading inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 7

66B SME company entering NI corporation tax regime U.K.

(1) This section applies if—

(a) in a chargeable period beginning after the commencement day (“the relevant period”) a company is [F311 an SME (Northern Ireland employer) company],

(b) the company was neither [F312 an SME (Northern Ireland employer) company] nor a NIRE company in the previous chargeable period, and

(c) the company has not become [F313 an SME (Northern Ireland employer) company] in the relevant period as a result of an election under section 357KB(2) of CTA 2010 (back-office activities of financial trades).

(2) The fact that assets which continue to be used in the relevant period for the purposes of the trade actually carried on by the company are as a result of section 15(2ZA) treated as ceasing to be used for the purposes of a main rate activity and beginning to be used for the purposes of an NI rate activity does not give rise to a disposal event within 61(1)(e) or (f).

(3) If during the relevant period the only qualifying activity carried on by the company is an NI rate activity, the amount of any unrelieved qualifying expenditure in any main pool or special rate pool falling to be carried forward to the relevant period is to be treated as relating to plant and machinery used for the purposes of the NI rate activity.

(4) If during the relevant period the company carries on both an NI rate activity and a main rate activity—

(a) the amount of any unrelieved qualifying expenditure in any main pool falling to be carried forward under section 59 to the relevant period is to be apportioned on a just and reasonable basis to become—

(i) a main pool that is to be treated as relating to plant and machinery used for the purposes of the NI rate activity, and

(ii) a main pool that is to be treated as relating to plant and machinery used for the purposes of the main rate activity, and

(b) the amount of any unrelieved qualifying expenditure in any special rate pool falling to be carried forward under section 59 to the relevant period is to be apportioned on a just and reasonable basis to become—

(i) a special rate pool that is to be treated as relating to plant and machinery used for the purposes of the NI rate activity, and

(ii) a special rate pool that is to be treated as relating to plant and machinery used for the purposes of the main rate activity.

(5) “Main rate activity” means the company's trade except so far as it is an NI rate activity.

(6) “The commencement day” has the meaning given by section 5(4) of the Corporation Tax (Northern Ireland) Act 2015.

Textual Amendments

F311 Words in s. 66B(1)(a) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(e)

F312 Words in s. 66B(1)(b) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(e)

F313 Words in s. 66B(1)(c) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(e)

66C SME partnership entering NI corporation tax regime U.K.

For the purposes of the corporate partner calculation, section 66B applies in relation to a partnership as if—

(a) references to a company were references to a partnership,

(b) references to [F314 an SME (Northern Ireland employer) company] were references to a Northern Ireland Chapter 6 firm,

(c) the reference to a NIRE company were a reference to a Northern Ireland Chapter 7 firm,

(d) the reference to section 357KB(2) of CTA 2010 were a reference to section 357WB(2) of that Act, and

(e) the reference to section 15(2ZA) were a reference to section 15(2ZB).

Textual Amendments

F314 Words in s. 66C(b) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(f)

66D SME company leaving NI corporation tax regime U.K.

(1) This section applies if—

(a) in a chargeable period beginning after the commencement day (“the relevant period”) a company is neither [F315 an SME (Northern Ireland employer) company] nor a NIRE company,

(b) the company was [F316 an SME (Northern Ireland employer) company] in the previous chargeable period, and

(c) during the relevant period the company carries on a qualifying activity.

(2) The fact that assets which continue to be used in the relevant period for the purposes of the trade actually carried on are as a result of section 15(2ZA) treated as ceasing to be used for the purposes of an NI rate activity and beginning to be used for the purposes of the qualifying activity mentioned in subsection (1)(c) does not give rise to a disposal event within 61(1)(e) or (f).

(3) Any unrelieved qualifying expenditure which—

(a) relates to plant or machinery used for the purposes of an NI activity, and

(b) falls to be carried forward to the relevant period,

is to be treated as relating to the qualifying activity that the company carries on in the relevant period.

(4) “The commencement day” has the meaning given by section 5(4) of the Corporation Tax (Northern Ireland) Act 2015.

Textual Amendments

F315 Words in s. 66D(1)(a) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(g)

F316 Words in s. 66D(1)(b) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(g)

66E SME partnership leaving NI corporation tax regime U.K.

For the purposes of the corporate partner calculation, section 66D applies in relation to a partnership as if—

(a) references to a company were references to a partnership,

(b) references to [F317 an SME (Northern Ireland employer) company] were references to a Northern Ireland Chapter 6 firm,

(c) the reference to a NIRE company were a reference to a Northern Ireland Chapter 7 firm, and

(d) the reference to section 15(2ZA) were a reference to section 15(2ZB).]

Textual Amendments

F317 Words in s. 66E(b) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(h)

Chapter 6 U.K. Hire-purchase etc. and plant or machinery provided by lessee

Hire-purchase and similar contracts U.K.

67 Plant or machinery treated as owned by person entitled to benefit of contract, etc. U.K.

(1) This section applies if—

(a) a person carrying on a qualifying activity [F318 or corresponding overseas activity] incurs capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity [F318 or corresponding overseas activity], and

(b) the expenditure is incurred under a contract providing that the person shall or may become the owner of the plant or machinery on the performance of the contract.

(2) The plant or machinery is to be treated for the purposes of this Part as owned by the person (and not by any other person) at any time when he is entitled to the benefit of the contract so far as it relates to the plant or machinery.

[F319 This subsection has effect subject to, and in accordance with, subsections (2A) to (2C).]

[F320 (2A) If the contract is one which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease, subsection (2B) applies.

(2B) Where that is the case, the plant or machinery is to be treated under subsection (2) as owned by the person at any time only if the contract [F321 —

(a) falls (or would fall) to be treated by that person in accordance with generally accepted accounting practice as a finance lease, or

(b) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the lease falls to be so treated.]

(2C) Where at any time the plant or machinery—

(a) is not treated under subsection (2) as owned by the person, but

(b) would be treated under that subsection as owned by the person, but for subsection (2B),

the plant or machinery is nevertheless to be treated under subsection (2) as not owned by any other person at that time.]

(3) At the time when the plant or machinery is brought into use for the purposes of the qualifying activity [F318 or corresponding overseas activity], the person is to be treated for the purposes of this Part as having incurred all capital expenditure in respect of the plant or machinery to be incurred by him under the contract after that time.

(4) If a person—

(a) is treated under subsection (2) as owning plant or machinery,

(b) ceases to be entitled to the benefit of the contract in question so far as it relates to that plant or machinery, and

(c) does not then in fact become the owner of the plant or machinery,

the person is to be treated as ceasing to own the plant or machinery at the time when he ceases to be entitled to the benefit of the contract.

[F322 (6) If—

(a) a person enters into two or more agreements, and

(b) those agreements are such that, if they together constituted a single contract, the condition in subsection (1)(b) would be met in relation to that person and that contract,

the agreements are to be treated for the purposes of this section as parts of a single contract.

In this subsection, any reference to an agreement includes a reference to an undertaking, whether or not legally enforceable.]

[F323 (7)] This section is subject to section 69 (hire-purchase and fixtures) and subsection (3) is subject to section 229 (anti-avoidance).

[F324 (8) In this section “corresponding overseas activity” means an activity that would be a qualifying activity if the person carrying it on were resident in the United Kingdom.]

Textual Amendments

F318 Words in s. 67 inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(2)

F319 Words in s. 67(2) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(3)

F320 S. 67(2A)-(2C) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(4)

F321 Words in s. 67(2B) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(2)

F322 S. 67(6) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(6)

F323 S. 67(7) renumbered (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(5)

F324 S. 67(8) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(7)

Modifications etc. (not altering text)

C31 S. 67 applied (with modifications) (10.6.2021) by Finance Act 2021 (c. 26), s. 9(8)

68 Disposal value on cessation of notional ownership U.K.

(1) This section applies if a person—

(a) is treated under section 67(4) as ceasing to own plant or machinery, and

(b) is required to bring a disposal value into account as a result.

(2) If the plant or machinery has been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of—

(a) any relevant capital sums, and

(b) any capital expenditure treated under section 67(3) as having been incurred when the plant or machinery was brought into use but which has not in fact been incurred.

(3) If the plant or machinery has not been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of any relevant capital sums.

(4) “Relevant capital sums” means capital sums that the person receives or is entitled to receive by way of consideration, compensation, damages or insurance money in respect of—

(a) his rights under the contract, or

(b) the plant or machinery.

(5) This section is subject to section 229 (anti-avoidance).

69 Hire-purchase etc. and fixtures U.K.

(1) Section 67 does not—

(a) apply to expenditure incurred on plant or machinery which is a fixture, or

(b) prevent Chapter 14 (fixtures) applying in relation to expenditure on plant or machinery incurred under such a contract as is mentioned in section 67(1)(b).

(2) If—

(a) a person is treated under section 67(2) as owning plant or machinery,

(b) the plant or machinery becomes a fixture, and

(c) the person is not treated under Chapter 14 as being the owner of the plant or machinery,

the person is to be treated for the purposes of this Part as ceasing to own the plant or machinery at the time when it becomes a fixture.

(3) In this section “fixture” has the meaning given by section 173(1).

Plant or machinery provided by lessee U.K.

70 Plant or machinery provided by lessee U.K.

(1) This section applies if—

(a) under the terms of a lease, a lessee is required to provide plant or machinery,

(b) the lessee incurs capital expenditure on the provision of that plant or machinery for the purposes of a qualifying activity which the lessee carries on,

(c) the plant or machinery is not so installed or otherwise fixed in or to a building or any other description of land as to become, in law, part of that building or other land, and

(d) the lessee does not own the plant or machinery.

(2) The lessee—

(a) is to be treated as being the owner of the plant or machinery, as a result of incurring the capital expenditure, for so long as it continues to be used for the purposes of the qualifying activity, but

(b) is not required to bring a disposal value into account because the lease ends.

(3) Subsection (4) applies if—

(a) the plant or machinery continues to be used for the purposes of the lessee’s qualifying activity until the lease ends,

(b) the lessor holds the lease in the course of a qualifying activity, and

(c) on or after the ending of the lease, a disposal event occurs in respect of the plant or machinery at a time when the lessor owns the plant or machinery as a result of the requirement under the terms of the lease.

(4) The lessor is required to bring a disposal value into account in the appropriate pool for the chargeable period in which the disposal event occurs.

(5) “The appropriate pool” means the pool which would be applicable under this Part in relation to the lessor’s qualifying activity if—

(a) the expenditure incurred by the lessee had been qualifying expenditure incurred by the lessor, and

(b) that qualifying expenditure were being allocated to a pool for the chargeable period in which the disposal event occurs.

(6) In this section “lease” includes—

(a) an agreement for a lease if the term to be covered by the lease has begun, and

(b) any tenancy,

but does not include a mortgage (and “lessee” and “lessor” are to be read accordingly).

[F325 Lessees under long funding leases U.K.

Textual Amendments

F325 Ss. 70A-70E and cross-heading inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 6

70A Entitlement to capital allowances U.K.

(1) This section applies if a person carrying on a qualifying activity incurs expenditure (whether or not of a capital nature) on the provision of plant or machinery for the purposes of the qualifying activity under a long funding lease.

(2) In the application of this Part in the case of that person, the plant or machinery is to be treated as owned by him at any time when he is the lessee under the long funding lease.

That is so whether or not the lease also falls to be regarded as a long funding lease in the application of this Part in the case of the lessor.

(3) The person is to be treated for the purposes of this Part as having incurred capital expenditure on the provision of the plant or machinery as follows.

(4) The capital expenditure is to be treated as incurred at the commencement of the term of the long funding lease.

(5) The amount of the capital expenditure varies, according to whether the long funding lease is—

(a) a long funding operating lease (subsection (6)), or

(b) a long funding finance lease (subsection (7)).

(6) If the long funding lease is a long funding operating lease, the amount of the capital expenditure is to be found in accordance with section 70B.

(7) If the long funding lease is a long funding finance lease, the amount of the capital expenditure is to be found in accordance with section 70C.

(8) See Chapter 6A for interpretation of this section.

70B Long funding operating lease: amount of capital expenditure U.K.

(1) This section applies by virtue of section 70A(6).

(2) If the long funding lease is a long funding operating lease, the amount of the capital expenditure is the market value of the plant or machinery at the later of—

(a) the commencement of the term of the lease;

(b) the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(3) This section is to be construed as one with section 70A.

70C Long funding finance lease: amount of capital expenditure U.K.

(1) This section has effect by virtue of section 70A(7) for the purpose of determining the amount of the capital expenditure in the case of a long funding finance lease.

(2) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3) The amount of the capital expenditure is the total of—

(a) commencement PVMLP (see subsection (4)), and

(b) if subsection (6) applies, the unrelievable pre-commencement rentals (“UPR”),

but subject, in a case falling within subsection (7), to the restriction imposed by subsection (8).

(4) Commencement PVMLP is the amount that would fall to be recognised as the present value, at the appropriate date, of the minimum lease payments (see section 70YE) if appropriate accounts were prepared by the person.

[F326 (4A) But where the minimum lease payments include a relievable amount, the present value of that amount must be excluded in determining the commencement PVMLP.

(4B) An amount (“amount X”) is a relievable amount if—

(a) an arrangement is in place under which all or part of any residual amount (as defined in section 70YE) is guaranteed by the lessee or a person connected with the lessee,

(b) amount X is within the minimum lease payments because of that arrangement (see subsection (1)(a) of that section), and

(c) it is reasonable to assume that, were amount X to be incurred under the arrangement, relief would be available as a result (beyond relief, by virtue of this section and section 70E, because amount X is within those minimum lease payments).

(4C) In deciding for the purposes of subsection (4B)(c) whether relief would be available as a result, no account is to be taken of—

(a) any part of the arrangement other than the part by virtue of which all or part of the residual amount is guaranteed, or

(b) any other arrangement connected with the arrangement or forming part of a set of arrangements that includes the arrangement.]

(5) For the purposes of subsection (4)—

• “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date on which that amount is first recognised in the books or other financial records of the person;

• “the appropriate date” is the later of—

  (a)

  the commencement of the term of the lease;

  (b)

  the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(6) This subsection applies if—

(a) the person has paid rentals under the lease before the commencement of the term of the lease, and

(b) in the case of some or all of those rentals, relief otherwise than by virtue of this subsection—

(i) is not available, and

(ii) if the case is one where the plant or machinery was not used for the purposes of a qualifying activity in the period before the commencement of the term of the lease, would not have been available had the plant or machinery been used in that period for the purposes of a qualifying activity,

and in any such case UPR is the amount of the rentals for which relief is not, and (in a case falling within paragraph (b)(ii)) would not have been, so available.

(7) Subsection (8) applies if the main purpose, or one of the main purposes, of entering into—

(a) the lease,

(b) a series of transactions of which the lease is one, or

(c) any of the transactions in such a series,

is to obtain allowances under this Part in respect of an amount of capital expenditure that materially exceeds the market value of the leased asset at the commencement of the term of the lease.

(8) In any such case, the amount of the capital expenditure described in subsection (3) is to be restricted to an amount equal to the market value of the asset at the commencement of the term of the lease.

(9) In this section “relief” means relief by way of—

(a) an allowance under this Act,

(b) a deduction in computing profits for the purposes of income tax or corporation tax,

(c) a deduction from total profits or total income for the purposes of either of those taxes.

(10) This section is to be construed as one with section 70A.

Textual Amendments

F326 S. 70C(4A)-(4C) inserted (with effect in accordance with s. 33(6) of the amending Act) by Finance Act 2011 (c. 11), s. 33(2)

70D Long funding finance lease: additional expenditure: allowances for lessee U.K.

(1) This section applies where the following conditions are met—

(a) a person is the lessee of plant or machinery under a long funding finance lease,

(b) as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

(c) the lessor incurs expenditure in relation to the plant or machinery,

(d) as a result of the lessor incurring the expenditure, there is in the case of the lessee an increase (the “relevant increase”) in the present value of the minimum lease payments.

[F327 (1A) Any increase attributable to a relievable amount is to be ignored for the purposes of subsection (1)(d).

(1B) Subsections (4B) and (4C) of section 70C apply (with any necessary modifications) for the purposes of this section as for the purposes of that section.]

(2) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3) The person is to be treated for the purposes of this Part as having incurred further capital expenditure on the provision of the plant or machinery as follows.

(4) The person is to be treated as having incurred the expenditure on the date of first recognition.

(5) The amount of the expenditure is the amount that would fall to be recognised as the amount of the relevant increase if appropriate accounts were prepared by the person.

(6) For that purpose, “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date of first recognition.

(7) For the purposes of this section, the “date of first recognition” is the date on which the relevant increase is first recognised in the books or other financial records of the person.

(8) This section is to be construed as one with section 70A.

Textual Amendments

F327 S. 70D(1A)(1B) inserted (with effect in accordance with s. 33(6) of the amending Act) by Finance Act 2011 (c. 11), s. 33(3)

[F328 70DA Transfer and long funding leaseback: restrictions on lessee's allowances U.K.

(1) This section applies where—

(a) a person (“S”) transfers plant or machinery to another person (“B”),

(b) at any time after the date of the transfer, the plant or machinery is available to be used by S, or a person (other than B) who is connected with S (“CS”), under a plant or machinery lease, and

(c) that lease is a long funding lease.

(2) No annual investment allowance or first-year allowance is to be made in respect of the expenditure of S or CS under the lease.

(3) The amount, if any, by which E exceeds D is to be left out of account in determining the available qualifying expenditure of S or CS.

(4) E is the capital expenditure of S or CS on the provision of the plant or machinery under the long funding lease.

(5) If S is required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), D is that disposal value.

[F329 (5A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), and

(b) at any time before that transfer S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(6) Otherwise, D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery before the transfer referred to in subsection (1)(a), the amount of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery before that transfer, the amount of that expenditure.

(7) Section 70Y(3) applies to references in this section to a transfer of plant or machinery by a person.

(8) For the purposes of this section a transfer involving the grant of a lease takes place on the commencement of the term of the lease.

[F330 (9) “Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the transfer referred to in subsection (1)(a), and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the transfer referred to in subsection (1)(a).

(10) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]]

Textual Amendments

F328 S. 70DA inserted (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 15

F329 S. 70DA(5A) inserted (with effect in accordance with Sch. 10 para. 2(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 2(2)

F330 S. 70DA(9)(10) inserted (with effect in accordance with Sch. 10 para. 2(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 2(3)

70E Disposal events and disposal values U.K.

(1) This section applies where—

(a) a person is the lessee of plant or machinery under a long funding lease,

(b) as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

[F331 (c) a relevant event occurs.]

[F332 (1A) A relevant event occurs if—

(a) the lease terminates,

(b) the plant or machinery begins to be used wholly or partly for purposes other than those of the qualifying activity, or

(c) the qualifying activity is permanently discontinued.]

(2) In the case of that person—

(a) the [F333 relevant event] is a disposal event, and

(b) the person is required to bring into account a disposal value for the chargeable period in which that disposal event occurs.

[F334 (2A) The amount of the disposal value is—

where—

• QE is the person's qualifying expenditure on the provision of the plant or machinery,

• QA is the qualifying amount (see subsections (2B) to (2E)), and

• [F335 R is the sum of—

  [a]

  any relevant rebate (see subsections (2F) and (2G)), and

  [b]

  any other relevant lease-related payment (see subsections (2FA) and (2G)).]

(2B) In the case of a long funding operating lease, “the qualifying amount” means the aggregate amount of the reductions made under F336 ... section 148I of ITTOIA 2005 [F337 or section 379 of CTA 2010] for periods of account in which the person was the lessee.

(2C) In the case of a long funding finance lease, “the qualifying amount” means the aggregate of—

(a) the payments made to the lessor by the person under the lease (including any initial payment), and

(b) the payments made to the lessor by the person under a guarantee of any residual amount (as defined in section 70YE) [F338 other than any relievable payment],

subject to subsection (2D).

(2D) The following are excluded from the “qualifying amount” under subsection (2C)—

(a) so much of any payment as, in accordance with generally accepted accounting practice, falls (or would fall) to be shown in the person's accounts as finance charges[F339 , or interest expenses,] in respect of the lease,

(b) so much of any payment as represents charges for services, and

(c) so much of any payment as represents qualifying UK or foreign tax (within the meaning of section 70YE) to be paid by the lessor.

[F340 (2DA) A payment (“payment X”) is a relievable payment if—

(a) an arrangement is in place under which all or part of any residual amount (as defined in section 70YE) is guaranteed by the lessee or a person connected with the lessee,

(b) payment X is within the minimum lease payments because of that arrangement (see subsection (1)(a) of that section), and

(c) it is reasonable to assume that relief would be available as a result of making payment X (beyond relief, by virtue of section 70C or 70D and this section, because payment X is within those minimum lease payments).

(2DB) For the purposes of subsection (2DA)(c)—

(a) “relief” has the meaning given in section 70C, and

(b) subsection (4C) of that section applies as it applies for the purposes of subsection (4B)(c) of that section.]

(2E) In the case of a long funding finance lease that is not a transaction at arm's length, “the qualifying amount” includes only so much of the amounts described in subsection (2C) as would reasonably be expected to have been paid if the lease had been such a transaction.

(2F) “Relevant rebate” means—

(a) in a case falling within subsection (1A)(a), any amount calculated by reference to the termination value that is payable for the benefit (directly or indirectly) of the person or another person connected with that person, or

(b) in a case falling within subsection (1A)(b) or (c), any such amount that would have been so payable if, when the relevant event occurred, the lease had terminated and the plant or machinery had been sold for its market value at that time.

[F341 (2FA) Relevant lease-related payment” means any payment which—

(a) is payable at any time for the benefit (directly or indirectly) of the lessee or a person connected with the lessee,

(b) is connected with the long funding lease, or with any arrangement connected with that lease, and

(c) is not—

(i) an initial payment or any other payment made to the lessor by the lessee under the lease,

(ii) a payment made to the lessor by the lessee under a guarantee of any residual amount (as defined in section 70YE),

(iii) an initial payment or any other payment made under a relevant superior lease to the person who is the lessor under that lease by the person who is the lessee under that lease, or

(iv) a payment to the seller of the proceeds of a sale of the plant or machinery to which subsection (2FC) applies,

if, and to the extent that, the payment is not otherwise brought into account for tax purposes as income or a disposal receipt by the person for whom the benefit is payable (or would not be if that person were within the charge to tax).

(2FB) For the purposes of subsection (2FA)—

• “payment” includes the provision of any benefit, the assumption of any liability and any other transfer of money's worth (and “payable” is to be construed accordingly);

• “relevant superior lease” means any lease of the plant or machinery to which the long funding lease mentioned in subsection (1)(a) is inferior.

(2FC) This subsection applies to a sale of the plant or machinery if—

(a) a person has entered into a relevant transaction with another person in respect of the plant or machinery for the purposes of Chapter 17 of this Part (see section 213) and the sale is within section 213(1)(a),

(b) the plant or machinery is within section 216(1)(b) (sale and lease back), and

(c) the conditions in section 227(2) are met.]

[F342 (2G) In the case of a lease that is not a transaction at arm's length, “relevant rebate” and “relevant lease-related payment” include any amount that would reasonably be expected to have fallen within subsection (2F) or, as the case may be, (2FA) if the lease had been such a transaction.]

(2H) The amount of the disposal value brought into account under this section cannot be less than nil.]

(9) If the [F343 relevant event] gives rise to a disposal event in the case of the person apart from this section, that disposal event is to be ignored.

(10) This section is to be construed as one with section 70A.]

Textual Amendments

F331 S. 70E(1)(c) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(2)

F332 S. 70E(1A) inserted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(3)

F333 Words in s. 70E(2)(a) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(4)

F334 S. 70E(2A)-(2H) substituted for s. 70E(3)-(8) (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(5)

F335 Words in s. 70E(2A) substituted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(2)

F336 Words in s. 70E(2B) repealed (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 329(a), Sch. 3 Pt. 1 (with Sch. 2)

F337 Words in s. 70E(2B) inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 329(b) (with Sch. 2)

F338 Words in s. 70E(2C)(b) inserted (with effect in accordance with s. 33(7) of the amending Act) by Finance Act 2011 (c. 11), s. 33(4)

F339 Words in s. 70E(2D)(a) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(3)

F340 S. 70E(2DA)(2DB) inserted (with effect in accordance with s. 33(7) of the amending Act) by Finance Act 2011 (c. 11), s. 33(5)

F341 Ss. 70E(2FA)-(2FC) inserted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(3)

F342 S. 70E(2G) substituted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(4)

F343 Words in s. 70E(9) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(6)

[F344 Chapter 6A U.K. Interpretation of provisions about long funding leases

Textual Amendments

F344 Pt. 2 Ch. 6A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 7

Modifications etc. (not altering text)

C32 Pt. 2 Ch. 6A applied (21.7.2008) by Finance Act 2008 (c. 9), Sch. 20 para. 11(12)

C33 Pt. 2 Ch. 6A applied (21.7.2009) by Finance Act 2009 (c. 10), Sch. 33 para. 9(c)

C34 Pt. 2 Ch. 6A applied (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 381(1), 1184(1) (with Sch. 2)

C35 Pt. 2 Ch. 6A modified (10.6.2021) by Finance Act 2021 (c. 26), s. 17

Introductory U.K.

70F Introductory U.K.

This Chapter makes provision for the interpretation of this Part so far as relating to long funding leases.

Meaning of “long funding lease” etc U.K.

70G “Long funding lease” U.K.

(1) A “long funding lease” is a funding lease (see section 70J) which meets the following conditions—

(a) it is not a short lease (see section 70I),

(b) it is not an excluded lease of background plant or machinery for a building (see section 70R),

(c) it not excluded by section 70U (plant or machinery leased with land: low percentage value).

(2) Where, at the commencement of the term of a plant or machinery lease, the plant or machinery—

(a) is not being used for the purposes of a qualifying activity carried on by the person concerned, but

(b) subsequently begins to be used for the purposes of a qualifying activity carried on by that person,

the plant or machinery lease is a long funding lease if the condition in subsection (3) is met.

(3) The condition is that (apart from section 70H) the plant or machinery lease would have been a long funding lease at its inception had the plant or machinery been used at that time for the purposes of a qualifying activity carried on by the person concerned.

(4) This section is subject, in the case of the lessee, to—

(a) section 70H (requirement for tax return treating lease as long funding lease);

(b) section 70Q (leases excluded by right of lessor etc to claim capital allowances).

(5) See also paragraph 91A of Schedule 22 to [F345 FA] 2000 (tonnage tax: certain leases to be treated as not being long funding leases).

Textual Amendments

F345 Word in s. 70G(5) substituted (21.7.2009) by Finance Act 2009 (c. 10), s. 126(5)(a)

70H Lessee: requirement for tax return treating lease as long funding lease U.K.

(1) A lease is not a long funding lease in the case of the lessee unless he makes a tax return for the initial period on the basis that he falls to be taxed in respect of the lease in accordance with the provisions of—

F346 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) Chapter 10A of Part 2 of ITTOIA 2005 (long funding leases: income tax) [F347 or

(c) Chapter 2 of Part 9 of CTA 2010 (long funding leases of plant or machinery)].

[F348 (1A) Subsection (1) does not apply in respect of a lease of plant or machinery (“lease A”) if, at any time in the relevant period—

(a) the lessee is the lessor of a lease of any of that plant or machinery (“lease B”), and

(b) lease B is a long funding lease.

(1B) In subsection (1A) “the relevant period” means the period—

(a) beginning with the inception of lease A, and

(b) ending with the making of the tax return for the initial period (or, if that return is amended, the making of the last amendment).]

[F349 (1C) In a case in which paragraphs (a) and (b) of subsection (1) of section 70DA (leaseback of plant or machinery) are satisfied, subsection (1) of this section does not apply to the lease referred to in section 70DA(1)(b).]

(2) Where, in the case of a lease, a person has made a tax return for the initial period—

(a) on the basis that he falls to be taxed in respect of the lease in accordance with those provisions, or

(b) on the basis that he does not fall to be so taxed,

he may not make a claim [F350 under the recovery provisions for relief in respect of an amount paid or liable to be paid that is excessive by reason of] the tax return having been made on that basis.

(3) In this section—

• [F351 “the recovery provisions”] means—

  (a)

  [F352 Schedule 1AB to] the Taxes Management Act 1970; or

  (b)

  paragraph 51 of Schedule 18 to [F353 FA] 1998;

• “the initial period” is the first accounting period or, as the case may be, tax year in which there is a difference in the amount of the profits or losses falling to be shown in the return, according to whether the lease is a long funding lease or not;

• “tax return” means—

  (a)

  a company tax return under paragraph 3 of Schedule 18 to [F353 FA] 1998, or

  (b)

  a return under section 8 of the Taxes Management Act 1970 (income tax: personal return).

Textual Amendments

F346 S. 70H(1)(a) repealed (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 330(a), Sch. 3 Pt. 1 (with Sch. 2)

F347 S. 70H(1)(c) and preceding word inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 330(b) (with Sch. 2)

F348 S. 70H(1A)(1B) inserted (with effect in accordance with Sch. 20 para. 8(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 8(1)

F349 S. 70H(1C) inserted (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 16

F350 Words in s. 70H(2) substituted (with effect in accordance with s. 100(2) of the amending Act) by Finance Act 2009 (c. 10), Sch. 52 para. 9(2)

F351 Words in s. 70H(3) substituted (with effect in accordance with s. 100(2) of the amending Act) by Finance Act 2009 (c. 10), Sch. 52 para. 9(3)(a)

F352 Words in s. 70H(3) substituted (with effect in accordance with s. 100(2) of the amending Act) by Finance Act 2009 (c. 10), Sch. 52 para. 9(3)(b)

F353 Word in s. 70H(3) substituted (21.7.2009) by Finance Act 2009 (c. 10), s. 126(5)(a)

70I “Short lease” U.K.

(1) Construe “short lease” in accordance with this section.

(2) A lease whose term is [F354 7] years or less is a short lease.

F355 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) Where—

(a) a person leases an asset to another (“S”) under a lease that would, apart from this subsection, be a short lease,

(b) the inception of that lease is on or after 7th April 2006,

(c) at or about the time of the inception of that lease, arrangements are entered into for the asset to be leased to one or more other persons under one or more other leases, and

(d) in the aggregate, the term of the lease to S and the terms of the leases to such of those other persons as are connected with S exceed [F356 7] years,

the lease to S is not a short lease.

[F357 (9A) Where plant or machinery is the subject of a lease and finance leaseback (as defined in section 228A)—

(a) the finance lease mentioned in section 228A(2)(c), and

(b) any other finance lease forming part of the arrangements for the lease and finance leaseback (except the lease referred to in section 228A(2)(a)),

is not a short lease (if it otherwise would be).]

[F358 (10) Where plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), any finance lease of a kind mentioned in section 221(1)(c) is not a short lease (if it otherwise would be).

(11) But, if the conditions set out in section 227(2) are met, B and S (within the meaning of section 221) may make an election the effect of which is that—

(a) subsection (10) above does not apply,

(b) section 228(2) and (3) apply in relation to B (but this does not prevent section 225 from applying), and

(c) section 228(5) applies in relation to S.

(12) Subsections (4) to (6) of section 227 apply in relation to elections under this section as they apply in relation to elections under that section.]

Textual Amendments

F354 Word in s. 70I(2) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(1)(a)

F355 Ss. 70I(3)-(8) omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 14 para. 8(1)(b)

F356 Word in s. 70I(9)(d) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(1)(a)

F357 S. 70I(9A) inserted (with effect in accordance with Sch. 20 para. 7(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 7(1)

F358 Ss. 70I(10)-(12) inserted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(6) (with Sch. 20 para. 6(20))

70J “Funding lease” U.K.

(1) A “funding lease” is a plant or machinery lease (see section 70K) which at its inception meets one or more of the following tests—

(a) the finance lease test (see section 70N),

(b) the lease payments test (see section 70O),

(c) the useful economic life test (see section 70P).

[F359 (1A) A plant or machinery lease is also a “funding lease” if the plant or machinery is cushion gas.]

(2) [F360 Subsections (1) and (1A) are] subject to the following provisions of this section.

(3) A plant or machinery lease is not a funding lease if—

(a) section 67 applies (plant or machinery treated as owned by person entitled to benefit of contract, etc), and

(b) the lease is the contract mentioned in that section.

(4) A plant or machinery lease is not a funding lease if—

(a) before the commencement of the term of the lease, the lessor has leased the plant or machinery under one or more other plant or machinery leases,

(b) in the aggregate, the terms of those other leases exceed 65% of the remaining useful economic life of the plant or machinery at the commencement of the term of the earliest of them, and

(c) none of those earlier leases was a funding lease.

(5) For the purposes of subsection (4), all persons who were lessors of the plant or machinery before 1st April 2006 are to be treated as if they were the same person as the first lessor of the plant or machinery on or after that date.

(6) A plant or machinery lease is not a funding lease in the case of the lessor if—

(a) before 1st April 2006, the plant or machinery had, for a period or periods totalling at least 10 years, been the subject of one or more leases, and

(b) the lessor under the plant or machinery lease was also lessor of the plant or machinery on the last day before 1st April 2006 on which the plant or machinery was the subject of a lease.

[F361 (7) In this section “cushion gas” means gas that functions or is intended to function as plant in a particular gas storage facility.]

Textual Amendments

F359 S. 70J(1A) inserted (with effect in accordance with s. 28(8) of the amending Act) by Finance Act 2010 (c. 13), s. 28(3)

F360 Words in s. 70J(2) substituted (with effect in accordance with s. 28(8) of the amending Act) by Finance Act 2010 (c. 13), s. 28(4)

F361 S. 70J(7) inserted (with effect in accordance with s. 28(8) of the amending Act) by Finance Act 2010 (c. 13), s. 28(5)

Meaning of “plant or machinery lease” U.K.

70K “Plant or machinery lease” U.K.

(1) A “plant or machinery lease” is any of the following—

(a) any agreement or arrangement to which subsection (2) applies,

(b) any other agreement or arrangement, to the extent that subsection (3) applies to it,

(c) where plant or machinery is the subject of a sale and finance leaseback, as defined in section 221, the finance lease mentioned in subsection (1)(c) of that section,

and “lease”, “lessor”, “lessee” and other related expressions are to be construed accordingly.

(2) This subsection applies to an agreement or arrangement—

(a) under which a person grants to another person the right to use plant or machinery for a period, and

(b) which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease.

(3) This subsection applies to an agreement or arrangement to the extent that—

(a) in accordance with generally accepted accounting practice, it falls (or would fall) to be treated as a lease, and

(b) it meets the conditions in subsection (4).

(4) The conditions are that, for the purposes of generally accepted accounting practice,—

(a) the agreement or arrangement conveys, or falls (or would fall) to be regarded as conveying, the right to use an asset, and

(b) the asset is plant or machinery.

(5) In the case of an agreement or arrangement that falls (or would fall) within subsection (2) or (3) immediately after the commencement of the term of the lease, the condition in subsection (2)(b) or (3)(a) (as the case may be) is to be taken to be met as respects any time in the pre-commencement period.

(6) For the purposes of subsection (5), the “pre-commencement period” is the period that—

(a) begins with the inception of the lease, and

(b) ends with the commencement of the term of the lease.

Modifications etc. (not altering text)

C36 S. 70K applied by 2009 c. 4, s. 18C(4) (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 4, 31)

70L Plant or machinery leased with other assets: separate derived leases U.K.

(1) This section applies in any case where an agreement or arrangement (the “mixed lease”) at any time relates, or is to relate, or has come to relate, to both—

(a) plant or machinery of any particular description (the “relevant plant or machinery”), and

(b) other assets (whether or not also plant or machinery).

(2) A mixed lease is an “eligible mixed lease” if—

(a) under generally accepted accounting practice, it falls (or would fall) to be treated as a lease, or

(b) the relevant plant or machinery is the subject of a sale and finance leaseback, as defined in section 221, and the mixed lease is or includes the finance lease mentioned in subsection (1)(c) of that section.

(3) In the case of an agreement or arrangement that falls (or would fall) within paragraph (a) of subsection (2) immediately after the commencement of the term of the lease, the condition in that paragraph is to be taken to be met as respects any time in the pre-commencement period.

(4) For the purposes of subsection (3), the “pre-commencement period” is the period that—

(a) begins with the inception of the lease, and

(b) ends with the commencement of the term of the lease.

(5) Where this section applies—

(a) the eligible mixed lease, so far as relating to the relevant plant or machinery, and

(b) the eligible mixed lease, so far as relating to other assets,

shall be treated for the purposes of this Part (other than this section) as if they were separate agreements or arrangements.

(6) Any such notional separate agreement or arrangement is referred to in this Part as a “derived lease”.

(7) Section 70M makes further provision with respect to derived leases of plant or machinery.

70M Derived leases of plant or machinery: term and rentals U.K.

(1) This section has effect in any case where, as a result of applying section 70L, there is a derived lease of the relevant plant or machinery.

(2) This section makes provision with respect to—

(a) determining whether the derived lease is a plant or machinery lease (see subsection (3)),

(b) the term of the derived lease (see subsection (4)),

(c) the rentals to be regarded as payable under the derived lease (see subsections (5) to (7)).

(3) Any question whether the derived lease—

(a) is a plant or machinery lease, or

(b) if it is such a lease, whether it is also a long funding lease,

is to be determined in accordance with the provisions of this Part.

(4) The term of the derived lease—

(a) is limited to the remaining useful economic life of the relevant plant or machinery at the commencement of the term of the derived lease, but

(b) subject to that, is to be determined in accordance with section 70YF (the “term” of a lease).

(5) The rentals that are to be regarded as payable under the derived lease shall be such rentals (the “deemed rentals”) as are just and reasonable in all the circumstances of the case.

(6) It shall be assumed that rentals under the derived lease are payable in equal instalments throughout the term of the lease, unless it is reasonable to draw a different conclusion from all the circumstances of the case.

(7) In determining the amount of any deemed rentals, regard shall be had to—

(a) all the provisions of the eligible mixed lease,

(b) the nature of the relevant plant or machinery,

(c) the value of the relevant plant or machinery at the commencement of the term of the derived lease,

(d) the amount which, at the commencement of the term of the derived lease, is expected to be the market value of the relevant plant or machinery at the end of the term of the derived lease,

(e) the remaining useful economic life of the relevant plant or machinery at the commencement of the term of the derived lease;

(f) the term of the derived lease.

(8) Expressions used in section 70L have the same meaning in this section.

The tests for being a funding lease U.K.

70N The finance lease test U.K.

(1) A lease meets the finance lease test in the case of any person if the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a finance lease or a loan in the accounts—

(a) of that person, or

(b) where that person is the lessor, of any person connected with him.

(2) In this section “accounts”, in relation to a company, includes any accounts which—

(a) relate to two or more companies of which that company is one, and

(b) are drawn up in accordance with generally accepted accounting practice.

(3) Where for any period—

(a) a person is not within the charge to income tax or corporation tax by reason of not being resident in the United Kingdom, and

(b) accounts are not prepared in accordance with international accounting standards or UK generally accepted accounting practice,

any question relating to generally accepted accounting practice is to be determined for the purposes of this section by reference to generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards.

70O The lease payments test U.K.

(1) A lease meets the lease payments test if—

(a) the present value of the minimum lease payments (see section 70YE),

is equal to

(b) 80% or more of the fair value of the leased plant or machinery.

(2) The present value of the minimum lease payments is to be calculated by using the interest rate implicit in the lease.

(3) In this section “fair value” means—

(a) the market value of the leased plant or machinery,

less

(b) any grants receivable towards the purchase or use of that plant or machinery.

(4) For the purposes of this section—

(a) the interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable), but

[F362 (b) if a rate cannot be determined in accordance with paragraph (a), the interest rate implicit in the lease is taken to be [F363 the incremental borrowing rate].]

[F364 (5) For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes.

(6) The Treasury may by regulations amend this section for the purpose of replacing references to the incremental borrowing rate with references to another rate.]

Textual Amendments

F362 S. 70O(4)(b) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 9(2)

F363 Words in s. 70O(4)(b) substituted (with effect in accordance with s. 132(4) of the amending Act) by Finance Act 2021 (c. 26), s. 132(1)(a)

F364 S. 70O(5)(6) substituted for s. 70O(5) (with effect in accordance with s. 132(4) of the amending Act) by Finance Act 2021 (c. 26), s. 132(1)(b)

70P The useful economic life test U.K.

A lease meets the useful economic life test if the term of the lease is more than 65% of the remaining useful economic life of the leased plant or machinery.

Leases excluded by right of lessor etc to claim capital allowances U.K.

70Q Leases excluded by right of lessor etc to claim capital allowances U.K.

(1) A lease is not a long funding lease in the case of the lessee if it is excluded by virtue of subsection (2) (but see also subsection (5)).

(2) A lease is excluded if the lessor, or any superior lessor (see subsections (7) to (9)),—

(a) is entitled, at the commencement of the term of the lease, to claim a relevant allowance (see subsection (6)),

(b) would have been so entitled at that time, but for section 70V (tax avoidance involving international leasing),

(c) has at any earlier time been entitled to claim such an allowance, but has not been required to bring a disposal value into account in accordance with section 61(1)(ee), or

(d) would fall within any one or more of paragraphs (a) to (c), if he had been within the charge to income tax or corporation tax at the inception of the lease and any earlier times.

(3) Where for any period the lessor, or any superior lessor, is a person—

(a) who is not within the charge to income tax or corporation tax by reason of not being resident in the United Kingdom, and

(b) who does not prepare accounts in accordance with international accounting standards or UK generally accepted accounting practice,

subsection (4) applies.

(4) In determining whether the condition in subsection (2)(d) is met in any such case, any question relating to generally accepted accounting practice in relation to that person and that period is to be determined by reference to generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards.

(5) A lease is not excluded by virtue of subsection (2) if—

(a) the inception of the lease is before 28th June 2006, and

(b) by virtue only of section 70J(6), the lease is not a funding lease in the case of the lessor.

(6) A “relevant allowance” is an allowance under this Act in respect of the leased plant or machinery.

(7) There is a “superior lessor” only if the leased plant or machinery is the subject of a chain of superior leases.

(8) Leased plant or machinery is the subject of a chain of superior leases if—

(a) the lessor has his interest in relation to the plant or machinery under or by virtue of a lease from a third person (P), or

(b) the circumstances are as in paragraph (a), but P has his interest in relation to the plant or machinery under or by virtue of a lease from a fourth person (Q), or

(c) the circumstances are as in paragraph (b), but Q has his interest in relation to the plant or machinery under or by virtue of a lease from a fifth person (R),

and so on, where there is more than a fifth person involved.

(9) Where any leased plant or machinery is the subject of a chain of superior leases, the superior lessors are the persons described in subsection (8) as P, Q, R, and so on.

(10) Subsections (6) to (9) have effect for the interpretation of this section.

Excluded leases of background plant or machinery for a building U.K.

70R Excluded leases of background plant or machinery for a building U.K.

(1) Construe references to an excluded lease of background plant or machinery for a building in accordance with this section.

(2) This section applies where—

(a) plant or machinery is affixed to, or otherwise installed in or on, any land which consists of or includes a building,

(b) the plant or machinery is background plant or machinery for the building (see subsections (4) and (5)),

(c) the plant or machinery is leased with the land under a mixed lease, and

(d) none of the disqualifications set out in section 70S applies.

(3) In any such case, the derived lease of the plant or machinery is an excluded lease of background plant or machinery for a building.

(4) The background plant or machinery for a building is any plant or machinery—

(a) which is of such a description that plant or machinery of that description might reasonably be expected to be installed in, or in or on the sites of, a variety of buildings of different descriptions, and

(b) whose sole or main purpose is to contribute to the functionality of the building or its site as an environment within which activities can be carried on.

(5) Subsection (4) has effect subject to the provisions of any order under section 70T.

70S The disqualifications U.K.

(1) This section sets out the disqualifications mentioned in subsection (2)(d) of section 70R and is to be construed as one with that section.

(2) Disqualification A is that the amounts payable—

(a) under the mixed lease, or

(b) under any other arrangement,

vary, or may be varied, by reference to the value from time to time to the lessor of allowances under this Act in respect of expenditure incurred by him in the provision of the background plant or machinery for the building.

(3) Disqualification B is that the main purpose, or one of the main purposes, of entering into—

(a) the mixed lease,

(b) a series of transactions of which the mixed lease is one, or

(c) any of the transactions in such a series,

is to secure that allowances under this Act are available to the lessor in respect of expenditure incurred in the provision of background plant or machinery for a building.

70T Orders relating to background plant or machinery for a building U.K.

(1) This section supplements section 70R and is to be construed as one with it.

(2) The Treasury may by order prescribe—

(a) descriptions of plant or machinery to be used as examples of the kinds of plant or machinery that may be regarded as falling within the definition of background plant or machinery for a building in determining whether any particular plant or machinery does or does not fall within that definition;

(b) descriptions of plant or machinery to be deemed to be background plant or machinery for a building;

(c) descriptions of plant or machinery to be deemed not to be background plant or machinery for a building.

(3) An order under this section—

(a) may make different provision for different cases (including different descriptions of building),

(b) may contain incidental, consequential, supplemental, or transitional provision or savings.

(4) The first order made under this section may include provisions having effect in relation to times before the making of the order (but not times earlier than 1st April 2006).

Exclusion for certain plant or machinery leased with land U.K.

70U Plant or machinery leased with land: low percentage value U.K.

(1) This section applies where—

(a) any plant or machinery (the “relevant plant or machinery”) is affixed to, or otherwise installed, in or on any land,

(b) the plant or machinery is not background plant or machinery for any building situated in or on the land,

(c) the plant or machinery is leased with the land under a mixed lease, and

(d) none of the relevant disqualifications applies.

(2) For the purposes of this section the “relevant disqualifications” are the disqualifications set out in section 70S, but for this purpose—

(a) take the reference in subsection (1) of that section to subsection (2)(d) of section 70R as a reference to this subsection (and, accordingly, construe the second reference to that section as a reference to this section), and

(b) take references in section 70S to background plant or machinery for a building as references to relevant plant or machinery.

(3) Where this section applies, the derived lease of the relevant plant or machinery is excluded by this section if the condition in subsection (4) is met at the commencement of the term of that lease.

(4) The condition is that AMV does not exceed both—

(a) 10% of BMV; and

(b) 5% of LMV.

(5) For that purpose—

• AMV is the aggregate of—

  (a)

  the market value of the relevant plant or machinery, and

  (b)

  the market value of any other plant or machinery that falls within subsection (1) in the case of the leased land;

• BMV is the aggregate market value of all the background plant or machinery leased with the land;

• LMV is the market value of the land (including buildings and fixtures).

(6) For this purpose the market value of any land at any time is to be determined on the assumption of a sale by an absolute owner of the land free from all leases and other encumbrances.

Avoidance U.K.

70V Tax avoidance involving international leasing U.K.

(1) This section applies where matters are so arranged that there are plant or machinery leases such that—

(a) under a lease by a non-resident, an asset is provided directly or indirectly to a resident,

(b) the direct provision of the asset to the resident is by a lease which, in the case of the resident, is a long funding lease or a lease to which section 67 (hire purchase etc) applies,

(c) the asset is used by the resident for the purpose of leasing it under a lease (the “relevant lease”) that would not (apart from this section) be a long funding lease in the case of the resident, and

(d) under the relevant lease, the asset is provided directly or indirectly (but by a lease) to a non-resident.

(2) Subsection (3) applies if the sole or main purpose of arranging matters in that way is to obtain a tax advantage by securing that allowances under this Part are available to a resident by virtue of—

(a) section 67 (hire purchase), or

(b) section 70A (long funding leases).

(3) In any such case, the relevant lease is deemed to be a long funding lease in the case of the resident who is the lessor under it.

(4) The reference in this section to a person obtaining a tax advantage (see section 577(4)) also includes a reference to a person obtaining a tax advantage within the meaning of [F365 section 1139 of CTA 2010].

(5) In this section—

• “non-resident” means a person who—

  (a)

  is not resident in the United Kingdom, and

  (b)

  does not use the plant or machinery exclusively for earning profits chargeable to tax;

• “resident” means a person who—

  (a)

  is resident in the United Kingdom, or

  (b)

  uses the plant or machinery exclusively for earning profits chargeable to tax.

Textual Amendments

F365 Words in s. 70V(4) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 331 (with Sch. 2)

Transfers, assignments, novations, leaseback, variations etc U.K.

70W Transfers, assignments etc by lessor U.K.

(1) This section applies in any case where the following conditions are met—

(a) a person (the “old lessor”) is lessor of plant or machinery under a plant or machinery lease (the “old lease”),

(b) during the term of the lease, the old lessor transfers the plant or machinery to another person (the “new lessor”),

(c) the transfer is not the grant of a plant or machinery lease by the old lessor,

(d) immediately after the transfer, the new lessor is the lessor of the plant or machinery under a lease (“the new lease”) (whether or not the same lease as the old lease).

(2) If it is not otherwise the case,—

(a) the old lessor is to be treated as if the old lease terminated immediately before the transfer, and

(b) the new lessor is to be treated as if the new lease had been entered into immediately after the transfer.

(3) The new lessor is also to be treated as if the date of the transfer were the date of both—

(a) the inception of the new lease, and

(b) the commencement of the term of the new lease,

if it is not otherwise the case.

(4) If, immediately before the transfer, the old lease was (or was treated by virtue of this subsection as being) in the case of the old lessor a lease of either of the following descriptions—

(a) a long funding lease, or

(b) a lease which is not a long funding lease,

the new lease is to be treated in the case of the new lessor as being a lease of the same description, if the conditions in subsection (5) are met.

(5) The conditions are that—

(a) the term of the new lease is the unexpired portion of the term of the old lease, and

(b) the amounts receivable under the new lease are the same as would have been receivable under the old lease, assuming it to have continued in effect.

(6) If—

(a) it is not otherwise the case, and

(b) the conditions in subsection (5) are met,

the lessee is to be treated as if the old lease and the new lease were the same continuing lease.

(7) Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a) any kind of disposal of, or of the person's interest in, the plant or machinery,

(b) any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes lessor of the plant or machinery,

(c) in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70X Transfers, assignments etc by lessee U.K.

(1) This section applies in any case where the following conditions are met—

(a) a person (the “old lessee”) is lessee of plant or machinery under a plant or machinery lease (the “old lease”),

(b) during the term of the lease, the old lessee transfers the plant or machinery to another person (the “new lessee”),

(c) the transfer is not the grant of a plant or machinery lease by the old lessee,

(d) immediately after the transfer, the new lessee is the lessee of the plant or machinery under a lease (“the new lease”) (whether or not the same lease as the old lease).

(2) If it is not otherwise the case,—

(a) the old lessee is to be treated as if the old lease terminated immediately before the transfer, and

(b) the new lessee is to be treated as if the new lease had been entered into immediately after the transfer.

(3) The new lessee is also to be treated as if the date of the transfer were the date of both—

(a) the inception of the new lease, and

(b) the commencement of the term of the new lease,

if it is not otherwise the case.

(4) If, immediately before the transfer, the old lease was (or was treated by virtue of this subsection as being) in the case of the old lessee a lease of one of the following descriptions—

(a) a long funding lease, or

(b) a lease which is not a long funding lease,

the new lease is to be treated in the case of the new lessee as being a lease of the same description, if the conditions in subsection (5) are met.

(5) The conditions are that—

(a) the term of the new lease is the unexpired portion of the term of the old lease, and

(b) the amounts payable under the new lease are the same as would have been payable under the old lease, assuming it to have continued in effect.

(6) If—

(a) it is not otherwise the case, and

(b) the conditions in subsection (5) are met,

the lessor is to be treated as if the old lease and the new lease were the same continuing lease.

(7) Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a) any kind of disposal of, or of the person's interest in, the plant or machinery,

(b) any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes lessee of the plant or machinery,

(c) in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70Y Sale and leaseback, lease and leaseback etc: lessors U.K.

(1) Where—

(a) a person (B) transfers plant or machinery to another person (A),

(b) the plant or machinery is directly or indirectly leased back to B, and

(c) immediately before the commencement of the term of the lease back to B, B is the lessor of the plant or machinery to another person under a lease which is, in B's case, a long funding lease,

the lease back to B is, in the case of both A and B, a long funding lease.

(2) If, in any such case, the plant or machinery is leased back from A to B indirectly, any leases by means of which the indirect lease back from A to B is effected are also long funding leases in the case of each of the parties to them.

(3) Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a) any kind of disposal of, or of the person's interest in, the plant or machinery (including the grant of a lease),

(b) any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes entitled to, or to an interest in, the plant or machinery,

(c) in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70YA Change in accountancy classification of long funding lease U.K.

(1) This section applies in any case where—

(a) a person is lessor or lessee under a long funding lease, and

(b) at any time after the inception of the lease, the accountancy classification of the lease as a finance lease[F366 , an operating lease or a right-of-use lease] changes in the relevant accounts.

(2) The person is to be treated as if—

(a) the lease had terminated immediately before the time of the change,

(b) another lease (the “new lease”) had been entered into immediately after the time of the change, and

(c) the new lease were a long funding lease in the case of the lessor.

(3) The person is also to be treated as if the date on which the change occurs were the date of both—

(a) the inception of the new lease, and

(b) the commencement of the term of the new lease.

(4) The cases where the accountancy classification of a long funding lease as a finance lease[F367 , an operating lease or a right-of-use lease] changes at any time (the “relevant time”) in the relevant accounts are those set out in subsections (5) [F368 to (6A)].

(5) Case 1 is where—

(a) immediately before the relevant time, the lease is one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as a finance lease for accounting purposes, F369 ...

(b) at the relevant time the lease becomes one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as not being a finance lease for accounting purposes [F370 and

(c) the change of classification is not a relevant change of classification.]

(6) Case 2 is where—

(a) immediately before the relevant time, the lease is one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as not being a finance lease for accounting purposes, F371 ...

(b) at the relevant time the lease becomes one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as a finance lease for accounting purposes [F372 and

(c) the change of classification is not a relevant change of classification.]

[F373 (6A) Case 3 is where—

(a) immediately before the relevant time, the lease is a right-of-use lease which is a long funding finance lease, and

(b) at the relevant time, the lease becomes one which—

(i) is not a right-of use lease, and

(ii) falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as not being a finance lease.]

(7) The Treasury may by regulations make provision for or in connection with restricting the application or operation of this section.

(8) In this section, any reference to a finance lease includes a reference to a loan.

(9) In the application of this section in relation to any person, the “relevant accounts” are the accounts—

(a) of that person, or

(b) where that person is the lessor, of any person connected with that person,

but only to the extent that the treatment of the lease in those accounts as a finance lease or otherwise falls (or would fall) to be determined by reference to that person as the lessor or lessee under the lease.

(10) Subsections (2) and (3) of section 70N (finance lease test: group accounts, and generally accepted accounting practice for persons outside the charge to tax) also apply for the purposes of this section.

[F374 (11) In this section—

• “relevant change of classification” means a change of accountancy classification as a result of the person adopting a different accounting standard or a change to an accounting standard, and

• “accounting standard” means any accounting standard issued or recognised by—

  (a)

  the Accounting Standards Board (or successor body), or

  (b)

  the International Accounting Standards Board (or successor body).]

Textual Amendments

F366 Words in s. 70YA(1)(b) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(a)

F367 Words in s. 70YA(4) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(b)(i)

F368 Words in s. 70YA(4) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(b)(ii)

F369 Word in s. 70YA(5)(a) omitted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(c)(i)

F370 S. 70YA(5)(c) and preceding word inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(c)(ii)

F371 Word in s. 70YA(6)(a) omitted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(d)(i)

F372 S. 70YA(6)(c) and preceding word inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(d)(ii)

F373 S. 70YA(6A) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(e)

F374 S. 70YA(11) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(4)(f)

70YB Long funding operating lease: extension of term of lease U.K.

(1) This section applies in any case where—

(a) a person is lessor or lessee under a long funding operating lease (the “existing lease”),

(b) an event occurs which has the effect of extending the term of the lease (whether by variation of the provisions of the lease, the grant or exercise of an option or in any other way), and

(c) the event is not one by reason of which, within the meaning of section 70YA, the accountancy classification of the lease as an operating lease changes in the relevant accounts.

(2) For this purpose an event has the effect of extending the term of the lease if it meets any of the following conditions—

(a) it has the effect of making a further period a non-cancellable period;

(b) it is the grant of an option to the lessee to continue to lease the plant or machinery for a further period, where it is reasonably certain at the time the option is granted that the lessee will exercise it;

(c) it is the exercise by the lessee of an option to continue to lease the plant or machinery for a further period;

(d) it does not fall within the preceding paragraphs, but it has the effect that the lessee will continue, or is reasonably certain to continue, to lease the plant or machinery for a further period.

For this purpose “further period” means a period falling wholly or partly after the end of the pre-existing term.

(3) The person is to be treated as if—

(a) the existing lease terminated at the end of the day before the effective date,

(b) another lease (the “new lease”) were entered into on the effective date, and

(c) the term of the new lease were the unexpired portion of the term of the existing lease, as extended.

(4) The person is also to be treated as if the effective date were the date of both—

(a) the inception of the new lease, and

(b) the commencement of the term of the new lease.

(5) The new lease is to be taken to be a long funding operating lease.

(6) For the purposes of this section the “effective date” is the earlier of—

(a) the day after the end of the pre-existing term of the existing lease;

(b) if the rentals payable are varied as a result of or otherwise in connection with the event, the date on which the variation takes effect.

(7) In this section—

• “non-cancellable period” has the same meaning as in section 70YF (the “term” of a lease);

• “pre-existing term”, in relation to a lease, means the term of the lease apart from the extension in question.

70YC Extension of term of lease that is not a long funding lease U.K.

(1) This section applies where—

(a) a person is lessor under a plant or machinery lease (the “existing lease”) that is not a long funding lease, and

(b) an event occurs which has the effect of extending the term of the lease (whether by variation of the provisions of the lease, the grant or exercise of an option or in any other way).

(2) Subsection (2) of section 70YB (events having the effect of extending the term of a lease) also has effect for the purposes of this section.

(3) Make the following assumptions—

(a) the existing lease terminates immediately before the effective date,

(b) another lease (the “new lease”) is entered into on the effective date,

(c) the term of the new lease is the portion of the term of the existing lease, as extended, that remains unexpired as at the effective date;

(d) the effective date is the date of both—

(i) the inception of the new lease, and

(ii) the commencement of the term of the new lease.

(4) If, on those assumptions, the new lease would be a long funding lease, the person is to be treated on those assumptions.

(5) If subsection (4) does not apply, then, for the purposes of any subsequent application of this section or section 70YD in the case of the existing lease, the term of the existing lease is to be taken to be the term as extended (or further extended).

(6) For the purposes of this section the “effective date” is the earlier of—

(a) the day after the end of the pre-existing term of the existing lease;

(b) if the rentals payable are varied as a result of or otherwise in connection with the event, the date on which the variation takes effect.

(7) In this section “pre-existing term”, in relation to a lease, means the term of the lease apart from the extension in question.

70YD Increase in proportion of residual amount guaranteed: review of status U.K.

(1) This section applies where—

(a) a person is lessor under a lease (the “existing lease”) that is not a long funding lease,

(b) the person enters into an arrangement which meets, or arrangements which (taken together) meet, the conditions in subsection (2).

(2) The conditions are that—

(a) as a result of the arrangement or arrangements, there is an increase, after the inception of the lease, in the proportion of the residual amount that is guaranteed as mentioned in section 70YE(1)(b), and

(b) had the arrangement or arrangements been entered into before the inception of the lease, the lease would have been a long funding lease.

(3) The person is to be treated as if—

(a) the existing lease had terminated immediately before the time of the relevant transaction,

(b) another lease (the “new lease”) had been entered into immediately after the time of the relevant transaction,

(c) the term of the new lease were the portion of the term of the existing lease that remains unexpired as at the date of the relevant transaction;

(d) the date of the relevant transaction were the date of both—

(i) the inception of the new lease, and

(ii) the commencement of the term of the new lease.

(4) For the purposes of this section, the “relevant transaction” is the arrangement or, where two or more arrangements have been entered into, the latest of them.

(5) The Treasury may by regulations make provision for or in connection with restricting the application or operation of this section.

Interpretation U.K.

70YE “Minimum lease payments” U.K.

(1) In the case of any lease, the minimum lease payments are the minimum payments under the lease over the term of the lease (including any initial payment) together with—

(a) in the case of the lessee, so much of any residual amount as is guaranteed by him or a person connected with him, or

(b) in the case of the lessor, so much of any residual amount as is guaranteed by the lessee or a person who is not connected with the lessor.

(2) In determining the minimum payments, exclude so much of any payment as represents—

(a) charges for services, or

(b) qualifying UK or foreign tax to be paid by the lessor.

(3) In this section—

• “qualifying UK or foreign tax” means any tax or duty chargeable under the law of any part of the United Kingdom, or under the law of any foreign country, other than—

  (a)

  income tax,

  (b)

  corporation tax,

  (c)

  any tax chargeable under the law of a foreign country which is similar to income tax or corporation tax,

  and here “foreign country” means any territory outside the United Kingdom;

• “residual amount” means so much of the fair value of the plant or machinery subject to the lease as cannot reasonably be expected to be recovered by the lessor from the payments under the lease.

(4) In the definition of “residual amount” in subsection (3), “fair value” means—

(a) the market value of the leased plant or machinery,

less

(b) any grants receivable towards the purchase or use of that plant or machinery.

70YF The “term” of a lease U.K.

(1) The term of a lease is the period comprising—

(a) so much of the post-commencement period as is a non-cancellable period, and

(b) any subsequent periods which meet the conditions in subsection (2).

(2) The conditions are that—

(a) the lessee has an option to continue to lease the asset for the period (whether with or without further payment), and

(b) it is reasonably certain, at the inception of the lease, that the lessee will exercise that option.

(3) The “post-commencement period” is so much of the period of the lease as begins with the commencement of the term of the lease.

(4) A “non-cancellable period” is any period during which the lessee may terminate the lease only—

(a) upon the occurrence of some remote contingency, or

(b) upon payment by the lessee of such an additional amount that, at the inception of the lease, continuation of the lease is reasonably certain.

(5) If, at the commencement of the term of the lease,—

(a) the market value of the asset exceeds £1 million, and

(b) the estimated market value of the asset [F375 7] years after the commencement of the term of the lease is more than half of the market value of the asset at the commencement of the term of the lease,

subsection (6) applies.

(6) If, in any such case, the term of the lease (apart from this subsection) would be [F376 7] years or less, but—

(a) the lessee has one or more options to continue to lease the asset,

(b) on the assumption that it is reasonably certain, at the inception of the lease, that the lessee will exercise those options, the term of the lease would exceed 7 years, and

(c) on failing to exercise any one of those options, the lessee may be required to make a payment to the lessor,

it is to be assumed for the purposes of this section that any option to continue to lease the asset will be exercised, unless it is reasonably certain, at the inception of the lease, that the option will not be exercised.

F377 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) See also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease).

Textual Amendments

F375 Word in s. 70YF(5)(b) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(a)

F376 Word in s. 70YF(6) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(b)

F377 S. 70YF(7) omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(c)

70YG “Termination amount” U.K.

(1) This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2) Construe “termination amount”, in the case of a long funding lease, in accordance with the following provisions of this section.

(3) If—

(a) the lease terminates as a result of a plant or machinery disposal event, or

(b) a plant or machinery disposal event occurs as a result of, or otherwise in connection with, the termination of the lease,

the termination amount is the disposal value that would have fallen to be brought into account by the lessor by reason of the plant or machinery disposal event on the assumptions in subsection (4).

(4) Those assumptions are—

(a) that section 34A (which prevents the lessor's expenditure for long funding leasing from being qualifying expenditure) did not apply in the case of the lessor, and

(b) that the lessor had claimed all the capital allowances that would in consequence have been available to him.

(5) If—

(a) subsection (3) does not apply, and

(b) the lease is a long funding finance lease,

the termination amount is the value at which, immediately after the termination of the lease, the plant or machinery is recognised in the books or other financial records of the lessor.

(6) If—

(a) subsection (3) does not apply, and

(b) the lease is a long funding operating lease,

the termination amount is the market value of the plant or machinery immediately after the termination of the lease.

(7) For the purposes of this section a “plant or machinery disposal event” is an event that would have been a disposal event in relation to the plant or machinery in the case of the lessor on the assumptions in subsection (4).

70YH “Termination value” U.K.

(1) This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2) Construe “termination value” in accordance with the following provisions of this section.

(3) The general rule is that the termination value of any plant or machinery is the value of the plant or machinery at or about the time when the lease terminates.

(4) Any reference to calculation by reference to the termination value includes a reference to calculation by reference to any one or more of—

(a) the proceeds of sale, if the plant or machinery is sold after the lease comes to an end,

(b) any insurance proceeds, compensation or similar sums in respect of the plant or machinery,

(c) an estimate of the market value of the plant or machinery.

(5) Any reference to calculation by reference to the termination value also includes a reference to—

(a) determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(b) any other form of calculation indirectly by reference to the termination value.

70YI General definitions U.K.

(1) Construe these expressions as follows—

• “absolute owner”, in the application of this Chapter in relation to Scotland, means the owner;

• “arrangement” includes any transaction or series of transactions;

• “background plant or machinery for a building” is to be construed in accordance with sections 70R to 70T;

• “building” includes a reference to—

  (a)

  a structure,

  (b)

  part of a building or structure;

• “commencement”, in relation to the term of a lease, means the date on and after which the lessee is entitled to exercise his right to use the complete leased asset under the lease;

  for this purpose an asset is to be regarded as complete if its construction is substantially complete;

• “derived lease” is to be construed in accordance with section 70L;

• “the finance lease test” means the finance lease test in section 70N;

• “fixture”—

  (a)

  means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

  (b)

  includes any boiler or water-filled radiator installed in a building as part of a space or water heating system;

• “funding lease” has the meaning given by section 70J;

• “inception”, in relation to a plant or machinery lease, means the earliest date on which the following conditions are met—

  (a)

  there is a contract in writing for the lease between the lessor and the lessee,

  (b)

  either—

  (i)

  the contract is unconditional, or

  (ii)

  if it is conditional, the conditions have been met,

  (c)

  no terms remain to be agreed;

• “initial payment”, in the case of a plant or machinery lease, means a payment by the lessee—

  (a)

  at or before the time when the lease is entered into, and

  (b)

  in respect of the plant or machinery which is the subject of the lease;

• “lease” includes any agreement or arrangement which is or includes a plant or machinery lease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

• “lease”, in relation to land, includes—

  (a)

  an underlease, sublease or any tenancy,

  (b)

  in England and Wales or Northern Ireland, an agreement for a lease, underlease, sublease, or tenancy,

  (c)

  in Scotland, an agreement (including missives of let not constituting a lease) under which a lease, sublease or tenancy is to be executed,

  (d)

  in the case of land situated outside the United Kingdom, any interest corresponding to a lease as so defined,

  and “lessor”, “lessee” and other related expressions are to be construed accordingly;

• “lease”, in relation to plant or machinery, includes a sublease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

• “lessee”, in relation to a lease, includes any person entitled to the lessee's interest under the lease;

• “lessor”, in relation to a lease, includes any person entitled to the lessor's interest under the lease;

• “long funding lease” has the meaning given by section 70G;

• [F378 “long funding finance lease” means-

  (a)

  in relation to any person, a long funding lease that meets the finance lease test by virtue of section 70N(1)(a), or

  (b)

  in relation to a lessee, a right-of-use lease which is a long funding lease—

  (i)

  that meets the lease payments test in section 70O or the useful economic life test in section 70P, but

  (ii)

  is not a lease that, before a relevant change of classification, was a long funding operating lease;]

• “long funding operating lease” means a long funding lease which is not a long funding finance lease;

• “market value”, in relation to plant or machinery, is to be construed in accordance with subsection (2);

• “minimum lease payments” has the meaning given by section 70YE;

• “mixed lease” is to be construed in accordance with section 70L;

• “plant or machinery lease” has the meaning given by section 70K (and see also sections 70L and 70M);

• [F379 “relevant change of classification” has the meaning given by section 70YA(11);]

• “remaining useful economic life”, in the case of any leased plant or machinery, is the period—

  (a)

  beginning with the commencement of the term of the lease, and

  (b)

  ending when the asset is no longer used, and no longer likely to be used, by any person for any purpose as a fixed asset of a business;

• [F379 “right-of-use lease” , in relation to a lessee, means a lease in respect of which, under generally accepted accounting practice—

  (a)

  a right-of-use asset falls (or would fall) at the commencement date of the lease to be recognised for accounting purposes in the accounts of the lessee, or

  (b)

  a right-of-use asset would fall to be so recognised but for the lessee granting a sublease of the leased asset,

  and, in determining whether a lease falls within paragraph (a) or (b) at any time in an accounting period, it is to be assumed that the accounting policy applied in drawing up the lessee's accounts for the period also applied at the commencement date of the lease;]

• “short lease” is to be construed in accordance with section 70I;

• “the term”, in relation to a lease, is to be construed in accordance with section 70YF (but see also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease));

• “termination”, in relation to a lease,—

  (a)

  means the coming to an end of the lease, whether by effluxion of time or in any other way, and

  (b)

  includes in particular the bringing to an end of the lease by any person or by operation of law,

  and related expressions are to be construed accordingly;

• “termination amount” is to be construed in accordance with section 70YG;

• “termination value” is to be construed in accordance with section 70YH.

(2) The market value of any plant or machinery at any time is to be determined on the assumption of a disposal by an absolute owner free from all leases and other encumbrances.

(3) In relation to a lease, any reference to plant or machinery includes a reference to fixtures.

F380 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Any necessary apportionments under or by virtue of this Chapter are to be made on a just and reasonable basis.

Textual Amendments

F378 Words in s. 70YI(1) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(5)(a)

F379 Words in s. 70YI(1) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(5)(b)

F380 S. 70YI(4) repealed (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 399, Sch. 3 Pt. 1 (with Sch. 2)

70YJ Power to vary the meaning of certain expressions U.K.

(1) The Treasury may by regulations make provision amending this Chapter so as to vary—

(a) the meaning of “plant or machinery lease”, or

(b) the finance lease test.

(2) A statutory instrument containing regulations under this section is not to be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.]

Chapter 7 U.K. Computer software

71 Software and rights to software U.K.

(1) For the purposes of this Part computer software is treated as plant (whether or not it would constitute plant apart from this section).

(2) If a person carrying on a qualifying activity incurs capital expenditure in acquiring, for the purposes of the qualifying activity, a right to use or otherwise deal with computer software, this Part applies as if—

(a) the right and the software to which it relates were plant,

(b) the plant were provided for the purposes of the qualifying activity, and

(c) so long as the person is entitled to the right, the person owned the plant as a result of incurring the capital expenditure.

72 Disposal values U.K.

(1) This section applies if a person—

(a) has incurred qualifying expenditure on the provision of plant consisting of computer software or the right to use or otherwise deal with computer software, and

(b) grants to another a right to use or otherwise deal with the whole or part of the computer software in circumstances in which the consideration for the grant—

(i) consists of a capital sum, or

(ii) would consist of a capital sum if the consideration were in money.

(2) The person is required to bring a disposal value into account unless—

(a) while the person owned the computer software or the right to use or otherwise deal with the computer software, and

(b) before the grant of the right referred to in subsection (1)(b),

there has been a disposal event falling within section 61(1)(e) (use for purposes other than those of the qualifying activity) or 61(1)(f) (permanent discontinuance of the qualifying activity).

(3) The disposal value to be brought into account under this section depends on the circumstances of the grant of the right, as shown in the Table—

Table

Disposal values: grant of software right

1. Circumstances of grant	2. Disposal value
1. The grant is for a consideration not consisting entirely of money.	The market value of the right granted at the time of the grant.
2. The grant is made where— (a) it is for no consideration or at less than market value, (b) there is no charge to tax under [F381 ITEPA 2003], and (c) the condition in subsection (5) is met by the grantee.	The market value of the right granted at the time of the grant.
3. The grant is made in circumstances other than those given in item 1 or 2.	The net consideration in money received in respect of the grant, together with— (a) any insurance money received in respect of the computer software as a result of an event affecting the consideration obtainable on the grant, and (b) any other compensation of any description so received, so far as it consists of capital sums.

(4) The amounts referred to in column 2 of the Table are those received by the person required to bring the disposal value into account.

(5) The condition referred to in item 2 of the Table is met by the grantee if—

(a) the grantee’s expenditure on the acquisition of the plant cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

(b) the grantee is a dual resident investing company which is connected with the grantor.

Textual Amendments

F381 Words in s. 72(3) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 251 (with Sch. 7 )

Modifications etc. (not altering text)

C37 S. 72(3)-(5) excluded (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(a); S.I. 2005/1444, art. 2(1), Sch. 1

73 Limit on disposal values U.K.

(1) This section applies if a person is required to bring into account a disposal value in respect of—

(a) computer software, or

(b) the right to use or otherwise deal with computer software.

(2) For the purpose only of—

(a) determining whether the limit on the disposal value under section 62 is exceeded, and

(b) reducing the amount of that disposal value so that the limit is not exceeded,

the disposal value is to be taken to be increased by the amount given in subsection (3).

(3) The amount is the total of any disposal values which, in respect of that person and that plant, fall or have fallen to be brought into account under section 72.

Chapter 8 U.K. Cars, etc.

Cars above the cost threshold U.K.

F382 74 Single asset pool U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

F382 75 General limit on amount of writing-down allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

F382 76 Limit where part of expenditure met by another person U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

F382 77 Car used partly for purposes other than those of qualifying activity U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

F382 78 Effect of partial depreciation subsidy U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

F382 79 Cases where Chapter 17 (anti-avoidance) applies U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Ss. 74-79 omitted (with effect in accordance with Sch. 11 paras. 26-29 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 4 (with Sch. 11 paras. 30-32)

Vehicles provided for purposes of employment or office U.K.

80 Vehicles provided for purposes of employment or office U.K.

F383 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F383 S. 80 repealed (with effect as mentioned in s. 59(3)(4) of the amending Act) by Finance Act 2001 (c. 9), s. 59(2), 110, Sch. 33 Pt. 2(1) Note

Interpretation U.K.

F384 81 Extended meaning of “car” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F384 S. 81 omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 5 (with Sch. 11 paras. 30-32, 68)

F385 82 Qualifying hire cars U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F385 S. 82 omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 5 (with Sch. 11 paras. 30-32, 68)

Chapter 9 U.K. Short-life assets

83 Meaning of “short-life asset” U.K.

Plant or machinery in respect of which qualifying expenditure has been incurred is a short-life asset if—

(a) its treatment as a short-life asset is not ruled out by section 84, and

(b) the person incurring the expenditure elects for the plant or machinery to be treated as a short-life asset.

84 Cases in which short-life asset treatment is ruled out U.K.

Treatment of plant or machinery as a short-life asset is ruled out in any of the cases listed in column 1 of the Table, unless an exception listed in column 2 applies.

Table

Short-life asset treatment

1. Short-life asset treatment ruled out	2. Exception (if any)
1. The expenditure is treated as incurred for the purposes of a qualifying activity under— (a) section 13 (use for qualifying activity of plant or machinery provided for other purposes), or (aa) [F386 section 13A (use for other purposes of plant or machinery provided for long funding leasing), or] (b) section 14 (use for qualifying activity of plant or machinery which is a gift).
2. The plant or machinery is the subject of special leasing (as defined by section 19).
3. The plant or machinery is a car (as defined by section [F387 268A]).	[F388 The car is a hire car for a disabled person (as defined by section 268D).]
[F389 4. The expenditure is special rate expenditure (see Chapter 10A).]	[F390 The expenditure is incurred on the provision of a car which is a hire car for a disabled person (as defined by section 268D)]
5. The plant or machinery is provided for leasing.	The plant or machinery is a car which is [F391 a hire car for a disabled person (as defined by section 268D)]. The plant or machinery will be used within the designated period (as defined by section 106) for a qualifying purpose (as defined by sections 122 to 125).
6. Section 109 provides only a 10% writing-down allowance in respect of expenditure on the plant or machinery.
7. The plant or machinery is leased to two or more persons jointly in circumstances such that section 116 applies.
8. The plant or machinery is a ship.
9. The expenditure was incurred partly for the purposes of a qualifying activity and partly for other purposes (see Chapter 15).
10. The expenditure is required to be allocated to a single asset pool under section 211 (partial depreciation subsidy).

Textual Amendments

F386 Words in s. 84 inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 8(2)

F387 Word in s. 84 substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 6 (with Sch. 11 paras. 30-32)

F388 Words in s. 84 substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 19(2) (with Sch. 11 paras. 30-32)

F389 Words in s. 84 substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 7

F390 Words in s. 84 inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 19(3) (with Sch. 11 paras. 30-32)

F391 Words in s. 84 substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 19(4) (with Sch. 11 paras. 30-32)

85 Election for short-life asset treatment: procedure U.K.

(1) An election under section 83 must specify—

(a) the plant or machinery which is the subject of the election,

(b) the qualifying expenditure incurred in respect of it, and

(c) the date on which the expenditure was incurred.

(2) An election under section 83 must be made by notice given to [F145 an officer of Revenue and Customs]—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(3) “The relevant chargeable period” means—

(a) the chargeable period in which the qualifying expenditure was incurred, or

(b) if the qualifying expenditure was incurred in different chargeable periods, the first chargeable period in which any of the qualifying expenditure was incurred.

(4) An election under section 83 is irrevocable.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

86 Short-life asset pool U.K.

(1) Qualifying expenditure in respect of a short-life asset, if allocated to a pool, must be allocated to a single asset pool (a “short-life asset pool”).

(2) If the final chargeable period for the short-life asset pool has not occurred before the [F392 relevant] cut-off—

(a) the pool ends at the [F392 relevant] cut-off without a final chargeable period,

(b) the available qualifying expenditure in the pool is allocated to the [F393 appropriate pool] for the first chargeable period ending after the [F392 relevant] cut-off, and

(c) the asset ceases to be a short-life asset.

[F394 (3) In this Chapter “the relevant cut-off” means—

(a) if any of the qualifying expenditure incurred on the provision of the short-life asset was incurred before the designated day, the fourth anniversary of the end of the relevant chargeable period, and

(b) in any other case, the eighth anniversary of the end of the relevant chargeable period.

(3A) In subsection (3)—

• “the designated day” means—

  (a)

  for corporation tax purposes, 1 April 2011, and

  (b)

  for income tax purposes, 6 April 2011;

• “the relevant chargeable period” means—

  (a)

  the chargeable period in which the qualifying expenditure was incurred on the provision of the short-life asset, or

  (b)

  if the qualifying expenditure was incurred in different chargeable periods, the first chargeable period in which any of the qualifying expenditure was incurred.]

(4) For the purposes of subsection (2), the final chargeable period occurs before the [F395 relevant] cut-off only if it ends on or before it.

[F396 (5) In subsection (2)(b) “appropriate pool” means—

(a) in the case of expenditure incurred on the provision of a car that is not a main rate car (as defined by section 104AA), the special rate pool, and

(b) in any other case, the main pool.]

Textual Amendments

F392 Word in s. 86(2) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(2)(a)

F393 Words in s. 86(2)(b) substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 20(2) (with Sch. 11 paras. 30-32)

F394 S. 86(3)(3A) substituted for s. 86(3) (19.7.2011) by Finance Act 2011 (c. 11), s. 12(2)(b)

F395 Word in s. 86(4) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(2)(c)

F396 S. 86(5) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 20(3) (with Sch. 11 paras. 30-32)

87 Short-life assets provided for leasing U.K.

(1) This section applies if—

(a) plant or machinery is a short-life asset on the basis that it has been provided for leasing but will be used within the designated period for a qualifying purpose (see item 5 of the Table in section 84),

(b) in a chargeable period ending on or before the [F397 relevant] cut-off, the short-life asset begins to be used otherwise than for a qualifying purpose, and

(c) the time when it begins to be so used falls within the first [F398 8 years] of the designated period.

(2) If this section applies—

(a) the short-life asset pool ends without a final chargeable period,

(b) the available qualifying expenditure in the pool is allocated to the main pool for the chargeable period in which the asset begins to be used otherwise than for a qualifying purpose, and

(c) the asset ceases to be a short-life asset.

Textual Amendments

F397 Word in s. 87(1)(b) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(4)(a)

F398 Words in s. 87(1)(c) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(4)(b)

88 Sales at under-value U.K.

If—

(a) a short-life asset is disposed of at less than market value,

(b) the disposal is not one in respect of which an election is made under section 89(6), and

(c) there is no charge to tax under [F399 ITEPA 2003],

the disposal value to be brought into account for the purposes of Chapter 5 is the market value of the asset.

Textual Amendments

F399 Words in s. 88(c) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 252 (with Sch. 7 )

Modifications etc. (not altering text)

C38 S. 88 excluded (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(a); S.I. 2005/1444, art. 2(1), Sch. 1

C39 S. 88 excluded (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 2(4); S.I. 2005/1444, art. 2(1), Sch. 1

C40 S. 88 excluded (24.7.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 22(4); S.I. 2005/1909, art. 2, Sch.

C41 S. 88 excluded (7.8.2015) by The Housing and Regeneration Transfer Schemes (Tax Consequences) Regulations 2015 (S.I. 2015/1540), regs. 1, 7(8) (with regs. 3, 7(1)(9))

89 Disposal to connected person U.K.

(1) This section applies if, at any time before the [F400 relevant] cut-off, a person (“the transferor”) disposes of a short-life asset to a connected person.

(2) Subject to subsection (6)—

(a) the transferor is to be treated as having sold the short-life asset to the connected person for an amount equal to the available qualifying expenditure in the short-life asset pool for the chargeable period in which the disposal occurs, and

(b) the connected person is to be treated as having incurred qualifying expenditure of the same amount in buying the short-life asset.

(3) Subject to subsection (6)—

(a) sections 217 and 218 (restrictions on first-year and other allowances in the case of certain transactions between connected persons, to obtain a tax advantage etc.), and

(b) [F401 section] 225 (further restrictions in the case of sale and finance leaseback),

do not apply to the disposal.

(4) Immediately after the disposal of the short-life asset, the connected person is to be taken to have made an election under section 83 (so that the plant or machinery is a short-life asset in his hands).

(5) In relation to the connected person, “the [F402 relevant] cut-off” means the date that would have been the [F402 relevant] cut-off in relation to the transferor.

(6) Subsections (2) and (3) apply in relation to a disposal only if—

(a) the transferor, and

(b) the connected person,

elect that they should apply.

(7) An election under subsection (6) must be made by notice given to [F145 an officer of Revenue and Customs] no later than 2 years after the end of the chargeable period in which the disposal occurred.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F400 Word in s. 89(1) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(5)

F401 Word in s. 89(3)(b) substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(7)

F402 Word in s. 89(5) substituted (19.7.2011) by Finance Act 2011 (c. 11), s. 12(5)

Chapter 10 U.K. Long-life assets

Long-life asset expenditure U.K.

90 Long-life asset expenditure U.K.

“Long-life asset expenditure” means qualifying expenditure—

(a) incurred on the provision of a long-life asset for the purposes of a qualifying activity, and

(b) not excluded from being long-life asset expenditure by any of sections 93 to 100.

91 Meaning of “long-life asset” U.K.

(1) For the purposes of this Chapter “long-life asset” means plant or machinery which—

(a) if new, can reasonably be expected to have a useful economic life of at least 25 years, and

(b) if not new, could reasonably have been expected when new to have a useful economic life of at least 25 years.

(2) “New” means unused and not second-hand.

(3) The useful economic life of plant or machinery is the period—

(a) beginning when it is first brought into use by any person for any purpose, and

(b) ending when it is no longer used or likely to be used by anyone for any purpose as a fixed asset of a business.

F403 92 Application of Chapter to part of expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F403 S. 92 omitted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 26 para. 8

Expenditure excluded from being long-life asset expenditure U.K.

93 Fixtures etc. U.K.

(1) Expenditure is not long-life asset expenditure if it is incurred on the provision of plant or machinery which is a fixture in, or is provided for use in, any building used wholly or mainly—

(a) as a dwelling-house, hotel, office, retail shop or showroom, or

(b) for purposes ancillary to the use referred to in paragraph (a).

(2) In this section—

• “fixture” has the meaning given by section 173(1);

• “retail shop” includes any premises of a similar character where a retail trade or business, including repair work, is carried on.

94 Ships U.K.

(1) Expenditure is not long-life asset expenditure if—

(a) it is incurred before 1st January 2011 on the provision of a ship of a sea-going kind, and

(b) each of the conditions in subsection (2) is met.

(2) The conditions are that—

(a) the ship is not an offshore installation,

F404 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) the primary use to which ships of the same kind are put by their owners (or, if their use is made available to others, those others) is a use otherwise than for sport or recreation.

F405 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F404 S. 94(2)(b) repealed (with effect in accordance with Sch. 27 para. 11 of the amending Act) by Finance Act 2004 (c. 12) , Sch. 27 para. 8 , 42 Pt. 2(19)

F405 S. 94(3) repealed (with effect in accordance with Sch. 27 para. 11 of the amending Act) by Finance Act 2004 (c. 12) , Sch. 27 para. 8 , 42 Pt. 2(19)

95 Railway assets U.K.

(1) Expenditure is not long-life asset expenditure if it is incurred before 1st January 2011 on the provision of a railway asset used by any person wholly and exclusively for the purposes of a railway business.

(2) “Railway asset” means—

(a) a locomotive, tram or other vehicle, or a carriage, wagon or other rolling stock designed or adapted for use on a railway;

(b) anything which is, or is to be, comprised in any railway station, railway track or light maintenance depot or any apparatus which is, or is to be, installed in association with such a station, track or depot.

(3) “Railway business” means a business so far as carried on to provide a service to the public for carrying goods or passengers by means of a railway in the United Kingdom or the Channel Tunnel.

(4) For the purposes of subsection (1), a railway asset of a kind described in subsection (2)(a) is not to be treated as used otherwise than wholly and exclusively for the purposes of a railway business merely because it is used to carry goods or passengers—

(a) from places inside the United Kingdom to places outside the United Kingdom, or

(b) from places outside the United Kingdom to places inside the United Kingdom.

(5) In subsections (2) and (3), “railway” has the same meaning as in section 81(2) of the 1993 Act (“railway” includes tramways and other modes of guided transport).

(6) In this section—

• “the 1993 Act” means the Railways Act 1993 (c. 43);

• “goods” has the same meaning as in Part I of the 1993 Act;

• “railway station” and “railway track” include—

  (a)

  anything included in the definitions of “station” and “track” in section 83 of the 1993 Act, and

  (b)

  anything else that would be included if in section 83 “railway” had the meaning given in section 81(2) of the 1993 Act;

• “light maintenance depot” means—

  (a)

  any light maintenance depot within the meaning of Part I of the 1993 Act, and

  (b)

  any land or other property which is the equivalent of such a depot in relation to anything which is a railway only when “railway” has the meaning given by section 81(2) of the 1993 Act.

96 Cars U.K.

Expenditure is not long-life asset expenditure if it is incurred on the provision of a [F406 car or motor cycle (as defined by section 268A)].

Textual Amendments

F406 Words in s. 96 substituted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 21 (with Sch. 11 paras. 30-32)

97 Expenditure within the relevant monetary limit: general U.K.

Expenditure is not long-life asset expenditure if it is—

(a) expenditure to which the monetary limits apply, and

(b) incurred in a chargeable period for which the relevant monetary limit is not exceeded.

98 Expenditure to which the monetary limits apply U.K.

(1) The monetary limits apply to expenditure incurred by an individual for a chargeable period if—

(a) the expenditure was incurred by him for the purposes of a qualifying activity carried on by him,

(b) the whole of his time is substantially devoted in that period to the carrying on of that qualifying activity, and

(c) the expenditure is not within subsection (4).

(2) The monetary limits apply to expenditure incurred by a partnership for a chargeable period if—

(a) all of the members of the partnership are individuals,

(b) the expenditure was incurred by the partnership for the purposes of a qualifying activity carried on by it,

(c) at all times throughout that period at least half the partners for the time being devote the whole or a substantial part of their time to the carrying on of that qualifying activity, and

(d) the expenditure is not within subsection (4).

(3) The monetary limits apply for the purposes of corporation tax to any expenditure incurred by a company for a chargeable period other than expenditure within subsection (4).

(4) Expenditure is within this subsection if it is—

(a) incurred on the provision of a share in plant or machinery,

(b) treated as a result of section 538 (contribution allowances: plant and machinery) as incurred on the provision of plant or machinery, or

(c) incurred on the provision of plant or machinery for leasing (whether or not the leasing is in the course of a trade).

99 The monetary limit U.K.

(1) The monetary limit in the case of a chargeable period of 12 months is £100,000.

(2) If, in the case of an individual or partnership, the chargeable period is longer or shorter than 12 months, the monetary limit is the amount given by a proportional increase or reduction of £100,000.

(3) If, in the case of a company, the chargeable period is shorter than 12 months, the monetary limit is the amount given by a proportional reduction of £100,000.

(4) [F407 If, in a chargeable period, a company has one or more associated companies], the monetary limit for that period is—

where—

• L is the monetary limit applicable under subsection (1) or (3), and

• N is the [F408 number of associated] companies.

[F409 (4A) The rules in Part 3A of CTA 2010 (see sections 18E to 18J) which apply for determining whether a company is another company's associated company in an accounting period for the purposes of section 18D of that Act apply for the purposes of subsection (4).]

F410 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F407 Words in s. 99(4) substituted (with effect in accordance with Sch. 1 para. 33 of the amending Act) by Finance Act 2021 (c. 26), Sch. 1 para. 16(2)(a)

F408 Words in s. 99(4) substituted (with effect in accordance with Sch. 1 para. 33 of the amending Act) by Finance Act 2021 (c. 26), Sch. 1 para. 16(2)(b)

F409 S. 99(4A) inserted (with effect in accordance with Sch. 1 para. 33 of the amending Act) by Finance Act 2021 (c. 26), Sch. 1 para. 16(3)

F410 S. 99(5) omitted (with effect in accordance with Sch. 1 para. 21 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 1 para. 8(b)

Modifications etc. (not altering text)

C42 S. 99(1) modified by 1993 c. 34, s. 93A(6) (as inserted (with effect as mentioned in s. 80(2) of the inserting Act) by Finance Act 2002 (c. 23), s. 80, Sch. 24 para. 4 (with Sch. 23 para. 25))

C43 S. 99(2) modified by 1993 c. 34, s. 93A(6) (as inserted (with effect as mentioned in s. 80(2) of the inserting Act) by Finance Act 2002 (c. 23), s. 80, Sch. 24 para. 4 (with Sch. 23 para. 25))

C44 S. 99(3) modified by 1993 c. 34, s. 93A(6) (as inserted (with effect as mentioned in s. 80(2) of the inserting Act) by Finance Act 2002 (c. 23), s. 80, Sch. 24 para. 4 (with Sch. 23 para. 25))

100 Exceeding the monetary limit U.K.

(1) The monetary limit for a chargeable period is exceeded if the total expenditure in that period that meets the conditions in subsection (2) exceeds that limit.

(2) The conditions are that the expenditure—

(a) is long-life asset expenditure, or would be long-life asset expenditure in the absence of section 97 (expenditure within monetary limit), and

(b) is expenditure to which the monetary limits apply.

(3) Subsection (4) applies if, in the case of any contract for the provision of plant or machinery, the capital expenditure which is (or is to be) incurred under the contract is (or may fall to be) treated for the purposes of this Act as incurred in different chargeable periods.

(4) All of the expenditure falling to be incurred under the contract on the provision of the plant or machinery is to be treated for the purposes of this section as incurred in the first chargeable period in which any of the expenditure is incurred.

Rules applying to long-life asset expenditure U.K.

[F411 101 Allocation of long-life asset expenditure to pool U.K.

Chapter 10A (special rate expenditure and the special rate pool) provides for long-life asset expenditure to be allocated to the special rate pool.]

Textual Amendments

F411 S. 101 substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 9

[F412 102 Writing-down allowance in respect of long-life asset expenditure U.K.

Chapter 10A (special rate expenditure and the special rate pool) provides for the writing-down allowance to which a person is entitled in respect of long-life asset expenditure.]

Textual Amendments

F412 S. 102 substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 10

Modifications etc. (not altering text)

C45 S. 102 applied (with modifications) (21.7.2008) by Finance Act 2008 (c. 9), s. 83

Anti-avoidance provisions U.K.

103 Later claims U.K.

(1) Subsection (2) applies if—

(a) a person entitled to do so has made a Part 2 claim in respect of expenditure incurred on the provision of plant or machinery, and

(b) the expenditure fell to be treated as long-life asset expenditure for the purposes of the claim.

(2) If—

(a) at any time after making the Part 2 claim, that claimant or another person makes a Part 2 claim in respect of any qualifying expenditure incurred at any time (including a time before the incurring of the expenditure to which the earlier claim relates) on the provision of the same plant or machinery, and

(b) the expenditure to which the later claim relates—

(i) would not (but for this subsection) be treated for the purposes of the later claim as long-life asset expenditure, and

(ii) is not prevented from being long-life asset expenditure by any of sections 93 to 96,

this Part has effect in relation to the later claim as if the expenditure to which it relates were long-life asset expenditure.

(3) A person makes a Part 2 claim in respect of any expenditure if he—

(a) makes a tax return in which the expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part;

(b) gives notice of an amendment of a tax return which provides for the expenditure to be so taken into account;

(c) makes a claim in any other way for the expenditure to be so taken into account.

F413 104 Disposal value of long-life assets U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F413 S. 104 omitted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 26 para. 11

[F414 Chapter 10A U.K. Special rate expenditure

Textual Amendments

F414 Pt. 2 Ch. 10A inserted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 2

Special rate expenditure U.K.

104A Special rate expenditure U.K.

(1) “Special rate expenditure” means—

(a) expenditure incurred on or after the [F415 first] relevant date to which section 28 (thermal insulation) applies,

(b) expenditure incurred on or after that date to which section 33A (integral features) applies,

(c) long-life asset expenditure (within the meaning of Chapter 10) incurred on or after that date, F416 ...

(d) long-life asset expenditure (within the meaning of that Chapter) incurred before that date but allocated to a pool in a chargeable period beginning on or after that date[F417 , F418 ...

(e) expenditure incurred on or after the second relevant date on the provision of a car that is not a main rate car] F419 [F420 ...

(f) expenditure incurred on or after 1 April 2010 on the provision of cushion gas (within the meaning given by section 70J(7))][F421 , and

(g) expenditure incurred on or after the third relevant date on the provision of solar panels.]

(2) The [F422 first] relevant date is—

(a) for corporation tax purposes, 1 April 2008, and

(b) for income tax purposes, 6 April 2008.

[F423 (3) The second relevant date is—

(a) for corporation tax purposes, 1 April 2009, and

(b) for income tax purposes, 6 April 2009.

[F424 (3A) The third relevant date is—

(a) for corporation tax purposes, 1 April 2012, and

(b) for income tax purposes, 6 April 2012.]

(4) In this section—

• “car” has the meaning given in section 268A;

• “main rate car” has the meaning given in section 104AA.]

Textual Amendments

F415 Word in s. 104A(1)(a) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 7(2)(a) (with Sch. 11 paras. 30-32)

F416 Word in s. 104A(1)(c) omitted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 7(2)(b) (with Sch. 11 paras. 30-32)

F417 S. 104A(1)(e) and preceding word inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 7(2)(c) (with Sch. 11 paras. 30-32)

F418 Word in s. 104A(1)(d) omitted (8.4.2010) (with effect in accordance with s. 28(9) of the amending Act) by virtue of Finance Act 2010 (c. 13), s. 28(6)(a)

F419 Word in s. 104A(1) repealed (17.7.2012) by Finance Act 2012 (c. 14), s. 45(4)(a)

F420 S. 104A(1)(f) and word inserted (8.4.2010) (with effect in accordance with s. 28(9) of the amending Act) by Finance Act 2010 (c. 13), s. 28(6)(b)

F421 S. 104A(1)(g) and word inserted (17.7.2012) by Finance Act 2012 (c. 14), s. 45(4)(a)

F422 Word in s. 104A(2) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 7(3) (with Sch. 11 paras. 30-32)

F423 S. 104A(3)(4) inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 7(4) (with Sch. 11 paras. 30-32)

F424 S. 104A(3A) inserted (17.7.2012) by Finance Act 2012 (c. 14), s. 45(4)(b)

[F425 104AA Meaning of “main rate car” U.K.

(1) “Main rate car” means—

(a) a car that is first registered before 1 March 2001,

(b) a car that has low CO₂ emissions, or

(c) a car that is electrically-propelled.

(2) For the purposes of this section a car has low CO₂ emissions if it meets conditions A and B.

(3) Condition A is that, when the car is first registered, it is so registered on the basis of a qualifying emissions certificate.

(4) Condition B is that the applicable CO₂ emissions figure in relation to the car does not exceed [F426 50] grams per kilometre driven.

(5) The Treasury may by order amend the amount from time to time specified in subsection (4).

(6) An order under subsection (5) may contain transitional provision and savings.

(7) In this section—

• “applicable CO₂ emissions figure” and “qualifying emissions certificate” have the meanings given in section 268C;

• “car” has the meaning given in section 268A;

• “electrically-propelled” has the meaning given in section 268B.]

Textual Amendments

F425 S. 104AA inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 8 (with Sch. 11 paras. 30-32)

F426 Word in s. 104AA(4) substituted (with effect in accordance with art. 1(2)(b) of the amending S.I.) by The Capital Allowances Act 2001 (Car Emissions) (Extension of First-year Allowances) (Amendment) Order 2021 (S.I. 2021/120), arts. 1(1), 6 (with art. 7)

104B Application of Chapter to part of expenditure U.K.

(1) If part only of the capital expenditure on plant and machinery is special rate expenditure—

(a) the part which is such expenditure, and

(b) the part which is not,

are to be treated for the purposes of this Act as expenditure on separate items of plant or machinery.

(2) For the purposes of subsection (1), all such apportionments are to be made as are just and reasonable.

Rules applying to special rate expenditure U.K.

104C Special rate pool U.K.

(1) Special rate expenditure to which this section applies, if allocated to a pool, must be allocated to a class pool (“the special rate pool”).

(2) This section applies to special rate expenditure if—

(a) it is incurred wholly and exclusively for the purposes of a qualifying activity, and

(b) it is not expenditure which is required to be allocated to a single asset pool.

104D Writing-down allowances at [F427 [F428 6%] or] 10% U.K.

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of expenditure which is special rate expenditure is [F429 6%] of the amount by which AQE exceeds TDR (see Chapter 5).

[F430 (1A) But, in relation to special rate expenditure incurred wholly for the purposes of a ring fence trade in respect of which tax is chargeable under section 330(1) of CTA 2010 (supplementary charge in respect of ring fence trades), the amount of the writing-down allowance to which a person is entitled for a chargeable period is 10% of the amount by which AQE exceeds TDR.]

(2) Subsection (1) applies even if the special rate expenditure is in a single asset pool.

(3) In the case of expenditure in the special rate pool, this section is subject to section 56A (writing-down allowance for small pools).

(4) Subsections (3) and (4) of section 56 (proportionate increases or reductions in amount in certain cases) apply for the purposes of subsection (1) of this section as they apply for the purposes of subsection (1) of that section.

Textual Amendments

F427 Words in s. 104D heading inserted (with effect in accordance with s. 10(8)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 10(4)(a)

F428 Word in s. 104D heading substituted (with effect in accordance with s. 31(4)(8) of the amending Act) by Finance Act 2019 (c. 1), s. 31(3)(b)

F429 Word in s. 104D(1) substituted (with effect in accordance with s. 31(4)-(8) of the amending Act) by Finance Act 2019 (c. 1), s. 31(2)

F430 S. 104D(1A) inserted (with effect in accordance with s. 10(8)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 10(3)(b)

104E Disposal value of special rate assets U.K.

(1) This section applies if—

(a) section 104D (writing-down allowances at [F431 [F432 6%] or] 10%) has had effect in relation to any special rate expenditure incurred by a person (“the taxpayer”),

(b) any disposal event occurs in relation to the item on which the expenditure was incurred,

(c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the item, and

(d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.

(2) The disposal value that the taxpayer must bring into account is the notional written-down value of the item.

(3) The notional written-down value is—

where—

• QE is the taxpayer's expenditure on the item that is qualifying expenditure, and

• A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if—

  (a)

  that expenditure had been the only expenditure that had ever been taken into account in determining the taxpayer's available qualifying expenditure,

  (b)

  where the item is a long-life asset, that expenditure had not been prevented by the application of a monetary limit from being long-life asset expenditure, and

  (c)

  all allowances had been made in full.]

Textual Amendments

F431 Words in s. 104E(1)(a) inserted (with effect in accordance with s. 10(8)-(13) of the amending Act) by Finance Act 2011 (c. 11), s. 10(4)(b)

F432 Word in s. 104E(1)(a) substituted (with effect in accordance with s. 31(4)(8) of the amending Act) by Finance Act 2019 (c. 1), s. 31(3)(c)

Modifications etc. (not altering text)

C46 S. 104E modified (21.7.2008) by Finance Act 2008 (c. 9), s. 83(7)

[F433 104F Special rate cars: discontinued activity continued by relevant company U.K.

(1) This section applies if—

(a) a company (“the taxpayer”) has incurred special rate expenditure within section 104A(1)(e) (expenditure on a car other than a main rate car) to which section 104C applies (allocation to special rate pool),

(b) the qualifying activity carried on by the taxpayer is permanently discontinued, and

(c) conditions A, B and C are met.

(2) Condition A is that the qualifying activity carried on by the taxpayer consisted of or included (other than incidentally) making cars available to other persons.

(3) Condition B is that, at any time in the 6 months after the taxpayer's qualifying activity is permanently discontinued, the qualifying activity of a group relief company consists of or includes (other than incidentally) making cars available to other persons.

(4) Condition C is that the balancing allowance (“SBA”) to which the taxpayer would be entitled (but for this section) in respect of the special rate pool is greater than—

where—

BC is the total of the balancing charges (if any) to which the taxpayer is liable for the final chargeable period in respect of any pool, and

OBA is the total of the balancing allowances to which the taxpayer is entitled for that period in respect of any pool other than the special rate pool.

For the purposes of this section if BC–OBA is a negative amount it is to be treated as if it were nil.

(5) The balancing allowance to which the taxpayer is entitled in respect of the special rate pool is reduced to an amount equal to BC–OBA.

(6) The relevant company is to be treated as having incurred qualifying expenditure within section 104A(1)(e) (“notional expenditure”), whether or not the relevant company owns cars previously owned by the taxpayer.

(7) The amount of the notional expenditure is an amount equal to the amount by which SBA exceeds BC–OBA.

(8) The relevant company is to be treated as having incurred the notional expenditure on the day after the end of the taxpayer's final chargeable period.

(9) If part of the chargeable period in which the relevant company is treated as incurring expenditure under this section (“the acquisition period”) overlaps with the taxpayer's penultimate chargeable period—

(a) the part of the expenditure which is proportional to that part of the acquisition period is not to be taken into account in determining the relevant company's available qualifying expenditure for the acquisition period, but

(b) this does not prevent that part of the expenditure being taken into account in determining the relevant company's available qualifying expenditure for any subsequent chargeable period.

(10) In this section—

• “car” has the meaning given in section 268A;

• “company” means any body corporate;

• “group relief company” means—

  (a)

  a company to which group relief under [F434 Part 5 of CTA 2010] would be available (on the making of a claim) in respect of balancing allowances surrendered by the taxpayer in the taxpayer's final chargeable period, and

  (b)

  a company to which such relief would be available (on the making of a claim) in respect of balancing allowances surrendered by a company within paragraph (a);

• “main rate car” has the meaning given in section 104AA;

• “penultimate chargeable period” means the chargeable period preceding the final chargeable period;

• “the relevant company” means the group relief company mentioned in subsection (3) or, if there is more than one, the one—

  (a)

  nominated by the taxpayer not more than 6 months after the end of the taxpayer's final chargeable period, or

  (b)

  in the absence of such a nomination, nominated by Her Majesty's Revenue and Customs.]

Textual Amendments

F433 S. 104F inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 9 (with Sch. 11 paras. 30-32)

F434 Words in s. 104F(10) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 333 (with Sch. 2)

[F435 104G Disposal events in respect of cushion gas U.K.

(1) This section applies if expenditure incurred by a person on the provision of cushion gas used in a particular gas storage facility includes both new expenditure and old expenditure.

(2) Any disposal event which concerns any of that cushion gas is to be treated for the purposes of this Part as relating to cushion gas which is the subject of the new expenditure before cushion gas which is the subject of the old expenditure.

(3) The result of subsection (2) (including any further application of that subsection) is that a disposal event may be treated as relating—

(a) only to cushion gas which is the subject of the new expenditure,

(b) both to—

(i) cushion gas which is the subject of the new expenditure, and

(ii) cushion gas which is the subject of the old expenditure, or

(c) only to cushion gas which is the subject of the old expenditure.

(4) If a disposal event is treated, as a result of subsection (2), as relating both to—

(a) cushion gas which is the subject of the new expenditure, and

(b) cushion gas which is the subject of the old expenditure,

it is to be treated for the purposes of this Part as two separate disposal events, the first relating to cushion gas within paragraph (a) and the second relating to cushion gas within paragraph (b).

(5) In this section—

• “cushion gas” has the meaning given by section 70J(7),

• “new expenditure” means expenditure incurred on or after 1 April 2010, and

• “old expenditure” means expenditure incurred before that date.]

Textual Amendments

F435 S. 104G inserted (8.4.2010) (with effect in accordance with s. 28(10) of the amending Act) by Finance Act 2010 (c. 13), s. 28(7)

Chapter 11 U.K. Overseas leasing

Basic terms U.K.

105 “Leasing”, “overseas leasing” etc. U.K.

(1) In this Chapter—

(a) “leasing” includes letting a ship or aircraft on charter or letting any other asset on hire, and

(b) references to a lease include a sub-lease (and references to a lessor or lessee are to be read accordingly).

(2) Plant or machinery is used for overseas leasing if it is used for the purpose of being leased to a person who—

(a) is not resident in the United Kingdom, and

(b) does not use the plant or machinery exclusively for earning profits chargeable to tax.

[F436 (2A) In determining whether plant or machinery is used for overseas leasing, no account shall be taken of any lease finalised, within the meaning of Part 4 of Schedule 8 to [F437 FA] 2006, on or after 1st April 2006.]

(3) In this Chapter “profits chargeable to tax”—

(a) includes profits chargeable under [F438 section 1313(2) of CTA 2009] (profits from exploration and exploitation of the seabed etc.), but

(b) excludes profits arising to a person who, under double taxation arrangements, is afforded or is entitled to claim any relief from the tax chargeable on those profits.

(4) “Double taxation arrangements” means arrangements [F439 which have effect under section 2(1) of the Taxation (International and Other Provisions) Act 2010 (double taxation relief by agreement with territories outside the United Kingdom)].

(5) “Protected leasing” of plant or machinery means—

(a) short-term leasing of the plant or machinery (as defined in section 121), or

(b) if the plant or machinery is a ship, aircraft or transport container, the use of the ship, aircraft or transport container for a qualifying purpose under section 123 or 124 (letting on charter to UK resident etc.).

(6) In this Chapter “qualifying activity” includes (subject to any provision to the contrary) any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Textual Amendments

F436 S. 105(2A) inserted (19.7.2006) by Finance Act 2006 (c. 25), Sch. 9 para. 13(2)

F437 Word in s. 105(2A) substituted (21.7.2009) by Finance Act 2009 (c. 10), s. 126(5)(a)

F438 Words in s. 105(3)(a) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 483 (with Sch. 2 Pts. 1, 2)

F439 Words in s. 105(4) substituted (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 58 (with Sch. 9 paras. 1-9, 22)

106 The designated period U.K.

(1) Subject to subsection (2), the designated period, in relation to expenditure incurred by a person on the provision of plant or machinery, is the period of 10 years beginning with the date on which he first brought the plant or machinery into use.

(2) If the person who incurred the expenditure ceases to own the plant or machinery before the end of the 10 year period, the designated period ends on the date when he ceases to own it.

(3) For the purposes of subsection (2), a person is to be treated as continuing to own plant or machinery so long as it is owned by a person who—

(a) is connected with him, or

(b) acquired it from him as a result of one or more disposals on the occasion of which, or [F440 each of which there was a change in the persons carrying on the qualifying activity in relation to which Condition A or Condition B was met.]

[F441 (3A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(3B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company that was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

F442 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F440 Words in s. 106(3)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 484(2) (with Sch. 2 Pts. 1, 2)

F441 S. 106(3A)(3B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 484(3) (with Sch. 2 Pts. 1, 2)

F442 S. 106(4) repealed (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5),, Sch. 1 para. 536(3), 3 (with Sch. 2)

Certain expenditure to be pooled U.K.

107 The overseas leasing pool U.K.

(1) Qualifying expenditure to which this section applies, if allocated to a pool, must be allocated to a class pool (“the overseas leasing pool”).

(2) This section applies to qualifying expenditure if—

(a) it is incurred on the provision of plant or machinery for leasing,

(b) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing, and

(c) the expenditure is not—

(i) long-life asset expenditure, or

(ii) expenditure that is required to be allocated to a single asset pool.

108 Effect of disposal to connected person on overseas leasing pool U.K.

(1) This section applies if—

(a) a person who has incurred qualifying expenditure which has been allocated to an overseas leasing pool disposes of the plant or machinery to a connected person,

(b) the disposal [F443 does not occur on the occasion of a change in the persons carrying on the qualifying activity—

(i) which falls within [F444 Chapter 1 of Part 22 of CTA 2010 (transfers of trade without a change of ownership)], or

(ii) in relation to which Condition A or Condition B is met], and

(c) a disposal value is required to be brought into account on that occasion under this Part.

[F445 (1A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(1B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company that was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

(2) The disposal value to be brought into account is—

(a) the market value of the plant or machinery at the time of the disposal, or

(b) if less, the qualifying expenditure incurred by the person disposing of the plant or machinery.

(3) The person acquiring the plant or machinery is to be treated for the purposes of this Part as having incurred expenditure on its provision of an amount equal to the disposal value given by subsection (2).

F446 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F443 S. 108(1)(b)(i)(ii) and words substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 485(2) (with Sch. 2 Pts. 1, 2)

F444 Words in s. 108(1)(b)(i) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 334 (with Sch. 2)

F445 S. 108(1A)(1B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 485(3) (with Sch. 2 Pts. 1, 2)

F446 S. 108(4) repealed (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 537(3), 3 (with Sch. 2)

Allowances reduced or, in certain cases, prohibited U.K.

109 Writing-down allowances at 10% U.K.

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of expenditure to which this section applies is 10% of the amount by which AQE exceeds TDR (see Chapter 5).

(2) This section applies to expenditure incurred on the provision of plant or machinery for leasing if—

(a) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing, and

(b) the expenditure is not long-life asset expenditure.

(3) Subsection (2) applies to expenditure even if the expenditure is in a single asset pool.

(4) Subsections (3) and (4) of section 56 (proportionate increases or reductions in amount in certain cases) apply for the purposes of subsection (1) of this section as they apply for the purposes of subsection (1) of that section.

110 Cases where allowances are prohibited U.K.

(1) A person is not entitled to any writing-down or balancing allowances in respect of qualifying expenditure which is within subsection (2).

(2) Expenditure is within this subsection if—

(a) it is incurred on the provision of plant or machinery for leasing,

(b) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing,

(c) the plant or machinery is used otherwise than for a qualifying purpose (see sections 122 to 125), and

(d) the lease is within any of the items in the list below.

List

Leases in relation to which allowances are prohibited

1.	The lease is expressed to be for a period of more than 13 years.
2.	The lease, or a separate agreement, provides for— (a) extending or renewing the lease, or (b) the grant of a new lease,making it possible for the plant or machinery to be leased for a period of more than 13 years.
3.	There is a period of more than one year between the dates on which any two consecutive payments become due under the lease.
4.	Any payments are due under the lease or a collateral agreement other than periodical payments.
5.	If payments due under the lease or a collateral agreement are expressed as monthly amounts due over a period, any payment due for that period is not the same as any of the others. But, for this purpose, ignore variations made under the terms of the lease which are attributable to changes in— (a) the rate of corporation tax or income tax, (b) the rate of capital allowances, (c) any rate of interest where the changes are linked to changes in the rate of interest applicable to inter-bank loans, or (d) the premiums charged for insurance of any description by a person who is not connected with the lessor or the lessee.
6.	The lessor or a person connected with the lessor will, or may in certain circumstances, become entitled at any time to receive from the lessee or any other person a payment, other than a payment of insurance money, which is— (a) of an amount determined before the expiry of the lease, and (b) referable to a value of the plant or machinery at or after the expiry of the lease. For this purpose, it does not matter whether the payment relates to a disposal of the plant or machinery.

(3) In items 4 and 5 of the list “collateral agreement” means an agreement which might reasonably be construed as being collateral to the lease.

Recovery of excess allowances U.K.

111 Excess allowances: standard recovery mechanism U.K.

(1) If—

(a) expenditure incurred by a person in providing plant or machinery has qualified for a first-year allowance or a normal writing-down allowance, and

(b) at any time in the designated period, the plant or machinery is used for overseas leasing which is not protected leasing,

the following provisions of this section have effect in relation to the person who is the owner of the plant or machinery when it is first so used.

(2) For the chargeable period in which the plant or machinery is first used as described in subsection (1)(b), the owner is—

(a) liable to a balancing charge of an amount given by subsection (4), and

(b) required to bring into account a disposal value of an amount given by that subsection.

(3) For the chargeable period following that in which the plant or machinery is first used as described in subsection (1)(b), an amount given by subsection (4) is to be allocated to whatever pool is appropriate for plant or machinery which is of that description and is provided for leasing and used for overseas leasing.

(4) The amounts are—

The balancing charge

The amount, if any, by which F + N exceeds T, where—

F is the amount of any first-year allowance made in respect of the qualifying expenditure referred to in subsection (1)(a) (“E”),

N is the total of any normal writing-down allowances made in respect of E for the relevant chargeable periods, and

T is the total of the allowances that could have been made for the relevant chargeable periods if no first-year allowance or normal writing-down allowances had been or could have been made.

The disposal value

The amount, if any, by which E exceeds (F + N), where E, F and N have the meaning given in relation to the amount of the balancing charge.

The amount to be allocated to the pool

The aggregate of the balancing charge and the disposal value.

(5) For the purpose of calculating N, the normal writing-down allowances that were made in respect of expenditure on an item of plant or machinery are to be determined as if that item were the only item of plant or machinery in relation to which Chapter 5 had effect.

(6) “The relevant chargeable periods” means the chargeable period in which the qualifying expenditure was incurred and any subsequent chargeable period up to and including the one in which the plant or machinery was first used as described in subsection (1)(b).

112 Excess allowances: connected persons U.K.

(1) Section 111 applies with the modifications in subsections (2) to (4) in a case in which—

(a) the owner acquired the plant or machinery as a result of a transaction between connected persons (or a series of transactions each of which was between connected persons),

[F447 (b) the transaction was not effected (or, if more than one, none of the transactions was effected) on the occasion of a change in the persons carrying on the qualifying activity—

(i) which falls within [F448 Chapter 1 of Part 22 of CTA 2010 (transfers of trade] without change of ownership), or

(ii) in relation to which Condition A or Condition B is met, and]

(c) any of the connected persons is a person to whom—

(i) a first-year allowance or a normal writing-down allowance has been made in respect of expenditure on the provision of the plant or machinery, or

(ii) a balancing allowance has been made in respect of such expenditure without a first-year allowance or normal writing-down allowance having been claimed.

[F449 (1A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(1B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company that was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

(2) For the purposes of section 111(2) and (3)—

• E is the amount of the expenditure in respect of which an allowance within subsection (1)(c) has been made,

• F is the amount of any first-year allowance within subsection (1)(c), and

• N is the amount of any normal writing-down allowance or balancing allowance within subsection (1)(c).

(3) For the purposes of section 111(2) and (3), any consideration paid or received on a disposal of the plant or machinery between the connected persons is to be disregarded.

(4) If a balancing allowance or a balancing charge has been made in respect of any of the transactions, the amount representing F + N is to be adjusted in a just and reasonable manner.

F450 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F447 S. 112(1)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 486(2) (with Sch. 2 Pts. 1, 2)

F448 Words in s. 112(1)(b)(i) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 335 (with Sch. 2)

F449 S. 112(1A)(1B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 486(3) (with Sch. 2 Pts. 1, 2)

F450 S. 112(5) repealed (with effect in accordance with s. 883(1) of the amending Act)by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 538(3), 3 (with Sch. 2)

113 Excess allowances: special provision for ships U.K.

(1) If the plant or machinery referred to in section 111 is a ship—

(a) no allowance is to be made in respect of the ship under section 131(3) (postponed allowances) for the first chargeable period of overseas use or any subsequent chargeable period,

(b) nothing in section 132(2) (disposal events and single ship pool) restricts the operation of section 111, and

(c) the amount of any first-year or writing-down allowance in respect of the ship which has been postponed under section 130 and not made is to be allocated to a long-life asset pool or an overseas leasing pool for the chargeable period following the first chargeable period of overseas use.

(2) “The first chargeable period of overseas use” means the chargeable period in which the plant or machinery is first used for overseas leasing which is not protected leasing.

Recovery of allowances given in cases where prohibition applies U.K.

114 Prohibited allowances: standard recovery mechanism U.K.

(1) If—

(a) a first-year allowance, a writing-down allowance or a balancing allowance has been made in respect of expenditure incurred in providing plant or machinery, and

(b) at any time in the designated period, an event occurs such that the expenditure is brought within section 110(2) (cases where allowances are prohibited),

the following provisions have effect in relation to the person owning the plant or machinery immediately before that event.

(2) For the chargeable period in which the event occurs, the owner is—

(a) liable to a balancing charge of an amount equal to A — R, and

(b) required to bring into account a disposal value of an amount equal to E - (A - R).

(3) For the purposes of subsection (2)—

• A is the amount of any allowances within subsection (1)(a),

• R is any amount previously recovered under section 111 or 112 (recovery of excess allowances), and

• E is the amount of the expenditure referred to in subsection (1)(a).

(4) For the purpose of calculating A, the amount of the allowances made in respect of expenditure on an item of plant or machinery is to be determined as if that item were the only item of plant or machinery in relation to which Chapter 5 had effect.

115 Prohibited allowances: connected persons U.K.

(1) Section 114 applies with the modifications in subsection (2) in a case in which—

(a) an amount falls to be treated as a balancing charge under that section,

(b) the person on whom the balancing charge is to be imposed acquired the plant or machinery in question as a result of a transaction between connected persons (or a series of transactions each of which was between connected persons),

[F451 (c) the transaction was not effected (or, if more than one, none of the transactions was effected) on the occasion of a change in the persons carrying on the qualifying activity—

(i) which falls within [F452 Chapter 1 of Part 22 of CTA 2010 (transfers of trade] without change of ownership), or

(ii) in relation to which Condition A or Condition B is met, and]

(d) a first-year allowance, a writing-down allowance or a balancing allowance in respect of expenditure on the provision of that plant or machinery has been made to any of those persons.

[F453 (1A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(1B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company that was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

(2) For the purpose of calculating the balancing charge—

(a) A is the amount of any allowances within subsection (1)(d),

(b) any consideration paid or received on a disposal of the plant or machinery between the connected persons is to be disregarded, and

(c) if a balancing allowance or a balancing charge has been made in respect of any of the transactions, A is to be adjusted in a just and reasonable manner.

F454 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F451 S. 115(1)(c) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 487(2) (with Sch. 2 Pts. 1, 2)

F452 Words in s. 115(1)(c)(i) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 336 (with Sch. 2)

F453 S. 115(1A)(1B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 487(3) (with Sch. 2 Pts. 1, 2)

F454 S. 115(3) repealed (with effect in accordance with s. 883(1) of the amending Act)by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 539(3), Sch. 3 (with Sch. 2)

Application of Chapter in relation to joint lessees U.K.

116 Mitigation of regime U.K.

(1) This section applies if—

(a) plant or machinery is leased to two or more persons jointly,

(b) at least one of them is a person who—

(i) is not resident in the United Kingdom, and

(ii) does not use the plant or machinery exclusively for earning profits chargeable to tax, and

(c) the leasing is not protected leasing.

(2) Subsection (3) applies if, at any time when the plant or machinery is leased as described in subsection (1), the lessees use the plant or machinery for the purposes of a qualifying activity or activities but not for leasing.

(3) The expenditure on the provision of the plant or machinery is to be treated as not subject to sections 107, 109 and 110 if, and to the extent to which, it appears that the profits of the qualifying activity or activities will be chargeable to tax throughout—

(a) the designated period, or

(b) if shorter, the period of the lease.

(4) Subsection (5) applies if, under subsection (3), part of the expenditure is treated as not subject to section 107, 109 or 110.

(5) Whether or not the plant or machinery continues to be leased as described in subsection (1), Chapters 5 (allowances and charges) and 10 (long-life assets) and this Chapter have effect as if—

(a) the part of the expenditure that is not subject to section 107, 109 or 110 were expenditure on the provision of a separate item of plant or machinery, and

(b) the rest were expenditure which has been incurred on the provision of another item of plant or machinery (and which is subject to those sections).

(6) All such apportionments are to be made as are necessary as a result of subsection (5).

117 Recovery of allowances in case of joint lessees U.K.

(1) If—

(a) expenditure is incurred on the provision of plant or machinery which is leased as described in section 116(1),

(b) the whole or a part of the expenditure has qualified for a normal writing-down allowance under section 116(3),

(c) at any time in the designated period while the plant or machinery is so leased, no lessee uses the plant or machinery for the purposes of a qualifying activity or activities the profits of which are chargeable to tax, and

(d) section 114 (recovery of prohibited allowances) does not apply at that time and has not applied at any earlier time,

sections 111 and 112 (recovery of excess allowances) apply as if the plant or machinery or (as the case may be) the separate item of plant or machinery referred to in section 116(5)(a) had at that time begun to be used for overseas leasing which is not protected leasing.

(2) If—

(a) the whole or a part of any expenditure has qualified for—

(i) a normal writing-down allowance otherwise than as a result of section 116(3), or

(ii) a first-year allowance,

(b) subsequently, but during the designated period, the plant or machinery is leased as described in section 116(1),

(c) at any time in the designated period while the plant or machinery is so leased, no lessee uses the plant or machinery for the purposes of a qualifying activity or activities the profits of which are chargeable to tax, and

(d) section 114 (recovery of prohibited allowances) does not apply at that time and has not applied at any earlier time,

sections 111 and 112 (recovery of excess allowances) apply as if the plant or machinery (and not any separate item of plant or machinery referred to in section 116(5)(a)) had at that time begun to be used for overseas leasing which is not protected leasing.

(3) Subsections (4) and (5) apply if—

(a) expenditure is incurred on the provision of plant or machinery which is leased as described in section 116(1),

(b) the whole or a part of the expenditure has qualified for a normal writing-down allowance under section 116(3),

(c) at the end of the designated period, the plant or machinery is leased as described in section 116(1) but subsection (1) has not had effect, and

(d) it appears that the extent to which the plant or machinery has been used for the purposes of a qualifying activity or activities the profits of which are chargeable to tax is less than the extent of such use taken into account in determining the amount of the expenditure which qualified for a normal writing-down allowance.

(4) Sections 111 and 112 (recovery of excess allowances) apply as if—

(a) a part of the expenditure corresponding to the reduction in the extent of use referred to in subsection (3)(d) were expenditure on the provision of a separate item of plant or machinery, and

(b) the separate item of plant or machinery had been used, on the last day of the designated period, for overseas leasing which is not protected leasing.

(5) Any disposal value subsequently brought into account under this Part in respect of the plant or machinery must be apportioned by reference to the extent of its use (determined at the end of the designated period) for the purposes of a qualifying activity or activities the profits of which are chargeable to tax.

(6) If an apportionment is made under subsection (5), section 116(6) does not apply.

Duties to supply information U.K.

118 Certificate relating to protected leasing U.K.

(1) If—

(a) expenditure is incurred on the provision of plant or machinery, and

(b) before the expenditure has qualified for a normal writing-down allowance, the plant or machinery is used for overseas leasing which is protected leasing,

a claim for a writing-down allowance which takes account of that expenditure must be accompanied by a certificate.

(2) The certificate must specify—

(a) the description of protected leasing,

(b) the person to whom the plant or machinery has been leased, and

(c) if the certificate is given by reference to a chargeable period, all the items of plant or machinery (if more than one) relevant to that period.

(3) Subsection (1) applies, for the purposes of claims to first-year allowances, as if the references to a normal writing-down allowance and to a writing-down allowance included a first-year allowance.

(4) But nothing in subsection (3) prevents subsection (1) from continuing to apply if the use for protected leasing occurs after the expenditure has qualified for one allowance and before it qualifies for another.

119 Notice of change of use of plant or machinery U.K.

(1) If—

(a) any expenditure on plant or machinery has qualified for a first-year allowance or a normal writing-down allowance, and

(b) the plant or machinery is subsequently used at any time in the designated period for overseas leasing which is not protected leasing,

the person who then owns the plant or machinery must give notice of the fact to [F145 an officer of Revenue and Customs].

(2) The notice must specify—

(a) the person who is not resident in the United Kingdom to whom the plant or machinery has been leased, and

(b) if the notice is given by reference to a chargeable period, all the items of plant or machinery (if more than one) relevant to that period.

(3) The notice must be given—

(a) no later than 3 months after the end of the chargeable period in which the plant or machinery is first used for overseas leasing which is not protected leasing, or

(b) if at the end of the 3 months the person required to give the notice does not know and cannot reasonably be expected to know that the plant or machinery is being so used, within 30 days of coming to know of it.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

120 Notice and joint lessees U.K.

(1) If expenditure is incurred on the provision of plant or machinery which is leased as described in section 116(1) (joint lessees: mitigation of regime), the lessor must give notice to [F145 an officer of Revenue and Customs].

(2) A notice under subsection (1) must specify—

(a) the names and addresses of the persons to whom the asset is jointly leased,

(b) the part of the expenditure properly attributable to each of them, and

(c) which of them (so far as the lessor knows) is resident in the United Kingdom.

(3) If circumstances occur such that section 117(1) or (2) (recovery of allowances) applies, the person who is then the lessor must give notice of the fact to [F145 an officer of Revenue and Customs].

(4) A notice under subsection (3) must specify—

(a) any of the joint lessees who is not resident in the United Kingdom to whom the plant or machinery has been leased, and

(b) if it is given by reference to a chargeable period, all the items of plant or machinery (if more than one) relevant to that period.

(5) A notice under this section must be given—

(a) no later than 3 months after the end of the chargeable period in which the plant or machinery is first leased as described in section 116(1) or (as the case may be) in which the circumstances referred to in subsection (3) occur, or

(b) if at the end of the 3 months the person required to give the notice does not know and cannot reasonably be expected to know that the plant or machinery is being so used, within 30 days of coming to know of it.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

Qualifying purposes U.K.

121 Meaning of “short-term leasing” U.K.

(1) Leasing of plant or machinery is short-term leasing if—

(a) the number of consecutive days for which it is leased to the same person will normally be less than 30, and

(b) the total number of days for which it is leased to that person in any period of 12 months will normally be less than 90.

(2) Leasing of plant or machinery is also short-term leasing if—

(a) the number of consecutive days for which the plant or machinery is leased to the same person will not normally exceed 365, and

(b) the total length of the periods for which it is leased in any consecutive period of 4 years within the designated period to lessees in circumstances not falling within section 125(4) (other qualifying purposes: non-leasing use) will not exceed 2 years.

(3) If any plant or machinery is leased as a number of items which—

(a) form part of a group of items of the same or a similar description, and

(b) are not separately identifiable,

all items in the group may be treated as used for short-term leasing if substantially the whole of the items in the group are so used.

(4) For the purposes of subsections (1) and (2) persons who are connected with each other are to be treated as the same person.

122 Short-term leasing by buyer, lessee, etc. U.K.

(1) Plant or machinery is used for a qualifying purpose at any time when any of the persons listed in subsection (2) uses it for short-term leasing (as defined by section 121).

(2) The persons are—

(a) the person (“X”) who incurred expenditure on the provision of the plant or machinery;

(b) a person who is connected with X;

[F455 (c) a person who acquired the plant or machinery from X as a result of a disposal on the occasion of which, or two or more disposals [F456 on the occasion of each of which there was a change in the persons carrying on the qualifying activity in relation to which Condition A or B was met.]]

(d) a person to whom the plant or machinery is leased and who is resident in the United Kingdom;

(e) a person to whom the plant or machinery is leased, who is carrying on a qualifying activity in the United Kingdom and who uses the plant or machinery for the short-term leasing in the course of that activity.

[F457 (2A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(2B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company that was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

F458 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F455 S. 122(2)(c) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), , Sch. 1 para. 540(2) (with Sch. 2)

F456 Words in s. 122(2)(c) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 488(2) (with Sch. 2 Pts. 1, 2)

F457 S. 122(2A)(2B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 488(3) (with Sch. 2 Pts. 1, 2)

F458 S. 122(3) repealed (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 540(3), Sch. 3 (with Sch. 2)

123 Ships and aircraft U.K.

(1) A ship is used for a qualifying purpose at any time when it is let on charter in the course of a trade which consists of or includes operating ships by a person who is—

(a) resident in the United Kingdom or carries on the trade there, and

(b) responsible for navigating and managing the ship throughout the period of the charter and for defraying—

(i) all expenses in connection with the ship throughout that period, or

(ii) substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during that period.

(2) Subsection (1) applies, with the necessary modifications, in relation to aircraft as it applies in relation to ships.

(3) For the purposes of subsection (1)(b) a person is responsible for something if he—

(a) is responsible as principal, or

(b) appoints another person to be responsible in his place.

(4) Subsections (1) and (2) do not apply if the main object, or one of the main objects—

(a) of the letting of the ship or aircraft on charter,

(b) of a series of transactions of which the letting of the ship or aircraft on charter was one, or

(c) of any of the transactions in such a series,

was to obtain a writing-down allowance determined without regard to section 109 (writing-down allowances at 10%) in respect of expenditure incurred by any person on the provision of the ship or aircraft.

124 Transport containers U.K.

(1) A transport container is used for a qualifying purpose at any time when it is leased in the course of a trade which is carried on by a person who—

(a) is resident in the United Kingdom, or

(b) carries on the trade there,

and either of the conditions given below is met.

(2) The first condition is that—

(a) the person’s trade consists of or includes the operation of ships or aircraft, and

(b) the container is at other times used by that person in connection with the operation of the ships or aircraft.

(3) The second condition is that the container is leased under a succession of leases to different persons who are not, or most of whom are not, connected with each other.

125 Other qualifying purposes U.K.

(1) Plant or machinery is used for a qualifying purpose at any time when subsection (2) or (4) applies.

(2) This subsection applies if any of the persons listed in subsection (3) uses the plant or machinery for the purpose of a qualifying activity without leasing it.

(3) The persons are—

(a) the person (“X”) who incurred expenditure on the provision of the plant or machinery;

(b) a person who is connected with X;

[F459 (c) a person who acquired the plant or machinery from X as a result of a disposal on the occasion of which, or two or more disposals [F460 on the occasion of each of which there was a change in the persons carrying on the qualifying activity in relation to which Condition A or B was met.]]

[F461 (3A) Condition A is that—

(a) at least one person who carried on the qualifying activity immediately before or immediately after the change was within the charge to income tax in respect of that activity, and

(b) at least one person who carried on the qualifying activity before the change continued to carry it on after the change.

(3B) Condition B is that—

(a) the qualifying activity was carried on in partnership both immediately before and immediately after the change,

(b) a company which was within the charge to corporation tax in respect of the activity carried it on immediately before or immediately after the change, and

(c) at least one company which carried the activity on before the change continued to carry it on after the change.]

(4) This subsection applies if—

(a) a lessee uses the plant or machinery for the purposes of a qualifying activity without leasing it, and

(b) if he had incurred expenditure on the provision of the plant or machinery at that time, the expenditure would have fallen to be included, in whole or in part, in his available qualifying expenditure for a chargeable period.

F462 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F459 S. 125(3)(c) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 541(2) (with Sch. 2)

F460 Words in s. 125(3)(c) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 489(2) (with Sch. 2 Pts. 1, 2)

F461 S. 125(3A)(3B) inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 489(3) (with Sch. 2 Pts. 1, 2)

F462 S. 125(5) repealed (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 541(3), Sch. 3 (with Sch. 2)

Minor definitions U.K.

126 Minor definitions U.K.

(1) In this Chapter “normal writing-down allowance” means a writing-down allowance of an amount determined without regard to sections 102 and 109 (reduced rates).

(2) In this Chapter any reference, in relation to any person, to expenditure having qualified for a normal writing-down allowance is to—

(a) the expenditure, or part of it, having fallen to be included in that person’s available qualifying expenditure for any chargeable period, and

(b) that available qualifying expenditure being expenditure which is not subject to section 102 or 109.

(3) Any reference in this Chapter to a person’s expenditure having qualified for a first-year allowance is to such an allowance having fallen to be made in respect of the whole or any part of the expenditure.

Chapter 12 U.K. Ships

Pooling and postponement of allowances U.K.

127 Single ship pool U.K.

(1) Qualifying expenditure incurred on the provision of a ship for the purposes of a qualifying activity, if allocated to a pool, must be allocated to a single asset pool (a “single ship pool”).

(2) Subsection (1) is subject to the exceptions given in section 128 and any election under section 129 to use the appropriate non-ship pool.

(3) In this Chapter “the appropriate non-ship pool”, in relation to a ship, means the pool to which the expenditure incurred on the provision of the ship would be allocated, or would have been allocated, apart from this Chapter.

128 Expenditure which is not to be allocated to single ship pool U.K.

(1) The expenditure is not to be allocated to a single ship pool if the ship is provided for leasing unless—

(a) the ship is not used for overseas leasing at any time in the designated period, or if it is, is used only for protected leasing, and

(b) it appears that the ship will be used for a qualifying purpose in the designated period and will not be used for any other purpose at any time in that period.

(2) The expenditure is not to be allocated to a single ship pool if the qualifying activity for the purposes of which the ship is provided is special leasing of plant or machinery.

(3) In subsection (1) “leasing”, “overseas leasing”, “protected leasing”, “qualifying purpose” and “designated period” have the same meaning as in Chapter 11 (overseas leasing).

129 Election to use the appropriate non-ship pool U.K.

(1) A person who has incurred qualifying expenditure on the provision of a ship may, by an election made for a chargeable period, allocate to the appropriate non-ship pool—

(a) all or a part of any qualifying expenditure that would otherwise be allocated to a single ship pool, or

(b) all or a part of the available qualifying expenditure in a single ship pool.

(2) An election under this section must be made by notice given to [F145 an officer of Revenue and Customs]—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(3) “The relevant chargeable period” means the chargeable period for which the election is made.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

130 Notice postponing first-year or writing-down allowance U.K.

(1) A person who is entitled to a first-year allowance for a chargeable period in respect of qualifying expenditure on the provision of a ship may, by notice, postpone all or part of the allowance.

(2) A person who is entitled to a writing-down allowance for a chargeable period in respect of qualifying expenditure allocated to a single ship pool may, by notice, postpone all or part of the allowance.

(3) A notice under this section must specify the amount postponed.

(4) A notice under this section must be given to [F145 an officer of Revenue and Customs]—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(5) “The relevant chargeable period” means the chargeable period for which the person is entitled to the allowance.

(6) If a person entitled to a first-year allowance in respect of qualifying expenditure on the provision of a ship claims the allowance in respect of part of the expenditure, subsection (1) applies to the allowance claimed.

(7) If a person entitled to a writing-down allowance in respect of qualifying expenditure allocated to a single ship pool requires the allowance to be reduced to a specified amount, subsection (2) applies to the allowance as so reduced.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

Modifications etc. (not altering text)

C47 S. 130(1) excluded (10.6.2021) by Finance Act 2021 (c. 26), s. 9(10)

131 Effect of postponement U.K.

(1) If a person gives notice in respect of a chargeable period under section 130—

(a) the allowance is withheld or withdrawn to the extent that it is postponed, but

(b) sections 57 to 59 (calculation of available qualifying expenditure) apply as if the allowance had been made to the person without any postponement.

(2) On making a claim, the person is entitled to have all or part of a postponed first-year allowance made to him as a first-year allowance for one or more subsequent chargeable periods in which he is carrying on the qualifying activity.

(3) On making a claim, the person is entitled to have all or part of a postponed writing-down allowance made to him as a writing-down allowance for one or more subsequent chargeable periods in which he is carrying on the qualifying activity.

(4) The total amount of any first-year allowances made under subsection (2) or writing-down allowances made under subsection (3) must not exceed the amount of the postponed allowance in question.

(5) A writing-down allowance made under subsection (3) is ignored for the purposes of section 59 (unrelieved qualifying expenditure).

(6) The fact that a postponed writing-down allowance is claimed for a chargeable period does not affect entitlement to, or the amount of, any other writing-down allowance to which the person is otherwise entitled for that chargeable period.

(7) A postponed allowance is not, merely because of the postponement, included in the reference in [F463 section 101(3) of CTA 2010 (group relief: meaning of “capital allowance excess”)] to an allowance or amount [F464 brought] forward from an earlier period.

Textual Amendments

F463 Words in s. 131(7) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 337(a) (with Sch. 2)

F464 Word in s. 131(7) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 337(b) (with Sch. 2)

132 Disposal events and single ship pool U.K.

(1) A person is required to bring a disposal value into account in a single ship pool if the ship—

(a) is provided for leasing, and

(b) begins to be used otherwise than for a qualifying purpose within the first 4 years of the designated period.

(2) If any disposal event (including one under subsection (1)) occurs in relation to a single ship pool—

(a) the available qualifying expenditure in the single ship pool is allocated, for the chargeable period in which the event occurs, to the appropriate non-ship pool,

(b) the disposal value must be brought into account as a disposal value for that chargeable period in the appropriate non-ship pool, and

(c) the single ship pool ends without a final chargeable period and without any liability to a balancing charge arising.

(3) Subsections (1) and (2) apply even if, as a result of an election under section 129, some of the qualifying expenditure on the provision of the ship has been allocated to the appropriate non-ship pool.

(4) In subsection (1) “leasing”, “qualifying purpose” and “designated period” have the same meaning as in Chapter 11 (overseas leasing).

133 Ship not used U.K.

(1) This section applies if—

(a) a person has incurred qualifying expenditure on the provision of a ship for the purposes of a qualifying activity, and

(b) the ship ceases to be owned by the person without having been brought into use for the purposes of the qualifying activity.

(2) Any writing-down allowances that have previously been made in respect of qualifying expenditure in the single ship pool (or which have been postponed) must be withdrawn.

(3) The amount of any writing-down allowances withdrawn under subsection (2) is allocated, for the chargeable period in which the person ceases to own the ship, to the appropriate non-ship pool.

(4) Any adjustments required by this section are in addition to any adjustments required under section 132 (disposal events and single ship pool).

Deferment of balancing charges U.K.

134 Deferment of balancing charges: introduction U.K.

(1) Sections 135 to 156 enable a balancing charge that arises when there is a disposal event in respect of a ship to be deferred and attributed to qualifying expenditure on another ship.

(2) In this Chapter “the deferment rules” means sections 135 to 156.

135 Claim for deferment U.K.

(1) A person (“the shipowner”) who is liable to a balancing charge for a chargeable period may claim deferment of all or part of the charge if—

(a) in the chargeable period there is a disposal event (“the relevant disposal event”) in respect of a ship (“the old ship”),

(b) the old ship—

(i) was provided for the purposes of a qualifying activity carried on by the shipowner, and

(ii) was owned by the shipowner at some time in the chargeable period, and

(c) the conditions in section 136 are met.

(2) The amount which may be deferred is subject to the limit in section 138.

(3) For income tax purposes, a claim for deferment must be made on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends.

(4) “The relevant chargeable period” means the chargeable period for which the shipowner is liable to the balancing charge.

(5) For corporation tax purposes, Part IX of Schedule 18 to FA 1998 applies in relation to the making of a claim for deferment as it applies in relation to the making of a claim for an allowance.

Modifications etc. (not altering text)

C48 S. 135(1) excluded (with effect in accordance with s. 13(8) of the amending Act) by Finance Act 2021 (c. 26), s. 13(7)

C49 S. 135(1) excluded (with effect in accordance with s. 12(12) of the amending Act) by Finance Act 2021 (c. 26), s. 12(10)

136 Further conditions for deferment U.K.

The conditions referred to in section 135(1)(c) are that—

(a) the relevant disposal event is of a kind mentioned in section 61(1)(a) to (d) (cessation of ownership, loss, abandonment, destruction etc. of ship),

(b) the old ship was a qualifying ship immediately before the relevant disposal event,

(c) the shipowner has not incurred a loss in respect of the qualifying activity for the chargeable period for which he is liable to the balancing charge, and

(d) no amount in respect of the old ship has been allocated to—

(i) the overseas leasing pool,

(ii) a single asset pool under section 206 (plant or machinery provided or used partly for purposes other than those of the qualifying activity),

(iii) a single asset pool under section 211 (payment of partial depreciation subsidy), or

(iv) a pool for a qualifying activity consisting of special leasing.

137 Effect of deferment U.K.

A claim for deferment is given effect by allocating the amount deferred, for the chargeable period in respect of which the claim is made, to the appropriate non-ship pool.

138 Limit on amount deferred U.K.

(1) The amount deferred must not exceed the smallest of the following amounts—

(a) the amount of any balancing charge which, if the claim for deferment had not been made, would have been made for the chargeable period for which deferment is claimed in the appropriate non-ship pool;

(b) the amount given by section 139 (amount taken into account in respect of the old ship);

(c) the amount which is, or is expected to be, the amount of expenditure on new shipping incurred—

(i) by the shipowner or, if the shipowner is a company, by another company which is a member of the same group at the time when the expenditure is incurred, and

(ii) within the period of 6 years beginning with the relevant disposal event;

(d) the amount of the shipowner’s profits or income from the qualifying activity for the chargeable period for which deferment is claimed.

(2) In determining profits or income for the purposes of subsection (1)(d)—

(a) any other amounts deferred under section 135 are to be taken into account, and

(b) any amounts brought forward under [F465 section 83 of ITA 2007 or] [F466 section 45[F467 , 45A or 45B] of CTA 2010] (losses) are to be disregarded.

Textual Amendments

F465 Words in s. 138(2)(b) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 400 (with Sch. 2)

F466 Words in s. 138(2)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 338 (with Sch. 2)

F467 Words in s. 138(2)(b) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 125

139 Amount taken into account in respect of old ship U.K.

(1) The amount taken into account in respect of the old ship for the purposes of section 138(1)(b) is—

(a) amount A, if no election has been made under section 129 (election to use appropriate non-ship pool) in respect of any of the qualifying expenditure incurred on the provision of the ship, or

(b) amount B, in any other case.

(2) Amount A is the amount which falls to be brought into account as a disposal value in the appropriate non-ship pool under section 132(2)(b) as a result of the relevant disposal event, less the available qualifying expenditure allocated to the appropriate non-ship pool under section 132(2)(a).

(3) Amount B is—

where—

• DV is the amount of the disposal value required to be brought into account in respect of the old ship,

• QE is all the qualifying expenditure incurred in respect of the old ship,

• WDA is the maximum amount of any writing-down allowances which (on the assumptions in subsection (4)) could have been made in respect of that qualifying expenditure for chargeable periods up to (but not including) the one in respect of which the claim for deferment is made, and

• FYA is the total of any first-year allowances actually made or postponed in respect of the old ship.

(4) The assumptions are that—

(a) all the qualifying expenditure in respect of the old ship is (and has always been) allocated to the appropriate non-ship pool, and

(b) no other qualifying expenditure has been allocated to that pool.

(5) If an election is made under section 129 (election to use appropriate non-ship pool) after the determination under this section of the amount taken into account in respect of the old ship, the amount is, and is treated as always having been, amount B and not amount A.

Attribution of deferred amounts U.K.

140 Notice attributing deferred amounts to new expenditure U.K.

(1) The shipowner may, by notice to [F145 an officer of Revenue and Customs], attribute all or part of an amount deferred under section 135 to expenditure on new shipping.

(2) An amount attributed under this section is attributed to an equal amount of the expenditure on new shipping.

(3) Subsection (1) is subject to subsections (4) and (5) and section 141 (deferred amounts attributed to earlier expenditure first).

(4) Subsection (1) applies only if the expenditure on new shipping is incurred—

(a) by the shipowner or, if the shipowner is a company, by another company which is a member of the same group at the time when the expenditure is incurred, and

(b) within the period of 6 years beginning with the relevant disposal event.

(5) An amount may be attributed to expenditure on new shipping only to the extent that amounts have not already been attributed to it under this section.

(6) A notice given in respect of expenditure incurred by another company does not have effect unless the other company joins the shipowner in giving it.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

141 Deferred amounts attributed to earlier expenditure first U.K.

(1) No part of an amount deferred under section 135 is to be attributed to the whole or a part of any expenditure on new shipping (“the current expenditure”) if there is other expenditure (“the earlier expenditure”) which—

(a) was incurred before the current expenditure but at the same time as or after the relevant disposal event,

(b) was incurred by the shipowner or, if the shipowner is a company, by another company which was a member of the same group at the time the earlier expenditure was incurred, and

(c) is expenditure on new shipping, or would be treated as such but for an election under section 129 (election to use appropriate non-ship pool),

unless the condition in subsection (2) is met in relation to the earlier expenditure.

(2) The condition is that—

(a) amounts have been attributed to all the earlier expenditure under section 140, and

(b) the attributions have been made in the case of the amount deferred and any other amounts deferred under section 135 as a result of disposal events occurring at the same time as or before the relevant disposal event.

142 Variation of attribution U.K.

(1) The shipowner may, by notice, vary an attribution under section 140 (notice attributing deferred amounts to new expenditure).

(2) The notice must be given to [F145 an officer of Revenue and Customs] on or before the time limit for the shipowner to make a claim for deferment in respect of the relevant chargeable period.

(3) For the time limit for making a claim for deferment, see section 135(3) to (5).

(4) For the purposes of subsection (2), it is to be assumed that—

(a) the shipowner is liable to a balancing charge for the relevant chargeable period, and

(b) a claim for deferment of that balancing charge can be made for the relevant chargeable period.

(5) “The relevant chargeable period” means the earliest chargeable period in which expenditure to which the variation relates is incurred.

(6) If the person to whose expenditure the notice relates is not the shipowner, a notice under subsection (1) does not have effect unless the person joins the shipowner in giving it.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

143 Effect of attribution U.K.

(1) This section applies if a notice is given under section 140 attributing an amount to expenditure on new shipping.

(2) The amount must be brought into account as a disposal value—

(a) for the chargeable period in which the expenditure is incurred, and

(b) in the single ship pool to which the expenditure is allocated.

144 Amounts which cease to be attributable U.K.

(1) This section applies if—

(a) an amount has been deferred under section 135, and

(b) circumstances arise in which any part of the amount ceases (otherwise than by being attributed) to be attributable.

(2) The shipowner is assumed not to have been entitled to defer so much of the amount as ceases to be attributable.

(3) For the purposes of this section an amount is attributable if it may be attributed to expenditure on new shipping in accordance with section 140.

145 Requirement to notify where no entitlement to defer amounts U.K.

(1) This section applies if—

(a) an amount has been deferred under section 135, and

(b) circumstances arise that require the shipowner to be treated as if he was not entitled to defer all or part of the amount.

(2) The shipowner must give notice of the fact to [F145 an officer of Revenue and Customs], specifying the circumstances.

(3) The notice must be given no later than 3 months after the end of the chargeable period in which the circumstances first arise.

(4) An assessment to tax chargeable as a result of the circumstances may be made at any time in the period which—

(a) begins when those circumstances arise, and

(b) ends 12 months after the shipowner gives notice of them to [F145 an officer of Revenue and Customs].

(5) Subsection (4) applies in spite of any limitation on the time for making assessments.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

Expenditure on new shipping U.K.

146 Basic meaning of expenditure on new shipping U.K.

(1) For the purposes of the deferment rules, expenditure on the provision of a ship is expenditure on new shipping if the conditions in subsection (3) are met.

(2) Subsection (1) is subject to sections 147 to 150.

(3) The conditions are that—

(a) the expenditure is qualifying expenditure incurred by a person wholly and exclusively for the purposes of a qualifying activity carried on by him,

(b) when the expenditure is incurred, it appears that the ship will—

(i) be brought into use for the purposes of the qualifying activity as a qualifying ship, and

(ii) continue to be a qualifying ship for at least 3 years after that, and

(c) the expenditure is allocated to a single ship pool.

147 Exclusions: ship previously owned U.K.

(1) Expenditure on the provision of a ship is not expenditure on new shipping if the person who incurred the expenditure—

(a) has already owned the ship in the period of 6 years ending with the time when he first owns it as a result of incurring the expenditure, or

(b) was connected at a material time with a person who owned the ship at any time during that period.

(2) For this purpose a material time is—

(a) the time when the expenditure was incurred, or

(b) any earlier time in the 6 year period beginning with the relevant disposal event.

148 Exclusions: object to secure deferment U.K.

Expenditure on the provision of a ship is not expenditure on new shipping if the object, or one of the main objects, of—

(a) the transaction by which the ship was provided for the purposes of a qualifying activity carried on by the person who incurred the expenditure,

(b) any series of transactions of which that transaction was one, or

(c) any transaction in such a series,

was to secure the deferment of a balancing charge under section 135.

149 Exclusions: later events U.K.

(1) Expenditure on the provision of a ship is not, and is treated as never having been, expenditure on new shipping if—

(a) at a time during the period mentioned in subsection (2), the ship is not a qualifying ship,

(b) the expenditure is allocated to a pool as a result of an election under section 129 (election to use appropriate non-ship pool), or

(c) section 107 applies in relation to the expenditure (overseas leasing).

(2) The period referred to in subsection (1)(a) is—

(a) the period of 3 years beginning with the time when the ship is first brought into use for the purposes of a qualifying activity carried on—

(i) by the person (“A”) who incurred the expenditure, or

(ii) if earlier, by a person connected with A, or

(b) if shorter, the period beginning with that time and ending when neither A nor a person connected with A owns the ship.

150 Exclusions where expenditure not incurred by shipowner U.K.

(1) Expenditure on the provision of a ship is not, and is treated as never having been, expenditure on new shipping if—

(a) it is incurred by a company which is a member of the same group as the shipowner at the time when the expenditure is incurred, and

(b) subsection (2) or (4) applies.

(2) This subsection applies (subject to subsection (3)) if—

(a) the ship ceases to be owned by the company before it has been brought into use for the purposes of a qualifying activity carried on by the company, or

(b) a disposal event occurs in respect of the ship within 3 years of its first being brought into use for the purposes of a qualifying activity carried on by the company.

(3) But subsection (2) does not apply if the event which would otherwise result in that subsection applying is, or is the result of, the total loss of the ship or irreparable damage to it.

(4) This subsection applies if—

(a) after the expenditure is incurred, there is a time when the company and the shipowner are not members of the same group, and

(b) if the ship is brought into use for the purposes of a qualifying activity carried on by the company, that time is within 3 years of the ship first being so brought into use.

(5) A time falling after the total loss of the ship or irreparable damage to it is to be disregarded for the purposes of subsection (4).

(6) In this section “irreparable damage”, in relation to a ship, means damage that puts it in a condition in which it is impossible, or not commercially worthwhile, to undertake the repairs required for restoring it to its previous use.

Qualifying ships U.K.

151 Basic meaning of qualifying ship U.K.

(1) For the purposes of the deferment rules, a ship is a qualifying ship if it is—

(a) of a sea-going kind, and

(b) registered as a ship with a gross tonnage of 100 tons or more in a register of shipping established and maintained under the law of any country or territory.

(2) This is subject to sections 152 to 154.

152 Ships under 100 tons U.K.

(1) This section applies if the relevant disposal event is, or results from—

(a) the total loss of the old ship, or

(b) damage to the old ship that puts it in a condition in which it is impossible, or not commercially worthwhile, to undertake the repairs required for restoring it to its previous use.

(2) A registered ship may be a qualifying ship for the purposes of—

(a) section 136(b) (further conditions for deferment), or

(b) sections 146(3)(b) and 149(1)(a) (expenditure on new shipping),

even if it is not registered as a ship with a gross tonnage of 100 tons or more.

(3) In subsection (2) “registered ship” means a ship registered in a register of shipping established and maintained under the law of any country or territory.

153 Ships which are not qualifying ships U.K.

(1) A ship is not a qualifying ship if the primary use to which ships of the same kind as that ship are put—

(a) by the persons who own them, or

(b) by others to whom they are made available,

is use for sport or recreation.

[F468 (2) A ship is not a qualifying ship at any time when it is an offshore installation.]

F469 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F468 S. 153(2) substituted (with effect in accordance with Sch. 27 para. 11 of the amending Act) by Finance Act 2004 (c. 12) , Sch. 27 para. 9(2)

F469 S. 153(3) repealed (with effect in accordance with Sch. 27 para. 11 of the amending Act) by Finance Act 2004 (c. 12) , Sch. 27 para. 9(3) , 42 Pt. 2(19)

154 Further registration requirement U.K.

(1) If—

(a) a person (“A”) has incurred expenditure on the provision of a ship, and

(b) there is a time in the qualifying period, but more than 3 months after the beginning of that period, when the ship is not registered in a relevant register,

the ship is not a qualifying ship after that time.

(2) The qualifying period is—

(a) the period of 3 years beginning with the time when the ship is first brought into use for the purposes of a qualifying activity carried on—

(i) by A, or

(ii) if earlier, by a person connected with A, or

(b) if shorter, the period beginning with that time and ending when neither A nor a person connected with A owns the ship.

(3) In determining the qualifying period for the old ship, a qualifying activity carried on at any time by a person (“B”) is taken to be carried on at that time by a person connected with A if—

(a) it is subsequently carried on by A or a person connected with A, and

[F470 (b) the only changes in the persons carrying it on between the time that B does so and the time that A or a person connected with A does so are changes—

(i) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or

(ii) in respect of which the qualifying activity is treated as continuing under [F471 section 948 of CTA 2010].]

(4) In this section “relevant register” means a register of shipping established and maintained—

(a) under the laws of any part of the British Islands, or

(b) under the laws of any country or territory which, at a time in the qualifying period for the ship, is an EEA State or a colony.

(5) “EEA State” means a State which is a contracting party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993 (except that for the period before the Agreement came into force in relation to Liechtenstein it does not include the State of Liechtenstein).

Textual Amendments

F470 S. 154(3)(b) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 542 (with Sch. 2 )

F471 Words in s. 154(3)(b)(ii) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 339 (with Sch. 2)

Deferment of balancing charges: supplementary provisions U.K.

155 Change in the persons carrying on the qualifying activity U.K.

(1) This section applies if—

(a) a person is carrying on the qualifying activity previously carried on by the shipowner, and

[F472 (b) the only changes in the persons carrying on the qualifying activity since the shipowner carried it on are changes—

(i) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or

(ii) in respect of which the qualifying activity is treated as continuing under [F473 section 948 of CTA 2010].]

(2) For the purposes of the deferment rules—

(a) expenditure incurred by a person mentioned in subsection (1)(a) for the purposes of the qualifying activity is to be treated as incurred by the shipowner, and

(b) in relation to the giving of any notice, a reference to the shipowner is to be read as a reference to the person carrying on the qualifying activity when the notice is given or is required to be given.

Textual Amendments

F472 S. 155(1)(b) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 543 (with Sch. 2 )

F473 Words in s. 155(1)(b)(ii) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 340 (with Sch. 2)

156 Connected persons U.K.

(1) For the purposes of the deferment rules a person (“B”) is connected with another person (“A”) at any time if, at that time—

(a) B is connected (in the sense given in [F474 section 575]) with A,

(b) B is carrying on a qualifying activity previously carried on by A and the condition in subsection (2) is met, or

(c) B is connected (in the sense given in [F475 section 575]) with a person who is carrying on a qualifying activity previously carried on by A and the condition in subsection (2) is met.

[F476 (2) The condition is that the only changes in the persons carrying on the qualifying activity since A carried it on are changes—

(a) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or

(b) in respect of which the qualifying activity is treated as continuing under [F477 section 948 of CTA 2010].]

(3) If expenditure is incurred by a person who is not the shipowner, the persons connected with him at any time include any person connected with the shipowner at that time as a result of subsection (1).

Textual Amendments

F474 Words in s. 156(1)(a) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 401 (with Sch. 2)

F475 Words in s. 156(1)(c) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 401 (with Sch. 2)

F476 S. 156(2) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 544 (with Sch. 2 )

F477 Words in s. 156(2)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 341 (with Sch. 2)

Further provisions U.K.

157 Adjustment of assessments etc. U.K.

(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

(2) Subsection (1) does not apply for the purposes of section 145 (see instead section 145(4) and (5)).

158 Members of same group U.K.

For the purposes of this Chapter two companies are members of the same group at any time if they would be treated as members of the same group of companies at that time for the purposes of [F478 Part 5 of CTA 2010] (group relief).

Textual Amendments

F478 Words in s. 158 substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 342 (with Sch. 2)

Chapter 13 U.K. Provisions affecting mining and oil industries

Expenditure connected with mineral extraction trades U.K.

159 Meaning of “mineral extraction trade” etc. U.K.

In this Chapter—

• “mineral extraction trade”, and

• “mineral exploration and access”

have the same meaning as in Part 5 (mineral extraction allowances).

160 Expenditure treated as incurred for purposes of mineral extraction trade U.K.

[F479 (1)] For the purposes of this Part, expenditure incurred by a person—

(a) on the provision of plant or machinery for mineral exploration and access, and

(b) in connection with a mineral extraction trade carried on by him,

is to be treated as incurred for the purposes of that trade.

[F480 (2) Subsection (1) does not apply to expenditure if—

(a) when it is incurred, the person is carrying on the trade but the trade is not at that time a mineral extraction trade, or

(b) when it is incurred, the person has not begun to carry on the trade and, when the person begins to carry on the trade, the trade is not a mineral extraction trade.

(3) Section 577(2) (references to commencement etc of a trade) does not apply to subsection (2).]

Textual Amendments

F479 S. 160 renumbered as s. 160(1) (with effect in accordance with s. 67(8) of the amending Act) by Finance Act 2014 (c. 26), s. 67(4)(a)

F480 S. 160(2)(3) inserted (with effect in accordance with s. 67(8) of the amending Act) by Finance Act 2014 (c. 26), s. 67(4)(b)

161 Pre-trading expenditure on mineral exploration and access U.K.

(1) This section applies if a person—

(a) incurs pre-trading expenditure on the provision of plant or machinery for the purposes of mineral exploration and access, and

(b) owns the plant or machinery on the first day of trading.

But this is subject to subsection (5).

(2) The person is to be treated for the purposes of this Part as if he had—

(a) sold the plant or machinery immediately before the first day of trading, and

(b) on that first day incurred capital expenditure on the provision of the plant or machinery for the purposes of the trade.

(3) The amount of the capital expenditure that the person is to be treated as having incurred is an amount equal to—

(a) the pre-trading expenditure, or

(b) if there has been an actual sale and re-acquisition before the first day of trading, the amount last incurred on the provision of the plant or machinery.

(4) In this section—

[F481 (a) “pre-trading expenditure” means capital expenditure incurred before the day on which a person begins to carry on a trade that is a mineral extraction trade, but only if there is no prior time when the person carried on that trade and the trade was not a mineral extraction trade,]

(b) “the first day of trading”, in relation to a person’s pre-trading expenditure, means the day on which that person begins to carry on the mineral extraction trade.

[F482 (4A) Section 577(2) (references to commencement etc of a trade) does not apply to subsection (4)(a).]

(5) This section does not apply if the plant or machinery on which the pre-trading expenditure was incurred is sold, demolished, destroyed or abandoned before the first day of trading (but see section 402 (mineral extraction allowances: pre-trading expenditure on plant or machinery)).

Textual Amendments

F481 S. 161(4)(a) substituted (with effect in accordance with s. 67(8) of the amending Act) by Finance Act 2014 (c. 26), s. 67(5)

F482 S. 161(4A) inserted (with effect in accordance with s. 67(8) of the amending Act) by Finance Act 2014 (c. 26), s. 67(6)

[F483 Expenditure connected with reuse etc. of offshore oil infrastructure U.K.

Textual Amendments

F483 Ss. 161A-161D and crossheading inserted (with effect as mentioned in Sch. 20 para. 9(1)-(4)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 para. 5(1)

161A Meaning of “offshore infrastructure” U.K.

(1) In sections 161C and 161D “ offshore infrastructure ” means—

(a) an offshore installation within the meaning given by section 44 of the Petroleum Act 1998 (c. 17) or a part of such an installation, or

(b) something that would be, or would be a part of, an offshore installation within that meaning if in subsection (3) of that section “ relevant waters ” meant waters in a foreign sector of the continental shelf and other foreign tidal waters, or

(c) a pipeline within the meaning of section 26 of that Act, or a part of such a pipeline, that is in, under or over waters in—

(i) the territorial sea adjacent to the United Kingdom, or

(ii) an area designated under section 1(7) of the Continental Shelf Act 1964 (c. 29), or

(d) a pipeline within the meaning of section 26 of the Petroleum Act 1998 (c. 17), or a part of such a pipeline, that is in, under or over waters in a foreign sector of the continental shelf.

(2) In subsection (1)(b) and (d)—

• “ foreign sector of the continental shelf ” means an area within which rights are exercisable with respect to the sea bed and subsoil and their natural resources by a country or territory outside the United Kingdom;

• “ foreign tidal waters ” means tidal waters in an area within which rights are exercisable with respect to the bed and subsoil of the body of water in question and their natural resources by a country or territory outside the United Kingdom.

161B Meaning of “decommissioning expenditure” U.K.

(1) In sections 161C and 161D “ decommissioning expenditure ” means expenditure in connection with—

(a) preserving plant or machinery pending its reuse or demolition,

(b) preparing plant or machinery for reuse, or

(c) arranging for the reuse of plant or machinery.

(2) It is immaterial for the purposes of subsection (1)(a) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(3) It is immaterial for the purposes of subsection (1)(b) and (c) whether the plant or machinery is in fact reused.

161C Expenditure related to reuse etc. qualifies for writing-down allowances U.K.

(1) This section applies where—

(a) a person carrying on a trade of oil extraction incurs decommissioning expenditure, and

(b) the plant or machinery concerned—

(i) has been brought into use for the purposes of the trade, and

(ii) is, or was when last in use for those purposes, offshore infrastructure.

(2) The decommissioning expenditure is allocated to the appropriate pool for the chargeable period in which it is incurred.

(3) Subsection (2) is subject to sections 161D[F484 , 164(4) and 165A to 165E].

(4) In subsection (2) “ the appropriate pool ” means the pool to which the expenditure on the plant or machinery concerned has been or would be allocated in accordance with this Part.

Textual Amendments

F484 Words in s. 161C(3) substituted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 5

161D Exceptions to section 161C(2) U.K.

(1) Subsection (2) of section 161C does not apply to decommissioning expenditure on UK infrastructure unless it is incurred in connection with measures taken, wholly or substantially, in order to comply with—

(a) an abandonment programme within the meaning given by section 29 of the Petroleum Act 1998 (c. 17), or

(b) any condition to which the approval of such a programme is subject.

(2) Subsection (2) of section 161C does not apply to expenditure in respect of which an allowance or deduction could be made apart from that subsection in taxing, or computing, the person’s income for any tax purpose.

(3) For the purposes of subsection (1), decommissioning expenditure is “ on UK infrastructure ” if the plant or machinery concerned—

(a) is offshore infrastructure within section 161A(1)(a) or (c), or

(b) is not offshore infrastructure but was offshore infrastructure within section 161A(1)(a) or (c) when last in use for the purposes of the trade.]

Provisions relating to ring fence trades U.K.

162 Ring fence trade a separate qualifying activity U.K.

(1) If a person carries on a ring fence trade, it is a separate qualifying activity for the purposes of this Part.

(2) In this Chapter “ring fence trade” means activities which—

(a) fall within [F485 the definition of “oil-related activities” in section 16(2) of ITTOIA 2005] [F486 or section 274 of CTA 2010], and

(b) constitute a separate trade (whether as a result of [F487 section 16(1) of ITTOIA 2005 or] [F487 section 16(1) of ITTOIA 2005 or] [F488 section 279 of CTA 2010] or otherwise).

Textual Amendments

F485 Words in s. 162(2)(a) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 545(a) (with Sch. 2 )

F486 Words in s. 162(2)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 343(a) (with Sch. 2)

F487 Words in s. 162(2)(b) inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 545(b) (with Sch. 2 )

F488 Words in s. 162(2)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 343(b) (with Sch. 2)

163 [F489 Meaning of “general decommissioning expenditure”] U.K.

[F490 (1) Expenditure is “general decommissioning expenditure” for the purposes of sections 164 and 165 if

[F491 (a)] the conditions in [F492 subsections (3), (3A) and (4)] are met[F493 , F494 ...

[F495 (aa) the condition in subsection (3AB) is met, or]

(b) the conditions in subsections (3B) and (4) are met.]

(2) But [F496 paragraphs (a) and (b) of subsection (1) are] subject to subsections (4ZA) to (4ZC).

(3) The expenditure must have been incurred on decommissioning plant or machinery—

(a) which has been brought into use [F497 wholly or partly] for the purposes of a ring fence trade, and

(b) which—

(i) is, or forms part of, an offshore installation or a submarine pipeline, or

(ii) when last in use for the purposes of a ring fence trade, was, or formed part of, such an installation or pipeline.]

[F498 (3A) The expenditure must have been incurred wholly or substantially F499 ...—

(a) [F500 in complying with] an approved abandonment programme,

(b) [F501 in complying with] a condition to which the approval of an abandonment programme is subject, F502 ...

(c) [F503 in complying with] a condition imposed by the Secretary of State, or an agreement made with the Secretary of State—

(i) before the approval of an abandonment programme, and

(ii) in relation to the decommissioning of the plant or machinery[F504 , or

(d) otherwise in anticipation of a decommissioning measure.]]

[F505 (3AA) For the purposes of subsection (3A)(d), expenditure is incurred otherwise in anticipation of a decommissioning measure if it is incurred—

(a) in preserving plant or machinery, the reuse or demolition of which it is reasonable to anticipate will be authorised or required by an approved abandonment programme, a condition to which the approval of such a programme will be subject or a condition or agreement described in subsection (3A)(c), or

(b) in doing something else which it is reasonable to anticipate will be authorised or required by an approved abandonment programme, a condition to which the approval of such a programme will be subject or a condition or agreement described in subsection (3A)(c).]

[F506 (3AB) The condition in this subsection is met if—

(a) the expenditure was incurred—

(i) in preparing an abandonment programme for approval, or

(ii) in preparing for the imposition of a condition by, or the making of an agreement with, the Secretary of State before the approval of an abandonment programme, and

(b) it is reasonable to anticipate that the approved abandonment programme, the condition imposed or the agreement made, as the case may be, will wholly or mainly relate to the decommissioning of plant or machinery to which subsection (3) applies.]

[F507 (3B) The expenditure must have been incurred on decommissioning plant or machinery—

(a) which has been brought into use wholly or partly for the purposes of a ring fence trade, and

(b) which—

(i) is, or forms part of, a relevant onshore installation, or

(ii) when last in use for the purposes of a ring fence trade, was, or formed part of, such an installation.

(3C) In subsection (3B) “relevant onshore installation” means any building or structure which—

(a) falls within any of sub-paragraphs (ii) to (iv) of section 3(4)(c) of OTA 1975,

(b) is not an offshore installation, and

(c) is or has been used for purposes connected with the winning of oil from an oil field any part of which lies within—

(i) the boundaries of the territorial sea of the United Kingdom, or

(ii) an area designated under section 1(7) of the Continental Shelf Act 1964.]

(4) The plant or machinery must not be replaced.

(4ZA) An amount of general decommissioning expenditure determined in accordance with [F508 subsection (1)(a) or (b)] is to be reduced under subsection (4ZB) if it appears that the decommissioned plant and machinery—

[F509 (a) was not brought into use wholly for qualifying purposes, or

(b) has, at any time since it was brought into use, not been used wholly for qualifying purposes].

(4ZB) The amount determined in accordance with [F510 subsection (1)(a) or (b)] is to be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(4ZC) The relevant circumstances include, in particular, the extent to which the decommissioned plant and machinery has not been used for [F511 qualifying purposes].

[F512 (4A) In this section “ decommissioning ”, in relation to any plant or machinery, means—

(a) demolishing the plant or machinery,

(b) preserving the plant or machinery pending its reuse or demolition,

(c) preparing the plant or machinery for reuse, or

(d) arranging for the reuse of the plant or machinery.

(4B) In determining whether expenditure is incurred on preserving plant or machinery pending its reuse or demolition, it is immaterial whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(4C) In determining whether expenditure is incurred on preparing plant or machinery for reuse, or on arranging for the reuse of plant or machinery, it is immaterial whether the plant or machinery is in fact reused.]

[F513 (4D) In this section a reference to use for qualifying purposes is a reference to—

(a) use for the purposes of any ring fence trade of any person, or

(b) other use in—

(i) the United Kingdom,

(ii) the territorial sea of the United Kingdom, or

(iii) an area designated under section 1(7) of the Continental Shelf Act 1964,

except use wholly or partly in connection with an oil field (within the meaning given by section 12(2) of the Oil Taxation Act 1975).]

(5) In this section—

(a) [F514 “oil” and “oil field” have] the same meaning as in Part I of OTA 1975, and

(b) [F515 “abandonment programme”, “approval” and “approved” (in relation to an abandonment programme),] F516 ... “offshore installation” and “submarine pipeline” have the same meaning as in Part IV of the Petroleum Act 1998 (c. 17).

Textual Amendments

F489 S. 163 heading substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), s. 109(2)

F490 S. 163(1)-(3) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), s. 109(3)

F491 Words in s. 163(1) renumbered as s. 163(1)(a) (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2013 (c. 29), s. 90(2)(a)

F492 Words in s. 163(1)(a) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2013 (c. 29), s. 90(2)(b)

F493 S. 163(1)(b) and word inserted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2013 (c. 29), s. 90(2)(c)

F494 Word in s. 163(1)(a) omitted (with effect in accordance with s. 16(10) of the amending Act) by virtue of Finance Act 2021 (c. 26), s. 16(3)

F495 S. 163(1)(aa) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(3)

F496 Words in s. 163(2) substituted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(4)

F497 Words in s. 163(3)(a) inserted (with effect in accordance with Sch. 41 para. 7(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 41 para. 5(2)

F498 S. 163(3A) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 2(3)

F499 Words in s. 163(3A) omitted (with effect in accordance with s. 16(10) of the amending Act) by virtue of Finance Act 2021 (c. 26), s. 16(5)(a)

F500 Words in s. 163(3A)(a) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(5)(b)

F501 Words in s. 163(3A)(b) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(5)(c)(i)

F502 Word in s. 163(3A)(b) omitted (with effect in accordance with s. 16(10) of the amending Act) by virtue of Finance Act 2021 (c. 26), s. 16(5)(c)(ii)

F503 Words in s. 163(3A)(c) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(5)(d)(i)

F504 S. 163(3A)(d) and word inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(5)(d)(ii)

F505 S. 163(3AA) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(6)

F506 S. 163(3AB) inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(7)

F507 S. 163(3B)(3C) inserted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2013 (c. 29), s. 90(3)

F508 Words in s. 163(4ZA) substituted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(8)

F509 S. 163(4ZA)(a)(b) substituted (with effect in accordance with Sch. 41 para. 7(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 41 para. 5(3)

F510 Words in s. 163(4ZB) substituted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(8)

F511 Words in s. 163(4ZC) substituted (with effect in accordance with Sch. 41 para. 7(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 41 para. 5(4)

F512 S. 163(4A)-(4C) inserted (with effect as mentioned in Sch. 20 para. 9(1)(5)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 Pt. 2 para. 6(5)

F513 S. 163(4D) inserted (with effect in accordance with Sch. 41 para. 7(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 41 para. 5(5)

F514 Words in s. 163(5)(a) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2013 (c. 29), s. 90(4)

F515 Words in s. 163(5)(b) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 2(4)

F516 Words in s. 163(5)(b) omitted (with effect in accordance with s. 109(7) of the amending Act) by virtue of Finance Act 2008 (c. 9), s. 109(5)

[F517 163A Expenditure in anticipation of approval of abandonment programme U.K.

(1) Expenditure to which section 163(3A)(d) applies by virtue of section 163(3AA)(b) is to be treated as never having been general decommissioning expenditure for the purposes of sections 164 and 165 unless, before the end of the relevant period, condition A or condition B is met in relation to the expenditure.

(2) Condition A is that—

(a) an abandonment programme is approved, and

(b) the programme, or a condition to which the approval of the programme was subject, authorises or requires the decommissioning of the plant or machinery to which the expenditure relates.

(3) Condition B is that—

(a) a condition is imposed by the Secretary of State, or an agreement is made with the Secretary of State, before the approval of an abandonment programme, and

(b) the condition or, as the case may be, the agreement authorises or requires the decommissioning of the plant or machinery to which the expenditure relates.

(4) For the purposes of this section “the relevant period” means the period—

(a) beginning with the day on which the expenditure was incurred, and

(b) ending with the fifth anniversary of the last day of the accounting period in which the expenditure was incurred.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (1).

(6) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, the person must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.

(7) A notice under subsection (6) must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.

(8) In this section, “abandonment programme”, “approval” and “approved” (in relation to an abandonment programme) have the same meaning as in Part 4 of the Petroleum Act 1998.]

Textual Amendments

F517 S. 163A inserted (with effect in accordance with s. 16(10) of the amending Act) by Finance Act 2021 (c. 26), s. 16(9)

164 [F518 General decommissioning expenditure] incurred before cessation of ring fence trade U.K.

[F519 (1) A person (“R”) carrying on a ring fence trade may elect to have a special allowance made to R for a chargeable period (the “relevant chargeable period”) if conditions A and B are met.

(1A) Condition A is that one or more of these paragraphs applies—

(a) R incurs general decommissioning expenditure in the relevant chargeable period in respect of decommissioning carried out in that period;

(b) R incurs general decommissioning expenditure in the relevant chargeable period in respect of decommissioning carried out in a previous chargeable period;

(c) R incurred general decommissioning expenditure in a previous chargeable period in respect of decommissioning that has not been carried out until the relevant chargeable period.

(1B) Condition B is that the plant or machinery concerned has been brought into use for the purposes of the ring fence trade.]

[F520 (1C) If the plant or machinery concerned is incidentally-acquired redundant plant or machinery (see subsection (1D)), it is to be regarded for the purposes of this section as having been brought into use for the purposes of the ring fence trade.

(1D) Plant or machinery is “incidentally-acquired redundant plant or machinery” if—

(a) it has not been brought into use for the purposes of the ring fence trade,

(b) it forms part of a relevant installation (see subsection (1E)) which has been brought into use for the purposes of the ring fence trade,

(c) at the time R acquired an interest in the relevant installation, the plant or machinery was not being used for any purposes, and

(d) the acquisition of the interest in the plant or machinery was merely incidental to the acquisition of the interest in the relevant installation.

(1E) For the purposes of subsection (1D)—

• “relevant installation” means—

  (a)

  an offshore installation,

  (b)

  a submarine pipeline, or

  (c)

  a relevant onshore installation;

• “offshore installation” and “submarine pipeline” have the same meaning as in Part 4 of the Petroleum Act 1998;

• “relevant onshore installation” has the meaning given by section 163(3C).]

(2) The election—

(a) must be made by notice to [F145 an officer of Revenue and Customs] no later than 2 years after the end of [F521 the relevant chargeable period, and]

(b) is irrevocable.

(3) The election must specify—

(a) the [F522 general decommissioning expenditure] to which it relates, F523 ...

[F524 (aa) the chargeable period in which the expenditure was incurred,

(ab) the decommissioning to which the expenditure relates,

(ac) the chargeable period in which the decommissioning was carried out, and]

[F525 (b) where the plant or machinery concerned has been or is to be demolished, any amounts received for its remains.]

(4) If a person makes an election under this section—

(a) he is entitled to a special allowance F526 ... for [F527 the relevant chargeable period, and]

[F528 (b) neither of sections 26(3) and 161C(2)(net cost of demolition where plant or machinery not replaced, or cost of preparing for reuse, added to existing pool) applies.]

[F529 (5) The amount of the special allowance for [F530 the relevant chargeable period is equal to the amount of the general decommissioning expenditure to which the election relates.]

[F531 (5A) But subsection (5) is subject to subsections (5B) and (6) [F532 and sections 165A to 165E.]

(5B) If an amount of general decommissioning expenditure to which the election relates is disproportionate to the relevant decommissioning carried out in the specified decommissioning period then, for the purposes of this section, the election is to be taken to specify only the allowable expenditure.

(5C) The application of subsection (5B) to an amount of general decommissioning expenditure does not prevent a person from making an election under this section for a subsequent chargeable period specifying the non-allowable expenditure.

(5D) In subsections (5B) and (5C)—

• “allowable expenditure”, in relation to general decommissioning expenditure, means the amount of the expenditure that is proportionate to the relevant decommissioning carried out in the specified decommissioning period;

• “non-allowable expenditure”, in relation to general decommissioning expenditure, means so much of that expenditure as is not allowable expenditure;

• “relevant decommissioning”, in relation to general decommissioning expenditure, means the decommissioning to which the expenditure relates;

• “specified decommissioning period”, in relation to relevant decommissioning, means the chargeable period specified in the election as the period in which the decommissioning was carried out;

• “specified expenditure period”, in relation to general decommissioning expenditure, means the chargeable period specified in the election as the period in which the expenditure was incurred.]

(6) If plant or machinery is demolished, the total of any special allowances in respect of expenditure on decommissioning the plant or machinery is reduced by any amount received for the remains of the plant or machinery.

Here “ decommissioning ” has the meaning given by section 163(4A).

(7) Effect is given to subsection (6) by setting the amount (until wholly utilised)—

• first, against any special allowance for the chargeable period in which the amount is received (as previously reduced in giving effect to subsection (6));

• second, against special allowances for earlier chargeable periods (as so reduced and taking later such periods before earlier ones); and

• third, against special allowances for later chargeable periods (as so reduced and taking earlier such periods before later ones). ]

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F518 Words in s. 164 heading substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 5(2)

F519 S. 164(1)-(1B) substituted for s. 164(1) (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(2)

F520 S. 164(1C)-(1E) inserted (with effect in accordance with s. 91(2) of the amending Act) by Finance Act 2013 (c. 29), s. 91(1)

F521 Words in s. 164(2)(a) substituted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(3)

F522 Words in s. 164(3)(a) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 5(3)

F523 Word in s. 164(3)(a) omitted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 38 para. 3(4)(a)

F524 S. 164(3)(aa)-(ac) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(4)(b)

F525 S. 164(3)(b) substituted (with effect as mentioned in Sch. 20 para. 9(1)(5)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 Pt. 2 para. 7(3)

F526 Words in s. 164(4)(a) repealed (with effect as mentioned in Sch. 20 para.9(1)(5)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, 110, Sch. 20 Pt. 2 para. 7(4), Sch. 33 Pt. 2(5) Note 1

F527 Words in s. 164(4)(a) substituted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(5)

F528 S. 164(4)(b) substituted (with effect as mentioned in Sch. 20 para. 9(1)(5)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 Pt. 2 para. 7(5)

F529 S. 164(5)-(7) substituted (with effect as mentioned in Sch. 20 para. 9(1)(5)(8) of the amending Act) for s. 164(5) by Finance Act 2001 (c. 9), s. 68, Sch. 20 Pt. 2 para. 7(6)

F530 Words in s. 164(5) substituted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(6)

F531 S. 164(5A)-(5D) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 3(7)

F532 Words in s. 164(5A) inserted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 6

165 [F533 General decommissioning expenditure] [F534 after] ceasing ring fence trade U.K.

(1) This section applies if—

(a) a person (“the former trader”) has ceased to carry on a ring fence trade,

[F535 (b) the decommissioning condition is met in relation to a notional accounting period, and]

(c) the [F536 general decommissioning expenditure] is not otherwise deductible in calculating the income of the former trader for any tax purpose.

[F537 (1A) The decommissioning condition is met in relation to a notional accounting period (the “relevant period”) if one or more of these paragraphs applies—

(a) the former trader incurs general decommissioning expenditure in the relevant period in respect of decommissioning carried out in that period,

(b) the former trader incurs general decommissioning expenditure in the relevant period in respect of decommissioning carried out in—

(i) a previous notional accounting period, or

(ii) a chargeable period falling before the first notional accounting period, and

(c) the former trader incurred general decommissioning expenditure in—

(i) a previous notional accounting period, or

(ii) a chargeable period falling before the first notional accounting period,

in respect of decommissioning that has not been carried out until the relevant period.

(1B) “Notional accounting period” means each of the following periods—

(a) the period that—

(i) begins with the day following the last day on which the former trader carried on the ring fence trade, and

(ii) ends with the day on which the first termination event subsequently occurs, and

(b) each period that—

(i) begins with the day following the last day of a period determined under paragraph (a) or this paragraph, and

(ii) ends with the day on which the first termination event subsequently occurs;

but there are to be no notional accounting periods after the end of the post-cessation period.

(1C) “Termination event”, in relation to a notional accounting period, means each of the following—

(a) the end of the period of 12 months beginning with the first day of the notional accounting period,

(b) the occurrence of an accounting date of the former trader or, if there is a period for which the former trader does not make up accounts, the end of that period (but see subsections (6A) and (6B)), and

(c) the end of the post-cessation period.]

[F538 (2) “The post-cessation period” means the period that—

(a) begins with the day following the last day on which the former trader carried on the ring fence trade, and

(b) ends with the day on which condition A and condition B are both met (or, if they are met on different days, the later of those days).

(2A) Condition A is met if each approved abandonment programme that relates wholly or partly to relevant plant and machinery has ceased to have effect.

(2B) Condition B is met if the Secretary of State is satisfied that no other abandonment programmes that relate wholly or partly to relevant plant and machinery will be approved.

(2C) For the purposes of condition A, an approved abandonment programme ceases to have effect if and when—

(a) the programme has been carried out to the satisfaction of the Secretary of State, or

(b) approval of the programme has been withdrawn.]

(3) If this section applies [F539 in relation to a notional accounting period]—

(a) an amount equal to the [F540 relevant decommissioning cost] [F541 for that period, or the aggregate of all the relevant decommissioning costs for that period,] is allocated to the appropriate pool for the chargeable period in which the former trader ceased to carry on the ring fence trade, and

(b) [F542 where any of the [F543 general decommissioning expenditure] was incurred on the demolition of plant or machinery,]any amount received within the post-cessation period for the remains of the plant or machinery does not constitute income of the former trader for any tax purpose.

[F544 (3A) Subsection (3) is subject to sections 165A to 165E.]

(4) In subsection (3)—

• “the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been allocated, and

• [F545 “relevant decommissioning cost”, for a notional accounting period, means the amount by which general decommissioning expenditure falling within paragraph (a), (b) or (c) of subsection (1A) in relation to that period exceeds any amounts received before or during that period for the remains of any plant or machinery on whose demolition any of the general decommissioning expenditure was incurred.]

[F546 (4A) [F547 General decommissioning expenditure] is to be disregarded for the purposes of this section if the expenditure is incurred in decommissioning plant and machinery at a time—

(a) after an abandonment programme relating wholly or partly to the plant and machinery has had its approval withdrawn, and

(b) when no other abandonment programme relating wholly or partly to the plant and machinery is approved.]

[F548 (4B) If an amount of general decommissioning expenditure is disproportionate to the relevant decommissioning carried out in the decommissioning period then, for the purposes of this section, only the allowable expenditure is to be taken to have been incurred in the expenditure period.

(4C) The application of subsection (4B) to an amount of general decommissioning expenditure does not prevent the non-allowable expenditure from being taken into account under this section in relation to a subsequent notional accounting period.

(4D) In subsections (4B) and (4C)—

• “allowable expenditure”, in relation to general decommissioning expenditure, means the amount of the expenditure that is proportionate to the relevant decommissioning carried out in the decommissioning period;

• “decommissioning period”, in relation to relevant decommissioning, means the notional accounting period or chargeable period in which the decommissioning was carried out;

• “expenditure period”, in relation to general decommissioning expenditure, means the notional accounting period or chargeable period in which the expenditure was incurred;

• “non-allowable expenditure”, in relation to general decommissioning expenditure, means so much of that expenditure as is not allowable expenditure;

• “relevant decommissioning”, in relation to general decommissioning expenditure, means the decommissioning to which the expenditure relates.]

(5) All such adjustments, by discharge or repayment of tax or otherwise, are to be made as are necessary to give effect to this section.

[F549 (6) For the purposes of this section, it does not matter if approval of an abandonment programme that relates to relevant plant and machinery (including approval of the first such programme) is given before or after the start of the post-cessation period.

[F550 (6A) If the former trader—

(a) carries on more than one trade,

(b) makes up accounts of any of them to different dates, and

(c) does not make up general accounts for the whole of the company's activities,

subsection (1C)(b) applies with reference to the accounting date of such one of the trades as the former trader may determine.

(6B) If the Commissioners for Her Majesty's Revenue and Customs are of the opinion, on reasonable grounds, that a date determined by the former trader for the purposes of subsection (6A) is inappropriate, the Commissioners may by notice direct that the accounting date of such other of the trades referred to in that subsection as appears to the Commissioners to be appropriate is to be used instead.]

(7) In this section—

• “abandonment programme” means an abandonment programme under Part 4 of the Petroleum Act 1998;

• “approved”, in relation to an abandonment programme, means approved or revised under Part 4 of the Petroleum Act 1998 (and “approval” is to be construed accordingly);

• “relevant plant and machinery” means plant and machinery—

  (a)

  which has been brought into use for the purposes of the ring fence trade that has ceased, and

  (b)

  which, when last in use for the purposes of that ring fence trade, was, or formed part of, an offshore installation or submarine pipeline;

  and for this purpose “offshore installation” and “submarine pipeline” have the same meaning as in Part 4 of the Petroleum Act 1998;

• “withdrawn”, in relation to approval of an abandonment programme, means withdrawn under Part 4 of the Petroleum Act 1998.]

Textual Amendments

F533 Words in s. 165 heading substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 6(2)

F534 Word in s. 165 heading substituted (with effect in accordance with s. 110(9) of the amending Act) by Finance Act 2008 (c. 9), s. 110(2)

F535 S. 165(1)(b) substituted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(2)

F536 Words in s. 165(1)(c) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 6(3)

F537 S. 165(1A)-(1C) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(3)

F538 S. 165(2)-(2C) substituted for s. 165(2) (with effect in accordance with s. 110(9) of the amending Act) by Finance Act 2008 (c. 9), s. 110(3)

F539 Words in s. 165(3) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(4)(a)

F540 Words in s. 165(3)(a) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 6(4)(a)

F541 Words in s. 165(3)(a) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(4)(b)

F542 Words in s. 165(3)(b) inserted (with effect as mentioned in Sch. 20 para. 9(1)(5)(8) of the amending Act) by Finance Act 2001 (c. 9), s. 68, Sch. 20 para. 8(3)

F543 Words in s. 165(3)(b) substituted (with effect in accordance with s. 109(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 34 para. 6(4)(b)

F544 S. 165(3A) inserted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 7

F545 Words in s. 165(4) substituted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(5)

F546 S. 165(4A) inserted (with effect in accordance with s. 110(9) of the amending Act) by Finance Act 2008 (c. 9), s. 110(4)

F547 Words in s. 165(4A) substituted (with effect in accordance with Sch. 41 para. 7(2) to the amending Act) by Finance Act 2009 (c. 10), Sch. 41 para. 6

F548 S. 165(4B)-(4D) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(6)

F549 S. 165(6)(7) inserted (with effect in accordance with s. 110(9) of the amending Act) by Finance Act 2008 (c. 9), s. 110(5)

F550 S. 165(6A)(6B) inserted (with effect in accordance with Sch. 38 para. 5 to the amending Act) by Finance Act 2009 (c. 10), Sch. 38 para. 4(7)

[F551 Restrictions on allowances: anti-avoidance U.K.

Textual Amendments

F551 Ss. 165A-165E and cross-heading inserted (with effect in accordance with Sch. 32 para. 8 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 2

165A Decommissioning services supplied by connected person U.K.

(1) Allowances under this Part are restricted under section 165B(1) if—

(a) a person (“R”) who is carrying on, or has ceased to carry on, a ring fence trade enters into an arrangement,

(b) under the arrangement, a person (“S”) who is connected with R provides a service to R, and

(c) all or part of the consideration for the service is decommissioning expenditure.

(2) Subsection (1)(b) may be satisfied whether the service is provided to R directly or indirectly; and in particular it does not matter—

(a) whether R and S are parties to the same contract, or

(b) whether payments are made by R directly to S.

(3) Subsections (4) to (9) apply for the purposes of this section and sections 165B to 165E.

(4) References to providing a service include—

(a) letting a ship on charter or any other asset on hire, and

(b) providing goods which are to be used up in the course of providing a service.

(5) “Decommissioning expenditure” means expenditure in connection with decommissioning.

(6) “Decommissioning” means—

(a) demolishing plant or machinery,

(b) preserving plant or machinery pending its reuse or demolition,

(c) preparing plant or machinery for reuse, or

(d) arranging for the reuse of plant or machinery.

(7) It is immaterial for the purposes of subsection (6)(b) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(8) It is immaterial for the purposes of subsection (6)(c) and (d) whether the plant or machinery is in fact reused.

(9) References to R's expenditure under the arrangement are to so much of the consideration for the service as is decommissioning expenditure incurred by R.

165B Restriction on allowance available U.K.

(1) The amount, if any, by which R's expenditure under the arrangement exceeds D is to be left out of account in determining R's available qualifying expenditure.

(2) D is the cost to S of providing the service or, if R's expenditure under the arrangement relates to only part of the service, that part.

(3) Subsection (2) is subject to sections 165C and 165D, which provide for D to be calculated differently in certain circumstances.

(4) But if, under any arrangement, a particular service or part of a service is provided by more than one person who is connected with R (so that without this subsection there would be more than one amount for D in relation to that service or part), D is the lowest of those amounts.

165C Allowance in respect of certain services related to decommissioning U.K.

(1) This section applies to so much of R's expenditure under the arrangement as relates to the supply by S of a service if—

(a) the service is a planning or project management service, and

(b) the cost plus method is an appropriate method of applying the arm's length principle to the provision of it.

(2) D is the sum of—

(a) the cost to S of providing the service or, if R's expenditure under the arrangement relates to only part of the service, that part, and

(b) the appropriate percentage of that amount.

(3) The appropriate percentage is the smaller of—

(a) the appropriate mark up determined in accordance with the cost plus method, and

(b) 10%.

(4) Any expression which is used in this section and in the transfer pricing guidelines has the meaning given in those guidelines.

“The transfer pricing guidelines” has the meaning given by section 164(4) of TIOPA 2010.

165D Allowance where decommissioning undertaken for other participators in oil field U.K.

(1) This section applies where—

(a) S decommissions the plant or machinery,

(b) there are, in addition to R, one or more other participators in the relevant field, and

(c) the expenditure incurred in respect of the decommissioning is apportioned between the participators (including R) in accordance with their shares in the oil won from the relevant field or their shares in the equity of that field.

(2) D is the part of the expenditure referred to in subsection (1)(c) which is incurred by R.

(3) Where—

(a) plant or machinery is or has been used in connection with the winning of oil from more than one relevant field, and

(b) the expenditure incurred in respect of the decommissioning is apportioned between those fields in accordance with the contribution from each field to the total of the oil won using that plant or machinery,

subsections (1) and (2) apply to each such field as if subsection (1)(c) referred to the expenditure apportioned to that field.

(4) But subsections (2) and (3) do not apply (and section 165B(2) applies instead) if—

(a) the amount of consideration, or the method of determining the amount of consideration, to be received by S under the arrangement or arrangements, or

(b) the apportionment of the liability for that consideration (whether between the participators as mentioned in subsection (1)(c) or between the fields as mentioned in subsection (3)(b)),

has been agreed as, or as part of, an avoidance scheme.

(5) A scheme is an “avoidance scheme” if the main purpose, or one of the main purposes, of a party in entering into the scheme is to enable a person to obtain a tax advantage under this Part that would not otherwise be obtained.

(6) The reference in subsection (5) to obtaining a tax advantage that would not otherwise be obtained includes obtaining an allowance that is in any way more favourable to a person than the one that would otherwise be obtained.

(7) In this section—

• “licensee”, “oil” and “oil field” have the same meaning as in Part 1 of OTA 1975,

• “other participator” means a person, not connected with R, who is a licensee in respect of any licensed area wholly or partly included in the oil field in question, and

• “relevant field” means an oil field—

  (a)

  in which plant or machinery is located, or

  (b)

  in connection with which the plant or machinery is being or has been used for the purposes of a ring fence trade.

165E Transaction to obtain tax advantage U.K.

(1) Allowances under this Part are restricted under subsection (5) if—

(a) a person (“R”) who is carrying on, or has ceased to carry on, a ring fence trade enters into a transaction with another person (“S”),

(b) S receives from R consideration for services provided in pursuance of the transaction,

(c) all or part of that consideration is decommissioning expenditure, and

(d) the transaction either has an avoidance purpose, or is part of, or occurs as a result of, a scheme or arrangement that has an avoidance purpose.

(2) Subsection (1)(d) may be satisfied—

(a) whether the scheme or arrangement was made before or after the transaction was entered into, and

(b) whether or not the scheme or arrangement is legally enforceable.

(3) A transaction, scheme or arrangement has an “avoidance purpose” if the main purpose, or one of the main purposes, of a party in—

(a) entering into the transaction, scheme or arrangement, or

(b) agreeing an amount of consideration, or a method of determining an amount of consideration, to be paid in pursuance of the transaction, scheme or arrangement,

is to enable a person to obtain a tax advantage under this Part that would not otherwise be obtained.

(4) The reference in subsection (3) to obtaining a tax advantage that would not otherwise be obtained includes obtaining an allowance that is in any way more favourable to a person than the one that would otherwise be obtained.

(5) All or part of R's expenditure under the transaction is to be left out of account in determining R's available qualifying expenditure.

(6) The amount of expenditure to be left out of account is—

(a) such amount as would or would in effect cancel out the tax advantage mentioned in subsection (3) (whether that advantage is obtained by R or another person and whether it relates to the transaction or something else), or

(b) if the amount found under paragraph (a) exceeds the whole of R's expenditure under the transaction, the whole of that expenditure.]

Transfers of interests in oil fields: anti-avoidance U.K.

166 Transfers of interests in oil fields: anti-avoidance U.K.

(1) This section applies if—

(a) there is, for the purposes of Schedule 17 to FA 1980, a transfer by a participator in an oil field of the whole or part of his interest in the field, and

(b) as part of the transfer, the old participator disposes of, and the new participator acquires—

(i) plant or machinery used, or expected to be used, in connection with the field, or

(ii) a share in such plant or machinery.

(2) The amount, if any, by which the new participator’s expenditure exceeds the old participator’s disposal value is to be left out of account in determining the new participator’s available qualifying expenditure.

(3) In subsection (2)—

(a) “the new participator’s expenditure” means the expenditure incurred by the new participator on the acquisition of the plant or machinery, and

(b) “the old participator’s disposal value” means the disposal value to be brought into account by the old participator as a result of the disposal of the plant or machinery to the new participator.

(4) In this section—

(a) “oil field” and “participator” have the same meaning as in Part I of OTA 1975,

(b) “the old participator” means the participator whose interest in the oil field is wholly or partly transferred, and

(c) “the new participator” means the person to whom the interest in the oil field is transferred.

(5) Nothing in this section affects the operation of Chapter 17 (anti-avoidance).

Oil production sharing contracts U.K.

167 Oil production sharing contracts U.K.

(1) Sections 168 to 170 apply if—

(a) a person (“the contractor”) is entitled to an interest in a contract made with, or with the authorised representative of, the government of a country or territory in which oil is or may be produced, and

(b) the contract provides (among other things) for any plant or machinery of a description specified in the contract which—

(i) is provided by the contractor, and

(ii) has an oil-related use under the contract,

to be transferred (immediately or later) to the government or representative.

(2) For the purposes of this section and sections 168 to 170, plant or machinery has an oil-related use if it is used—

(a) to explore for, win access to or extract oil,

(b) for the initial storage or treatment of oil, or

(c) for other purposes ancillary to the extraction of oil.

(3) In this section and sections 168 to 170 “oil” has the meaning given by section 556(3).

168 Expenditure on plant or machinery incurred by contractor U.K.

(1) This section applies if—

(a) the contractor incurs capital expenditure on the provision of plant or machinery of a description specified in the contract,

(b) the plant or machinery is to have an oil-related use under the contract, for the purposes of a trade of oil extraction carried on by the contractor,

(c) the amount of the expenditure is commensurate with the value of the contractor’s interest under the contract, and

(d) the plant or machinery is transferred to the government or representative in accordance with the contract.

(2) Despite the transfer, the plant or machinery is to be treated for the purposes of this Part as owned by the contractor (and not by any other person) until—

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to section 170(2).

169 Expenditure on plant or machinery incurred by participator U.K.

(1) This section applies if—

(a) a person (“the participator”) acquires an interest in the contract from—

(i) the contractor, or

(ii) another person who has acquired it (directly or indirectly) from the contractor,

(b) the participator incurs capital expenditure on the provision of plant or machinery,

(c) the plant or machinery is to have an oil-related use under the contract, for the purposes of a trade of oil extraction carried on by the participator,

(d) the amount of the expenditure is commensurate with the value of the participator’s interest under the contract, and

(e) the plant or machinery is transferred to the government or representative in accordance with the contract.

(2) Despite the transfer, the plant or machinery is to be treated for the purposes of this Part as owned by the participator (and not by any other person) until—

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to section 170(2).

170 Participator’s expenditure attributable to plant or machinery U.K.

(1) This section applies if—

(a) a person (“the relevant participator”) acquires an interest in the contract from—

(i) the contractor, or

(ii) another person who has acquired it (directly or indirectly) from the contractor, and

(b) some of the expenditure incurred by the relevant participator to acquire the interest in the contract is attributable to plant or machinery which—

(i) is treated by section 168 as owned by the contractor, or

(ii) is treated by section 169 or subsection (2) as owned by another person (“the other participator”).

(2) The plant or machinery is to be treated for the purposes of this Part as owned by the relevant participator (and not by any other person) until—

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to a later application of this subsection.

(3) The person who, until subsection (2) applies, is treated as owning the plant or machinery is to be treated for the purposes of this Part as if he had disposed of it for a consideration equal to the relevant participator’s expenditure attributable to it.

(4) The relevant participator is to be treated for the purposes of this Part as if—

(a) he had incurred capital expenditure of an amount given by subsection (5), and

(b) he owned the plant or machinery (in accordance with subsection (2)) as a result of having incurred that expenditure.

(5) The amount of that expenditure is—

(a) the amount of the relevant participator’s expenditure attributable to the plant or machinery, or

(b) if less, the disposal value to be brought into account by the contractor or the other participator as a result of subsection (3).

(6) The expenditure attributable to plant or machinery for the purposes of this section is to be determined having regard to what is just and reasonable in the circumstances.

171 Disposal values on cessation of ownership U.K.

(1) This section applies if a person treated as owning plant or machinery under section 168(2), 169(2) or 170(2) ceases to be treated as owning it solely as a result of one of those provisions.

(2) If the person receives capital compensation, the disposal value to be brought into account is the amount of the compensation.

(3) If the person does not receive capital compensation, the disposal value to be brought into account is nil.

Modifications etc. (not altering text)

C50 S. 171 excluded (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(a); S.I. 2005/1444, art. 2(1), Sch. 1

Chapter 14 U.K. Fixtures

Introduction U.K.

172 Scope of Chapter etc. U.K.

(1) This Chapter applies to determine entitlement to allowances under this Part in respect of expenditure on plant or machinery that is, or becomes, a fixture.

(2) For the purposes of this Part, ownership of plant or machinery that is, or becomes, a fixture is determined under this Chapter.

[F552 (2A) Subsections (1) and (2) are subject to section 172A.]

(3) The provisions of this Chapter that treat a person as being the owner of a fixture (see sections 176 to 184 and 193 to [F553 195B]) are subject to the provisions of this Chapter which treat a person as ceasing to be the owner of a fixture (see sections 188 to [F554 192A]).

(4) References in this Chapter to a person being treated—

(a) as the owner of plant or machinery, or

(b) as ceasing to be the owner of plant or machinery,

are to be read as references to the person being so treated for the purposes of this Part.

(5) This Chapter does not affect any entitlement a person has to an allowance as a result of section 538 (contribution allowances for plant and machinery).

Textual Amendments

F552 S. 172(2A) inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 9(1)

F553 Word in s. 172(3) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 1(a)

F554 Word in s. 172(3) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 1(b)

[F555 172A Long funding leases etc: cases where this Chapter does not apply. U.K.

(1) This section applies where plant or machinery that is or becomes a fixture is the subject of a long funding lease (see Chapter 6A).

(2) This section also applies if, in any such case,—

(a) the lessee under the long funding lease is or becomes the lessor of some or all of the plant or machinery under a further lease, and

(b) the further lease is not itself a long funding lease within subsection (1).

(3) This Chapter does not apply to determine the entitlement of the lessor or the lessee (under either lease) to allowances under this Part in respect of expenditure on the plant or machinery.

(4) This Chapter does not apply to determine whether the lessor or the lessee (under either lease) is to be treated as the owner of the plant or machinery.]

Textual Amendments

F555 S. 172A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 9(2)

173 Meaning of “fixture” and “relevant land” U.K.

(1) In this Chapter “fixture”—

(a) means plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

(b) includes any boiler or water-filled radiator installed in a building as part of a space or water heating system.

(2) In this Chapter “relevant land”, in relation to a fixture means—

(a) the building or other description of land of which the fixture becomes part, or

(b) in the case of a boiler or water-filled radiator which is a fixture as a result of subsection (1)(b), the building in which it is installed as part of a space or water heating system.

174 Meaning of “equipment lease” and “lease” U.K.

(1) In this Chapter “equipment lease” means—

(a) an agreement entered into in the circumstances given in subsection (2), or

(b) a lease entered into under or as a result of such an agreement.

(2) The circumstances are that—

(a) a person incurs capital expenditure on the provision of plant or machinery for leasing,

(b) an agreement is entered into for the lease, directly or indirectly from that person, of the plant or machinery to another person,

(c) the plant or machinery becomes a fixture, and

(d) the agreement is not an agreement for the plant or machinery to be leased as part of the relevant land.

(3) In this Chapter—

• “equipment lessor” means the person from whom (directly or indirectly) the equipment lease provides for the plant or machinery to be leased, and

• “equipment lessee” means the person to whom the equipment lease provides for the plant or machinery to be leased.

(4) Except in the context of leasing plant or machinery, any reference in this Chapter to a lease is to—

(a) any leasehold estate in or, in Scotland, lease of, the land (whether in the nature of a head-lease, sub-lease or under-lease), or

(b) any agreement to acquire such an estate or, in Scotland, lease;

and, in relation to such an agreement, “grant” is to be read accordingly.

175 Meaning of “interest in land”, etc. U.K.

(1) In this Chapter “interest in land” means—

(a) the fee simple estate in the land or an agreement to acquire such an estate,

(b) in relation to Scotland, the interest of the owner or an agreement to acquire such an interest,

(c) a lease,

(d) an easement or servitude or an agreement to acquire an easement or servitude, and

(e) a licence to occupy land.

(2) If an interest in land is—

(a) conveyed or assigned by way of security, and

(b) subject to a right of redemption,

the person with the right of redemption is treated for the purposes of this Chapter as having that interest, and not the creditor.

[F556 175A Meaning of “energy services agreement” U.K.

(1) In this Chapter “ energy services agreement ” means an agreement entered into by an energy services provider (“ the energy services provider ”) and another person (“ the client ”) that makes provision, with a view to saving energy or using energy more efficiently, for—

(a) the design of plant or machinery, or one or more systems incorporating plant or machinery,

(b) obtaining and installing the plant or machinery,

(c) the operation of the plant or machinery,

(d) the maintenance of the plant or machinery, and

(e) the amount of any payments in respect of the operation of the plant or machinery to be linked (wholly or in part) to energy savings or increases in energy efficiency resulting from the provision or operation of the plant or machinery.

(2) In this Chapter “ energy services provider ” means a person carrying on a qualifying activity consisting wholly or mainly in the provision of energy management services. ]

Textual Amendments

F556 S. 175A inserted by (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 2

Persons who are treated as owners of fixtures U.K.

176 Person with interest in relevant land having fixture for purposes of qualifying activity U.K.

(1) If—

(a) a person incurs capital expenditure on the provision of plant or machinery for the purposes of a qualifying activity carried on by him,

(b) the plant or machinery becomes a fixture, and

(c) that person has an interest in the relevant land at the time the plant or machinery becomes a fixture,

that person is to be treated, on and after that time, as the owner of the fixture as a result of incurring the expenditure.

(2) If there are two or more persons with different interests in the relevant land who would be treated as the owner of the same fixture as a result of subsection (1), one interest only is taken into account under that subsection.

(3) The interest to be taken into account is given by the following rules—

Rule 1

If one of the interests is an easement or servitude or any agreement to acquire an easement or servitude, that interest is the interest to be taken into account.

Rule 2

If Rule 1 does not apply, but one of the interests is a licence to occupy land, that interest is the interest to be taken into account.

Rule 3

In any other case—

(a) except in Scotland, the interest to be taken into account is the interest which is not in reversion (at law or in equity and whether directly or indirectly) on any other interest in the relevant land which is held by any of the persons referred to in subsection (2), and

(b) in Scotland, the interest to be taken into account is the interest of whichever of the persons referred to in subsection (2) has, or last had, the right of use of the relevant land.

(4) Subsection (1) is subject to [F557 sections 177(4) and 180A(4)] .

Textual Amendments

F557 Words in s. 176(4) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 3

177 Equipment lessors U.K.

(1) If—

(a) the conditions in—

(i) section 178 (equipment lessee has qualifying activity etc.),

(ii) section 179 (equipment lessor has right to sever fixture that is not part of building), or

(iii) section 180 (equipment lease is part of affordable warmth programme),

are met in relation to an equipment lease,

(b) the equipment lessor and the equipment lessee are not connected persons, and

(c) they elect that this section should apply,

the equipment lessor is to be treated, on and after the relevant time, as the owner of the fixture as a result of incurring the capital expenditure on the provision of the plant or machinery that is the subject of the equipment lease.

(2) The relevant time for the purposes of subsection (1) is (unless subsection (3) applies) the time when the equipment lessor incurs the expenditure.

(3) If—

(a) the conditions in section 178 are met in relation to an equipment lease (but the conditions in sections 179 and 180 are not), and

(b) the equipment lessor incurs the capital expenditure before the equipment lessee begins to carry on the qualifying activity,

the relevant time is the time when the equipment lessee begins to carry on the qualifying activity.

(4) If an election is made under this section, the equipment lessee is not to be treated under section 176 as the owner of the fixture.

(5) An election under this section must be made by notice to the [F145 an officer of Revenue and Customs]—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(6) “The relevant chargeable period” means the chargeable period in which the capital expenditure was incurred.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

178 Equipment lessee has qualifying activity etc. U.K.

The conditions referred to in section 177(1)(a)(i) are that—

(a) the equipment lease is for the lease of the plant or machinery for the purposes of a qualifying activity which is, or is to be, carried on by the equipment lessee,

(b) if the equipment lessee had incurred the capital expenditure incurred by the equipment lessor on the provision of the plant or machinery that is the subject of the equipment lease, he would, as a result of section 176, have been entitled to an allowance in respect of it, and

(c) the equipment lease is not for the lease of the plant or machinery for use in a dwelling-house.

179 Equipment lessor has right to sever fixture that is not part of building U.K.

(1) The conditions referred to in section 177(1)(a)(ii) are that—

(a) the plant or machinery becomes a fixture by being fixed to land that is neither a building nor part of a building,

(b) the equipment lessee has an interest in the land when taking possession of the plant or machinery under the equipment lease,

(c) under the terms of the equipment lease, the equipment lessor is entitled to sever the plant or machinery, at the end of the period for which it is leased, from the land to which it is fixed at that time,

(d) under the terms of the equipment lease, the equipment lessor will own the plant or machinery on its severance in accordance with the equipment lease,

(e) the nature of the plant or machinery and the way in which it is fixed to land are such that its use on one set of premises does not, to any material extent, prevent it from being used, once severed, for the same purposes on a different set of premises,

(f) the equipment lease is one which under [F558 generally accepted accounting practice] falls (or would fall) to be treated in the accounts of the equipment lessor as an operating lease, and

(g) the equipment lease is not for the lease of the plant or machinery for use in a dwelling-house.

(2) F559 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F558 Words in s. 179(1)(f) substituted (24.7.2002) by Finance Act 2002 (c. 23) , s. 103(4)(g)

F559 S. 179(2) repealed (with effect as mentioned in s. 107 of the amending Act) by Finance Act 2002 (c. 23), s. 141, Sch. 40 Pt. 3(16)

180 Equipment lease is part of affordable warmth programme U.K.

(1) The conditions referred to in section 177(1)(a)(iii) are that—

(a) the plant or machinery which is the subject of the equipment lease consists of a boiler, heat exchanger, radiator or heating control that is installed in a building as part of a space or water heating system,

(b) the expenditure of the equipment lessor is incurred before 1st January 2008, and

(c) the equipment lease is approved for the purposes of this section as entered into as part of the affordable warmth programme.

(2) The approval mentioned in subsection (1)(c) may be given, with the consent of the Treasury—

(a) by the Secretary of State;

(b) in the case of buildings in Scotland, by the Scottish Ministers;

(c) in the case of buildings in Wales, by the National Assembly for Wales;

(d) in the case of buildings in Northern Ireland, by the Department for Social Development in Northern Ireland.

(3) If an approval is withdrawn, it is to be treated for the purposes of subsection (1)(c) as never having had effect.

[F560 180A Energy services providers U.K.

(1) If—

(a) an energy services agreement is entered into,

(b) the energy services provider incurs capital expenditure under the agreement on the provision of plant or machinery,

(c) the plant or machinery becomes a fixture,

(d) at the time the plant or machinery becomes a fixture—

(i) the client has an interest in the relevant land, and

(ii) the energy services provider does not,

(e) the plant or machinery—

(i) is not provided for leasing, and

(ii) is not provided for use in a dwelling-house,

(f) the operation of the plant or machinery is carried out wholly or substantially by the energy services provider or a person connected with him,

(g) the energy services provider and the client are not connected persons, and

(h) they elect that this section should apply,

the energy services provider is to be treated, on and after the time at which he incurs the expenditure, as the owner of the fixture as a result of incurring the expenditure.

(2) But if the client would not have been entitled to a section 176 allowance in respect of the expenditure if he had incurred it, subsection (1) does not apply unless the plant or machinery belongs to a class of plant or machinery specified by Treasury order.

(3) In subsection (2) a “ section 176 allowance ” means an allowance to which a person is entitled as a result of section 176.

(4) If an election is made under this section, the client is not to be treated under section 176 as the owner of the fixture.

(5) An election under this section must be made by notice to [F145 an officer of Revenue and Customs]—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(6) The “ relevant chargeable period ” means the chargeable period in which the capital expenditure was incurred. ]

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F560 S. 180A inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 4

181 Purchaser of land giving consideration for fixture U.K.

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the purchaser”) acquires an interest in the relevant land,

(b) that interest was in existence before the purchaser’s acquisition of it, and

(c) the consideration which the purchaser gives for the interest is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

the purchaser is to be treated, on and after the time of the acquisition, as the owner of the fixture as a result of incurring that expenditure.

[F561 (2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time of the acquisition, a person has a prior right in relation to the fixture.]

(3) For the purposes of [F562 subsection (2), a person] has a prior right in relation to the fixture if he—

(a) is treated as the owner of the fixture immediately before the time referred to in [F563 subsection (2)] as a result of incurring expenditure on the provision of the fixture,

(b) is not so treated as a result of section 538 (contribution allowances for plant and machinery),

(c) is entitled to an allowance in respect of that expenditure, and

(d) makes or has made a claim in respect of that expenditure.

(4) Subsection (1) is subject to [F564 sections 182 and 182A] .

Textual Amendments

F561 S. 181(2) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 2(1)

F562 Words in s. 181(3) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 2(2)(a)

F563 Words in s. 181(3) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 2(2)(b)

F564 Words in s. 181(4) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 5

Modifications etc. (not altering text)

C51 S. 181(1) modified (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(d); S.I. 2005/1444, art. 2(1), Sch. 1

C52 S. 181(1) modified (7.8.2015) by The Housing and Regeneration Transfer Schemes (Tax Consequences) Regulations 2015 (S.I. 2015/1540), regs. 1, 8(4)(b) (with regs. 3, 8(1)(6))

182 Purchaser of land discharging obligations of equipment lessee U.K.

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the purchaser”) acquires an interest in the relevant land,

(b) that interest was in existence before the purchaser’s acquisition of it,

(c) before that acquisition, the plant or machinery was let under an equipment lease, and

(d) in connection with that acquisition, the purchaser pays a capital sum to discharge the obligations of the equipment lessee under the equipment lease,

the purchaser is to be treated, on and after the time of the acquisition, as the owner of the fixture as a result of incurring expenditure, consisting of that capital sum, on the provision of the fixture.

[F565 (2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time of the acquisition, a person has a prior right in relation to the fixture.

(3) Section 181(3)(test for whether person has a prior right) applies for the purposes of subsection (2). ]

Textual Amendments

F565 S. 182(2)(3) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 2(3)

Modifications etc. (not altering text)

C53 S. 182(1) modified (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 14(2)(d); S.I. 2005/1444, art. 2(1), Sch. 1

C54 S. 182(1) modified (7.8.2015) by The Housing and Regeneration Transfer Schemes (Tax Consequences) Regulations 2015 (S.I. 2015/1540), regs. 1, 8(4)(b) (with regs. 3, 8(1)(6))

[F566 182A Purchaser of land discharging obligations of client under energy services agreement U.K.

(1) If—

(a) after any plant or machinery has become a fixture, a person (“ the purchaser ”) acquires an interest in the relevant land,

(b) that interest was in existence before the purchaser’s acquisition of it,

(c) before that acquisition, the plant or machinery was provided under an energy services agreement, and

(d) in connection with that acquisition, the purchaser pays a capital sum to discharge the obligations of the client under the energy services agreement,

the purchaser is to be treated, on and after the time of the acquisition, as the owner of the fixture as a result of incurring expenditure, consisting of that capital sum, on the provision of the fixture.

(2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time of the acquisition, a person has a prior right in relation to the fixture.

(3) Section 181(3) (test for whether person has a prior right) applies for the purposes of subsection (2).]

Textual Amendments

F566 S. 182A inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 6

183 Incoming lessee where lessor entitled to allowances U.K.

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the lessor”) who has an interest in the relevant land grants a lease,

(b) the lessor is entitled to an allowance in respect of the fixture for the chargeable period in which the lease is granted or would be if he were within the charge to tax,

(c) the consideration which the lessee gives for the lease is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

(d) the lessor and the lessee are not connected persons, and

(e) the lessor and the lessee make an election under this section,

the lessee is to be treated, on and after the time when the lease is granted, as the owner of the fixture as a result of incurring that expenditure.

(2) An election under this section must be made by notice to [F145 an officer of Revenue and Customs] within 2 years after the date on which the lease takes effect.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

184 Incoming lessee where lessor not entitled to allowances U.K.

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the lessor”) who has an interest in the relevant land grants a lease,

(b) the lessor is not within section 183(1)(b),

(c) before the lease is granted, the fixture has not been used for the purposes of a qualifying activity carried on by the lessor or any person connected with the lessor, and

(d) the consideration which the lessee gives for the lease is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

the lessee is to be treated, on and after the time when the lease is granted, as the owner of the fixture as a result of incurring that expenditure.

[F567 (2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time when the lease is granted, a person has a prior right in relation to the fixture.

(3) Section 181(3)(test for whether person has a prior right) applies for the purposes of subsection (2). ]

Textual Amendments

F567 S. 184(2)(3) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 2(4)

Restrictions on amount of qualifying expenditure U.K.

185 Fixture on which a plant and machinery allowance has been claimed U.K.

(1) This section applies if—

(a) a person (“the current owner”) is treated as the owner of a fixture as a result of incurring capital expenditure (“new expenditure”) on its provision,

(b) the plant or machinery is treated as having been owned at a relevant earlier time by any person (“the past owner”) as a result of incurring other expenditure,

(c) the plant or machinery is within paragraph (b) otherwise than as a result of section 538 (contribution allowances for plant and machinery), and

(d) the past owner is or has been required to bring the disposal value of the plant or machinery into account (as a result of having made a claim in respect of that other expenditure).

(2) If the new expenditure exceeds the maximum allowable amount, the excess—

(a) is to be left out of account in determining the current owner’s qualifying expenditure, or

(b) if the new expenditure has already been taken into account for this purpose, is to be treated as expenditure that should never have been taken into account.

(3) The maximum allowable amount is—

where—

• D is the disposal value of the plant or machinery which the past owner has been or is required to bring into account, and

• I is any of the new expenditure that is treated under section 25 (building alterations in connection with installation) as expenditure on the provision of the plant or machinery.

(4) If more than one disposal event has occurred requiring the past owner to bring the disposal value of the plant or machinery into account, the maximum allowable amount is calculated by reference only to the most recent of those events.

(5) For the purposes of this section, the current owner and the past owner may be the same person.

(6) In subsection (1)(b) “relevant earlier time” means (subject to subsection (7)) any time before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure.

(7) If, before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure—

(a) any person has ceased to own the plant or machinery as a result of a sale,

(b) the sale was not a sale of the plant or machinery as a fixture, and

(c) the buyer and seller were not connected persons at the time of the sale,

the relevant earlier time does not include any time before the seller ceased to own the plant or machinery.

186 Fixture on which an industrial buildings allowance has been made U.K.

(1) This section applies if—

(a) a person (“the past owner”) has at any time claimed an allowance to which he [F568 was] entitled under Part 3 (industrial buildings allowances) in respect of expenditure which was or included expenditure on the provision of plant or machinery,

(b) the past owner has transferred the interest which [F569 was] the relevant interest for the purposes of Part 3, and

(c) the current owner of the plant or machinery makes a claim in respect of expenditure (“new expenditure”) incurred—

(i) on the provision of the plant or machinery, and

(ii) at a time when it is a fixture in the building.

(2) If the new expenditure exceeds the maximum allowable amount, the excess is to be left out of account in determining the current owner’s qualifying expenditure.

(3) [F570 If the total consideration for the transfer by the past owner exceeds R,] the maximum allowable amount is—

where—

• F is the part of the consideration for the transfer by the past owner that is attributable to the fixture,

• T is the total consideration for that transfer, and

• R is the residue of qualifying expenditure [F571 which would have been] attributable to the relevant interest immediately after that transfer, calculated on the assumption that the transfer was a sale of the relevant interest[F572 , had the time immediately after the transfer fallen immediately before the repeal of Part 3 by section 84 of [F573 FA] 2008.]

[F574 (3A) Where subsection (3) does not apply, the maximum allowable amount is the part of the consideration for the transfer by the past owner that is attributable to the fixture.]

(4) For the purposes of this section the current owner of the plant or machinery is—

(a) the person to whom the past owner transferred the relevant interest, or

(b) any person who is subsequently treated as the owner of the plant or machinery.

(5) In this section “building” and “residue of qualifying expenditure” have the same meaning as [F575 for the purposes of Part 3 immediately before its repeal by section 84 of [F576 FA] 2008.]

Textual Amendments

F568 Word in s. 186(1)(a) substituted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(2)

F569 Word in s. 186(1)(b) substituted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(2)

F570 Words in s. 186(3) inserted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(3)(a)

F571 Words in s. 186(3) inserted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(3)(b)(i)

F572 Words in s. 186(3) inserted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(3)(b)(ii)

F573 Word in s. 186(3) substituted (21.7.2009) by Finance Act 2009 (c. 10), s. 126(5)(a)

F574 S. 186(3A) inserted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(4)

F575 Words in s. 186(5) substituted (with effect in accordance with Sch. 27 para. 30(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 27 para. 5(5)

F576 Word in s. 186(5) substituted (21.7.2009) by Finance Act 2009 (c. 10), s. 126(5)(a)

[F577 186A Fixtures on which a business premises renovation allowance has been made U.K.

(1) This section applies if—

(a) a person (“the past owner”) has at any time claimed an allowance to which that person was entitled under Part 3A (business premises renovation allowances) in respect of qualifying expenditure under that Part incurred in respect of a qualifying building (“Part 3A expenditure”),

(b) there has been a balancing event within section 360N(1) as a result of which an asset representing the whole or part of the Part 3A expenditure (“the Part 3A asset”) ceased to be owned by the past owner,

(c) the Part 3A asset was or included plant or machinery, and

(d) the current owner makes a claim under this Part in respect of expenditure (“new expenditure”) incurred—

(i) on the provision of the plant or machinery, and

(ii) at a time when it is a fixture.

(2) If the new expenditure exceeds the maximum allowable amount, the excess is to be left out of account in determining the current owner's qualifying expenditure.

(3) If the proceeds from the balancing event mentioned in subsection (1)(b) exceed R, the maximum allowance amount is—

where—

F is so much of the proceeds from the balancing event as are attributable to the fixture,

T is the total amount of the proceeds from the balancing event, and

R is the qualifying expenditure incurred by the past owner on the Part 3A asset less the net Part 3A allowances in respect of that asset.

(4) Where subsection (3) does not apply, the maximum allowable amount is so much of the proceeds from the balancing event as are attributable to the fixture.

(5) For the purposes of subsection (3) the “net Part 3A allowances” in respect of the Part 3A asset means—

(a) the total of any allowances made under Part 3A in respect of the past owner's qualifying expenditure, less

(b) the total of any balancing charges made under that Part in respect of that expenditure.

(6) For the purposes of this section, the current owner of the plant or machinery is—

(a) the person who acquired the Part 3A asset from the past owner, or

(b) any person who is subsequently treated as the owner of the plant or machinery.]

Textual Amendments

F577 S. 186A inserted (with effect in accordance with Sch. 10 para. 12 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 6

187 Fixture on which a research and development allowance has been made U.K.

(1) This section applies if—

(a) a person has at any time claimed an allowance to which he is entitled under Part 6 (research and development allowances) in respect of qualifying expenditure under that Part (“Part 6 expenditure”),

(b) an asset representing the whole or part of the Part 6 expenditure (“the Part 6 asset”) has ceased to be owned by that person (“the past owner”),

(c) the Part 6 asset was or included plant or machinery, and

(d) the current owner makes a claim under this Part in respect of expenditure (“new expenditure”) incurred—

(i) on the provision of the plant or machinery, and

(ii) at a time when it is a fixture.

(2) If the new expenditure exceeds the maximum allowable amount, the excess is to be left out of account in determining the current owner’s qualifying expenditure.

(3) The maximum allowable amount is—

where—

• F is the part of the consideration for the disposal of the Part 6 asset by the past owner that is attributable to the fixture,

• T is the total consideration for that disposal, and

• A is an amount equal to whichever is the smaller of—

  (a)

  the disposal value of the Part 6 asset when the past owner ceased to own it, and

  (b)

  so much of the Part 6 expenditure as related to the provision of the Part 6 asset.

(4) For the purposes of this section the current owner of the plant or machinery is—

(a) the person who acquired the Part 6 asset from the past owner, or

(b) any person who is subsequently treated as the owner of the plant or machinery.

[F578 187A Effect of changes in ownership of a fixture U.K.

(1) This section applies if—

(a) a person (“the current owner”) is treated as the owner of a fixture as a result of incurring capital expenditure (“new expenditure”) on its provision for the purposes of a qualifying activity carried on by the current owner,

(b) the plant or machinery is treated as having been owned at a relevant earlier time by a person as a result of incurring other capital expenditure (“historic expenditure”) on its provision for the purposes of a qualifying activity carried on by that person,

(c) the plant or machinery is within paragraph (b) otherwise than as a result of section 538 (contribution allowances for plant and machinery), and

(d) a person mentioned in paragraph (b) was entitled to claim an allowance under this Part in respect of the historic expenditure.

(2) In this section—

• “the past owner” means—

  (a)

  the person mentioned in paragraph (d) of subsection (1), or

  (b)

  if there is more than one amount of historic expenditure in respect of which a person was entitled to claim as mentioned in that paragraph, the person by whom expenditure was incurred most recently;

• “relevant earlier time” has the meaning given by section 187B(4) and (5).

(3) In determining the current owner’s qualifying expenditure, the new expenditure is to be treated as nil if—

(a) the pooling requirement is not satisfied,

(b) the fixed value requirement applies but is not satisfied, or

(c) the disposal value statement requirement applies but is not satisfied,

in relation to the past owner.

(4) The pooling requirement is that—

(a) the historic expenditure has been allocated to a pool in a chargeable period beginning on or before the day on which the past owner ceases to be treated as the owner of the fixture, or

(b) a first-year allowance has been claimed in respect of that expenditure (or any part of it).

(5) The fixed value requirement applies if the past owner is or has been required (as a result of having made a claim in respect of the historic expenditure) to bring the disposal value of the plant or machinery into account in accordance with item 1, 5 or 9 of the Table in section 196.

(6) The fixed value requirement is that either—

(a) a relevant apportionment of the apportionable sum has been made, or

(b) the current owner has obtained the statements mentioned in subsection (8), or copies of them, (directly or indirectly) from the persons who made them and the case is one where the purchaser from the past owner or, as the case may be, lessee was not entitled to claim an allowance under this Part in respect of capital expenditure incurred on the fixture.

(7) For the purposes of subsection (6)(a) a relevant apportionment of the apportionable sum is made if—

(a) the tribunal determines the part of the apportionable sum that constitutes the disposal value, on an application made by one of the affected parties before the end of the relevant 2 year period, or

(b) an election is made, in respect of the apportionable sum, by the affected parties jointly—

(i) before the end of the relevant 2 year period, or

(ii) if an application is made as mentioned in paragraph (a) and not determined or withdrawn by the end of that period, before that application is determined or withdrawn.

(8) The statements referred to in subsection (6)(b) are—

(a) a written statement made by the purchaser from the past owner or, as the case may be, lessee, that the requirement of subsection (6)(a) has not been met and is no longer capable of being met, and

(b) a written statement made by the past owner of the amount of the disposal value that the past owner has in fact brought into account.

(9) In subsections (6) to (8)—

(a) in a case falling within item 1 or 9 of the Table in section 196—

• “affected parties” means the past owner and the purchaser from the past owner;

• “apportionable sum” means the sale price;

• “election” means an election under section 198;

• “relevant 2 year period” means the period of 2 years beginning with the date when the purchaser from the past owner acquires the qualifying interest;

(b) in a case falling within item 5 of that Table—

• “affected parties” means the past owner and the lessee;

• “apportionable sum” means the capital sum given by the lessee for the lease;

• “election” means an election under section 199;

• “relevant 2 year period” means the period of 2 years beginning with the date when the lessee is granted the lease.

(10) The disposal value statement requirement applies if the past owner is or has been required (as a result of having made a claim in respect of the historic expenditure) to bring the disposal value of the plant or machinery into account in accordance with item 2 or 3 of the Table in section 196 or in accordance with item 7 of the Table in section 61.

(11) The disposal value statement requirement is—

(a) that the past owner has, no later than 2 years after the date when the past owner ceased to own the plant or machinery, made a written statement of the amount of the disposal value that the past owner is or has been required to bring into account, and

(b) the current owner has obtained that statement or a copy of it (directly or indirectly) from the past owner.

Textual Amendments

F578 Ss. 187A, 187B inserted (with effect in accordance with Sch. 10 paras. 11, 13 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 1

187B Section 187A: supplementary provision U.K.

(1) It is for the current owner to show—

(a) whether the fixed value requirement applies and, if so, is satisfied, and

(b) whether the disposal value statement requirement applies and, if so, is satisfied,

and, for this purpose, to provide an officer of Revenue and Customs, on request, with a copy of any tribunal decision, election or statement by reason of which a requirement mentioned in paragraph (a) or (b) is satisfied.

(2) Where—

(a) the fixed value requirement applies and is met by reason of section 187A(6)(b) being satisfied, or

(b) the disposal value requirement applies,

subsections (2) and (4) of section 200 apply in relation to the making of a statement within section 187A(8)(b) or (11)(a) and an amount specified in such a statement, as they apply in relation to an election and an amount specified in an election.

(3) For the purposes of section 187A, the current owner and the past owner may be the same person.

(4) In that section “relevant earlier time” means (subject to subsection (5)) any time which falls before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure.

(5) If, before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure—

(a) any person has ceased to own the plant or machinery as a result of a sale,

(b) the sale was not a sale of the plant or machinery as a fixture, and

(c) the buyer and seller were not connected persons at the time of the sale,

the relevant earlier time does not include any time before the seller ceased to own the plant or machinery.

(6) Nothing in section 187A(3) affects the disposal value (if any) which falls to be brought into account by the past owner (as a result of having made a claim in respect of the historic expenditure).

(7) Expressions used in this section have the same meaning as in section 187A.]

Textual Amendments

F578 Ss. 187A, 187B inserted (with effect in accordance with Sch. 10 paras. 11, 13 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 1

Cessation of ownership of fixtures U.K.

188 Cessation of ownership when person ceases to have qualifying interest U.K.

(1) This section applies if a person is treated as the owner of a fixture under—

(a) section 176 (person with interest in land having fixture for purposes of qualifying activity),

(b) section 181 (purchaser of land giving consideration for fixture),

(c) section 182 (purchaser of land discharging obligations of equipment lessee),

[F579 (ca) section 182A (purchaser of land discharging obligations of client under energy services agreement),]

(d) section 183 (incoming lessee where lessor entitled to allowances), or

(e) section 184 (incoming lessee where lessor not entitled to allowances).

(2) If the person ceases at any time to have the qualifying interest, he is to be treated as ceasing to be the owner of the fixture at that time.

(3) In this Chapter “the qualifying interest” means—

(a) if section 176, 181 [F580 , 182 or 182A] applies, the interest in the relevant land referred to in that section, and

(b) if section 183 or 184 applies, the lease referred to in that section.

(4) This section is subject to section 189.

Textual Amendments

F579 S. 188(1)(ca) inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 7(2)

F580 Words in s. 188(3)(a) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 7(3)

189 Identifying the qualifying interest in special cases U.K.

(1) If—

(a) a person’s qualifying interest is an agreement to acquire an interest in land, and

(b) that interest is subsequently transferred or granted to that person,

the interest transferred or granted is to be treated as the qualifying interest.

(2) If a person’s qualifying interest ceases to exist as a result of its being merged in another interest acquired by that person, that other interest is to be treated as the qualifying interest.

(3) If—

(a) the qualifying interest is a lease, and

(b) on its termination, a new lease of the relevant land (with or without other land) is granted to the lessee,

the new lease is to be treated as the qualifying interest.

(4) If—

(a) the qualifying interest is a licence, and

(b) on its termination, a new licence to occupy the relevant land (with or without other land) is granted to the licensee,

the new licence is to be treated as the qualifying interest.

(5) If—

(a) the qualifying interest is a lease, and

(b) with the consent of the lessor, the lessee remains in possession of the relevant land after the termination of the lease without a new lease being granted to him,

the qualifying interest is to be treated as continuing so long as the lessee remains in possession of the relevant land.

190 Cessation of ownership of lessor where section 183 applies U.K.

(1) This section applies if a lessee is treated under section 183 (incoming lessee where lessor entitled to allowances) as the owner of a fixture.

(2) The lessor is to be treated as ceasing to be the owner of the fixture when the lessee begins to be treated as the owner.

191 Cessation of ownership on severance of fixture U.K.

If—

(a) a person is treated as the owner of the fixture as a result of any provision of this Chapter,

(b) the fixture is permanently severed from the relevant land (so that it ceases to be a fixture), and

(c) once it is severed, it is not in fact owned by that person,

that person is to be treated as ceasing to be the owner of the fixture when it is severed.

192 Cessation of ownership of equipment lessor U.K.

(1) This section applies if an equipment lessor is treated under section 177 as the owner of a fixture.

(2) If—

(a) the equipment lessor at any time assigns his rights under the equipment lease, or

(b) the financial obligations of the equipment lessee under an equipment lease are at any time discharged (on the payment of a capital sum or otherwise),

the equipment lessor is to be treated as ceasing to be the owner of the fixture at that time (or, as the case may be, at the earliest of those times).

(3) The reference in subsection (2)(b) to the equipment lessee is, in a case where the financial obligations of the equipment lessee have become vested in another person (by assignment, operation of law or otherwise), a reference to the person in whom the obligations are vested when the capital sum is paid.

[F581 192A Cessation of ownership of energy services provider U.K.

(1) This section applies if an energy services provider is treated under section 180A as the owner of a fixture.

(2) If—

(a) the energy services provider at any time assigns his rights under the energy services agreement, or

(b) the financial obligations of the client in respect of the fixture under an energy services agreement are at any time discharged (on the payment of a capital sum or otherwise),

the energy services provider is to be treated as ceasing to be the owner of the fixture at that time (or, as the case may be, the earliest of those times).

(3) The reference in subsection (2)(b) to the client is, in a case where the financial obligations of the client have become vested in another person (by assignment, operation of law or otherwise), a reference to the person in whom the obligations are vested when the capital sum is paid.]

Textual Amendments

F581 S. 192A inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 8

Acquisition of ownership of fixture when another ceases to own it U.K.

193 Acquisition of ownership by lessor or licensor on termination of lease or licence U.K.

If, on the termination of a lease or licence, the outgoing lessee or licensee is treated under section 188 as ceasing to be the owner of a fixture, the lessor or licensor is to be treated, on and after the termination of the lease or licence, as the owner of the fixture.

194 Acquisition of ownership by assignee of equipment lessor U.K.

(1) If section 192(2)(a) applies (cessation of ownership of equipment lessor as a result of assignment), the assignee is to be treated, on and after the assignment—

(a) as having incurred expenditure, consisting of the consideration given by him for the assignment, on the provision of the fixture, and

(b) as being the owner of the fixture.

(2) For the purposes of section 192 (and subsection (1) and section 195) the assignee is to be treated as being an equipment lessor who owns the fixture under section 177.

195 Acquisition of ownership by equipment lessee U.K.

(1) If section 192(2)(b) applies (discharge of obligations of equipment lessee) because the equipment lessee has paid a capital sum, the equipment lessee is to be treated—

(a) as having incurred expenditure, consisting of the capital sum, on the provision of the fixture, and

(b) as being, on and after the time of payment, the owner of the fixture.

(2) Section 192(3) (assignee of equipment lessee) applies in relation to subsection (1).

[F582 195A Acquisition of ownership by assignee of energy services provider U.K.

(1) If section 192A(2)(a) applies (cessation of ownership of energy services provider as a result of assignment), the assignee is to be treated, on and after the assignment—

(a) as having incurred expenditure, consisting of the consideration given by him for the assignment, on the provision of the fixture, and

(b) as being the owner of the fixture.

(2) For the purposes of section 192A (and subsection (1) and section 195B) the assignee is to be treated as being an energy services provider who owns the fixture under section 180A.

Textual Amendments

F582 Ss, 195A, 195B inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 9

195B Acquisition of ownership by client U.K.

(1) If section 192A(2)(b) applies (discharge of obligations of client) because the client has paid a capital sum, the client is to be treated—

(a) as having incurred expenditure, consisting of the capital sum, on the provision of the fixture, and

(b) as being, on and after the time of payment, the owner of the fixture.

(2) Section 192A(3)(assignee of client) applies in relation to subsection (1).]

Textual Amendments

F582 Ss, 195A, 195B inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 9

Disposal values U.K.

196 Disposal values in relation to fixtures: general U.K.

(1) The disposal value to be brought into account in relation to a fixture depends on the nature of the disposal event, as shown in the Table—

Table

Disposal values: fixtures

1. Disposal event	2. Disposal value
1. Cessation of ownership of the fixture under section 188 because of a sale of the qualifying interest except where item 2 applies.	The part of the sale price that— (a) falls to be treated for the purposes of this Part as expenditure incurred by the purchaser on the provision of the fixture, or (b) would fall to be so treated if the purchaser were entitled to an allowance.
2. Cessation of ownership of the fixture under section 188 because of a sale of the qualifying interest where— (a) the sale is at less than market value, and (b) the condition in subsection (2) is met by the purchaser.	The part of the price that would be treated for the purposes of this Part as expenditure by the purchaser on the provision of the fixture if— (a) the qualifying interest were sold at market value, (b) that sale took place immediately before the event which causes the former owner to be treated as ceasing to be the owner of the fixture, and (c) that event were disregarded in determining that market value.
3. Cessation of ownership of the fixture under section 188 where— (a) neither item 1 nor 2 applies, but (b) the qualifying interest continues in existence after that time or would so continue but for its becoming merged in another interest.	The disposal value given for item 2.
4. Cessation of ownership of the fixture under section 188 because of the expiry of the qualifying interest.	If the person receives a capital sum, by way of compensation or otherwise, by reference to the fixture, the amount of the capital sum. In any other case, nil.
5. Cessation of ownership of the fixture under section 190 because the lessee has become the owner under section 183.	The part of the capital sum given by the lessee for the lease referred to in section 183 that falls to be treated for the purposes of this Part as the lessee’s expenditure on the provision of the fixture.
6. Cessation of ownership of the fixture under section 191 (severance).	The market value of the fixture at the time of the severance.
7. Cessation of ownership of the fixture because section 192(2)(a) (assignment of rights) applies.	The consideration given by the assignee for the assignment.
8. Cessation of ownership of the fixture because section 192(2)(b) (discharge of equipment lessee’s obligations) applies on the payment of a capital sum.	The capital sum paid to discharge the financial obligations of the equipment lessee.
[F583 8A. Cessation of ownership of the fixture because section 192A(2)(a)(assignment of rights) applies.	The consideration given by the assignee for the assignment.
8B. Cessation of ownership of the fixture because section 192A(2)(b) (discharge of client’s obligations) applies on the payment of a capital sum.	The capital sum paid to discharge the financial obligations of the client.]
9. Permanent discontinuance of the qualifying activity followed by the sale of the qualifying interest.	The part of the sale price that— (a) falls to be treated as expenditure incurred by the purchaser on the provision of the fixture, or (b) would fall to be so treated if the purchaser were entitled to an allowance.
10. Permanent discontinuance of the qualifying activity followed by the demolition or destruction of the fixture.	The net amount received for the remains of the fixture, together with— (a) any insurance money received in respect of the demolition or destruction, and (b) any other compensation of any description so received, so far as it consists of capital sums.
11. Permanent discontinuance of the qualifying activity followed by the permanent loss of the fixture otherwise than as a result of its demolition or destruction.	Any insurance money received in respect of the loss and, so far as it consists of capital sums, any other compensation of any description so received.
12. The fixture begins to be used wholly or partly for purposes other than those of the qualifying activity.	The part of the price that would fall to be treated for the purposes of this Part as expenditure incurred by the purchaser on the provision of the fixture if the qualifying interest were sold at market value.

(2) The condition referred to in item 2 of the Table is met by the purchaser if—

(a) the purchaser’s expenditure on the provision of the fixture cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

(b) the purchaser is a dual resident investing company which is connected with the former owner.

(3) Items 1 and 5 of the Table are subject to sections 198 and 199 (election to fix apportionment on sale of qualifying interest or grant of lease).

(4) Section 192(3) (assignee of equipment lessee) applies in relation to item 8 of the Table.

[F584 (4A) Section 192A(3)(assignee of client) applies in relation to item 8B of the Table.]

(5) Nothing in sections 188 to [F585 192A] or this section prevents a disposal value having to be brought into account under Chapter 5 because of a disposal event not dealt with in these sections.

(6) This section is subject to section 197.

Textual Amendments

F583 S. 196(1) Table, items 8A, 8B inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 10(2)

F584 S. 196(4A) inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 10(3)

F585 Words in s. 196(5) substituted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 10(4)

Modifications etc. (not altering text)

C55 S. 196 excluded (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14) , s. 60(2) , Sch. 10 para. 14(2)(a) ; S.I. 2005/1444 , art. 2(1) , Sch. 1

C56 S. 196 modified (E.W.S.) (8.6.2005) by Railways Act 2005 (c. 14) , s. 60(2) , Sch. 10 para. 3 ; S.I. 2005/1444 , art. 2(1) , Sch. 1

C57 S. 196 modified (E.W.S.) (24.7.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 23; S.I. 2005/1909, art. 2, Sch.

C58 S. 196 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 20(2)

C59 S. 196 modified (7.8.2015) by The Housing and Regeneration Transfer Schemes (Tax Consequences) Regulations 2015 (S.I. 2015/1540), regs. 1, 8(2) (with regs. 3, 8(1)(6))

197 Disposal values in avoidance cases U.K.

(1) This section applies if—

(a) a person (“the taxpayer”) is treated under this Chapter as the owner of any plant or machinery as a result of incurring any expenditure,

(b) any disposal event occurs in relation to the plant or machinery,

(c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the plant or machinery, and

(d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.

(2) The disposal value that the taxpayer must bring into account is the notional written-down value of the plant or machinery.

(3) The notional written-down value is—

where—

• QE is the taxpayer’s expenditure on the plant or machinery that is qualifying expenditure,

• A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if—

  (a)

  that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and

  (b)

  all allowances had been made in full.

Election to fix apportionment U.K.

198 Election to apportion sale price on sale of qualifying interest U.K.

(1) This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 1 [F586 or 9] of the Table in section 196 (sale of qualifying interest at not less than market value, etc.).

(2) The seller and the purchaser may jointly, by an election, fix the amount that is to be treated—

(a) for the purposes of item 1 [F587 or (as the case may be) 9] of the Table, and

(b) for the other purposes of this Part,

as the part of the sale price that is expenditure incurred by the purchaser on the provision of the fixture.

(3) The amount fixed by the election must not exceed—

(a) the amount of the capital expenditure which was treated as incurred by the seller on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual sale price.

(4) If an election fixes the amount to be treated as the part of the sale price—

(a) the remaining amount (if any) of the sale price is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to—

[F588 (a) sections 186, 186A and 187 (fixtures on which industrial buildings allowance, business premises renovation allowance or research and development allowance has been made),]

(b) section 197 (disposal values in avoidance cases), and

(c) sections 200 and 201 (further provisions about elections).

Textual Amendments

F586 Words in s. 198(1) inserted (with effect in accordance with Sch. 10 para. 11 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 3(a)

F587 Words in s. 198(2)(a) inserted (with effect in accordance with Sch. 10 para. 11 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 3(b)

F588 S. 198(5)(a) substituted (with effect in accordance with Sch. 10 para. 12 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 9

199 Election to apportion capital sum given by lessee on grant of lease U.K.

(1) This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 5 of the Table in section 196 (on acquisition of ownership by incoming lessee under section 183).

(2) The persons who are the lessor and the lessee for the purposes of section 183 may jointly, by an election, fix the amount that is to be treated—

(a) for the purposes of item 5 of the Table, and

(b) for the other purposes of this Part,

as the part of the capital sum that is expenditure incurred by the lessee on the provision of the fixture.

(3) The amount fixed by the election must not exceed—

(a) the amount of the capital expenditure which was treated as incurred by the lessor on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual capital sum.

(4) If an election fixes the amount to be treated as the part of the capital sum—

(a) the remaining amount (if any) of the capital sum is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to—

[F589 (a) sections 186, 186A and 187 (fixtures on which industrial buildings allowance, business premises renovation allowance or research and development allowance has been made),]

(b) section 197 (disposal values in avoidance cases), and

(c) sections 200 and 201 (further provisions about elections).

Textual Amendments

F589 S. 199(5)(a) substituted (with effect in accordance with Sch. 10 para. 12 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 10

200 Elections under sections 198 and 199: supplementary U.K.

(1) In this section and section 201, references to an election are to an election under section 198 or 199.

(2) An apportionment made by an election has effect in place of any apportionment that would otherwise be made under sections 562, 563 and 564(1) (apportionment and procedure for determining apportionment).

(3) An election is irrevocable.

(4) If, as a result of circumstances arising after the making of an election, the maximum amount which could be fixed by the election is reduced to an amount which is less than the amount specified in the election, the election is to be treated, for the purposes of this Act, as having specified the amount to which the maximum is reduced.

201 Elections under sections 198 and 199: procedure U.K.

(1) An election must be made by notice to [F145 an officer of Revenue and Customs] no later than 2 years after the date when—

(a) the purchaser acquires the qualifying interest, in the case of an election under section 198, or

(b) the lessee is granted the lease, in the case of an election under section 199.

[F590 But this is subject to subsection (1A).]

[F591 (1A) Where—

(a) the requirement of subsection (6) of section 187A (effect of changes in ownership of fixture: fixed value requirement) applies, or may in future apply by reason of a person being required to bring the disposal value of plant and machinery into account in accordance with item 1, 5 or 9 of the Table in section 196,

(b) an application is made to the tribunal for the purposes of section 187A(7)(a), and

(c) that application is not determined before the end of the period mentioned in subsection (1) of this section,

subsection (1) does not apply and an election within section 187A(7)(b) may be made by notice to an officer of Revenue and Customs at any time before the tribunal determines the application or the application is withdrawn.]

(2) The amount fixed by an election must be quantified at the time when the election is made.

(3) The notice must state—

(a) the amount fixed by the election,

(b) the name of each of the persons making the election,

(c) information sufficient to identify the plant or machinery,

(d) information sufficient to identify the relevant land,

(e) particulars of—

(i) the interest acquired by the purchaser, in the case of an election under section 198, or

(ii) the lease granted to the lessee, in the case of an election under section 199, and

[F592 (f) in relation to each of the persons making the election—

(i) that person's Unique Taxpayer Reference, or

(ii) that the person does not have a Unique Taxpayer Reference.]

(4) If a person—

(a) has joined in making an election, and

(b) subsequently makes a tax return for a period which is the first period for which he is making a tax return in which the election has an effect for tax purposes in his case,

a copy of the notice containing the election must accompany the return.

(5) The following provisions do not apply to the election—

(a) section 42 of, and Schedule 1A to, TMA 1970 (claims and elections for income tax purposes);

(b) paragraphs 54 to 60 of Schedule 18 to FA 1998 (claims and elections for corporation tax purposes).

(6) References in this section to a tax return, in the case of an election for the purposes of a trade, profession or business carried on by persons in partnership, are to be read, in relation to those persons, as references to a return under section 12AA of TMA 1970 (partnership returns).

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F590 Words in s. 201(1) inserted (with effect in accordance with Sch. 10 para. 11 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 4(2)

F591 S. 201(1A) inserted (with effect in accordance with Sch. 10 para. 11 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 4(3)

F592 S. 201(3)(f) substituted (with effect in accordance with Sch. 10 para. 11 of the amending Act) by Finance Act 2012 (c. 14), Sch. 10 para. 4(4)

Further provisions U.K.

202 Interpretation U.K.

(1) Any reference in this Chapter to a person being entitled to an allowance in respect of expenditure on the provision of a fixture includes the person having a pool to which expenditure on the provision of the fixture has been allocated.

But this is subject to subsection (2).

(2) If—

(a) expenditure on the provision of the fixture has been allocated to a pool, and

(b) the person is required under section 61(1) to bring the disposal value of the fixture into account in the pool,

the person is not entitled to an allowance in respect of the expenditure allocated to that pool for any chargeable period after that in which the disposal event occurs.

(3) For the purposes of this Chapter, a person makes a claim in respect of expenditure if he—

(a) makes a claim for an allowance in respect of that expenditure,

(b) makes a tax return in which that expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or

(c) gives notice of an amendment of a tax return which provides for that expenditure to be so taken into account.

203 Amendment of returns etc. U.K.

(1) If a person who has made a tax return (“the taxpayer”) becomes aware that, after making it, anything in it has become incorrect for any of the reasons given in subsection (2), the taxpayer must give notice to [F145 an officer of Revenue and Customs] specifying how the return needs to be amended.

(2) The reasons are that—

(a) an approval given for the purposes of section 180 (affordable warmth programme) has been withdrawn;

(b) section 181(2), 182(2) [F593 , 182A(2)] or 184(2) (another person has a prior right) applies in the taxpayer’s case;

(c) section 185 (restriction on qualifying expenditure where another person has claimed an allowance) applies in the taxpayer’s case;

(d) an election is made under section 198 or 199 (election to fix apportionment);

(e) section 200(4) (reduction in amount which can be fixed by an election) applies in the taxpayer’s case.

(3) The notice must be given within 3 months beginning with the day on which the taxpayer first became aware that anything contained in the tax return had become incorrect for any of the reasons given in subsection (2).

(4) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F593 Words in s. 203(2)(b) inserted (with effect as mentioned in s. 66 of the amending Act) by Finance Act 2001 (c. 9), s. 66, Sch. 18 para. 11

204 Appeals etc. U.K.

(1) Subsections (2) and (3) apply if—

(a) any question arises as to whether any plant or machinery has become, in law, part of a building or other land, and

(b) that question is material to the tax liability (for whatever period) of two or more persons.

(2) The question is to be determined, for the purposes of the tax of all the persons concerned, by the [F594 tribunal].

[F595 (3) An application for the tribunal to determine the question is to be subject to the relevant provisions of Part 5 of the Taxes Management Act 1970 (see, in particular, section 48(2)(b) of that Act), and each of the persons concerned is entitled to be a party to the proceedings on the application.]

(4) Subsections (5) and (6) apply if any question relating to an election under section 198 or 199 (apportionments) arises for determination by [F596 the tribunal] for the purposes of any proceedings before [F597 it].

(5) The [F598 tribunal] must determine the question separately from any other questions in those proceedings.

[F599 (6) Each of the persons who has joined in the election is entitled to be a party to the proceedings of the tribunal concerned with the determination of the question; and the tribunal’s determination has effect as if made in an appeal to which each of those persons was a party.]

Textual Amendments

F594 Word in s. 204(2) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(2)

F595 S. 204(3) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(3)

F596 Words in s. 204(4) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(4)(a)

F597 Word in s. 204(4) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(4)(b)

F598 Word in s. 204(5) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(5)

F599 S. 204(6) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 298(6)

Chapter 15 U.K. Asset provided or used only partly for qualifying activity

205 Reduction of [F600 annual investment allowance and] first-year allowances U.K.

(1) If it appears that a person carrying on a qualifying activity has incurred expenditure on the provision of plant or machinery—

(a) partly for the purposes of the qualifying activity, and

(b) partly for other purposes,

any [F601 annual investment allowance or] first-year allowance to which he is entitled in respect of the expenditure must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(2) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery is likely to be used for purposes other than those of the qualifying activity in question.

(3) In calculating for the purposes of section 58 the balance left after deducting a first-year allowance, a reduction under subsection (1) is to be disregarded.

Textual Amendments

F600 Words in s. 205 heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 6(3)

F601 Words in s. 205(1) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 6(2)

206 Single asset pool etc. U.K.

(1) Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

(2) Subsection (1) applies to qualifying expenditure incurred by a person carrying on a qualifying activity—

(a) partly for the purposes of the qualifying activity, and

(b) partly for other purposes.

(3) If a person is required to bring a disposal value into account in a pool for a chargeable period because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity, an amount equal to that disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool for that chargeable period.

(4) In the case of a single asset pool under subsection (1), there is no final chargeable period or disposal event merely because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity.

207 Reduction of allowances and charges on expenditure in single asset pool U.K.

(1) This section applies if a person’s expenditure is in a single asset pool under section 206(1) or (3).

(2) The amount of—

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery was used in the chargeable period in question for purposes other than those of the person’s qualifying activity.

(4) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(5) If a person entitled to a writing-down allowance for a chargeable period—

(a) does not claim the allowance, or

(b) claims less than the full amount of the allowance,

the unrelieved qualifying expenditure carried forward from the period is to be treated as not reduced or (as the case may be) only proportionately reduced.

208 Effect of significant reduction in use for purposes of qualifying activity U.K.

(1) This section applies if—

(a) expenditure is allocated to a single asset pool under this Chapter,

(b) there is such a change of circumstances as would make it appropriate for any reduction falling to be made under section 207—

(i) for the chargeable period in which the change takes place (“the relevant chargeable period”), or

(ii) for any subsequent chargeable period,

to represent a larger proportion of the amount reduced than would have been appropriate apart from the change,

(c) no disposal value in respect of the plant or machinery would, apart from this section, fall to be brought into account for the relevant chargeable period, and

(d) the market value of the plant or machinery at the end of the relevant chargeable period exceeds the available qualifying expenditure in that pool for that period by more than £1 million.

(2) If this section applies—

(a) a disposal value is required to be brought into account in the single asset pool for the relevant chargeable period, and

(b) section 206 applies as if, at the beginning of the following chargeable period, expenditure had been incurred on the provision of the plant or machinery of an amount equal to the disposal value brought into account as a result of paragraph (a).

Modifications etc. (not altering text)

C60 S. 208(1) modified by 1993 c. 34, s. 93A(6) (as inserted (with effect as mentioned in s. 80(2) of the inserting Act) by Finance Act 2002 (c. 23), s. 80, Sch. 24 para. 4) (with Sch. 23 para. 25))

[F602 208A Cars: disposal value in avoidance cases U.K.

(1) This section applies if—

(a) a disposal value is required to be brought into account under section 61,

(b) the disposal event is that the person ceases to own a section 206 car because of a sale or the performance of a contract, and

(c) allowances under this Part in respect of the person's expenditure under that transaction are restricted under section 217 or 218 (anti-avoidance).

(2) A car is a section 206 car if expenditure on the provision of the car is required to be allocated to a single asset pool under that section.

(3) The disposal value to be brought into account is—

(a) the market value of the car at the time of the disposal event, or

(b) if less, the capital expenditure incurred, or treated as incurred, on the provision of the car by the person disposing of it.

(4) The person acquiring the car is to be treated as having incurred capital expenditure on its provision of an amount equal to the disposal value required to be brought into account under subsection (3).

(5) In this section “car” has the meaning given in section 268A.]

Textual Amendments

F602 S. 208A inserted (with effect in accordance with Sch. 11 paras. 26-28 to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 10 (with Sch. 11 paras. 30-32)

Chapter 16 U.K. Partial depreciation subsidies

209 Meaning of “partial depreciation subsidy” U.K.

In this Chapter “partial depreciation subsidy” means a sum which—

(a) is payable directly or indirectly to a person who has incurred qualifying expenditure for the purposes of a qualifying activity,

(b) is in respect of, or takes account of, part of the depreciation of the plant or machinery resulting from its use for the purposes of that activity, and

(c) does not fall to be taken into account as income of that person or in calculating the profits of any qualifying activity carried on by him.

210 Reduction of [F603 annual investment allowance and] first-year allowances U.K.

(1) If—

(a) a person has incurred qualifying expenditure for the purposes of a qualifying activity carried on by him, and

(b) it appears that a partial depreciation subsidy is, or will be, payable to him in the period during which the plant or machinery will be used for the purposes of that qualifying activity,

the amount of any [F604 annual investment allowance or] first-year allowance in respect of that expenditure must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(2) In calculating for the purposes of section 58 the balance left after deducting a first-year allowance, a reduction under subsection (1) is to be disregarded.

Textual Amendments

F603 Words in s. 210 heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 7(3)

F604 Words in s. 210(1) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 7(2)

211 Single asset pool etc. U.K.

(1) Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

(2) Subsection (1) applies to qualifying expenditure if a partial depreciation subsidy relating to the plant or machinery has been paid to the person who incurred the expenditure.

(3) Subsection (4) applies if—

(a) qualifying expenditure has been allocated to a pool, and

(b) a partial depreciation subsidy relating to the plant or machinery is paid to that person.

(4) For the chargeable period in which the partial depreciation subsidy is paid—

(a) the person is required to bring a disposal value into account in the pool referred to in subsection (3), and

(b) an amount equal to the disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool.

(5) If qualifying expenditure in respect of any plant or machinery is in a single asset pool under this section, there is no further allocation of that qualifying expenditure because a further partial depreciation subsidy is paid in respect of that plant or machinery.

212 Reduction of allowances and charges on expenditure in single asset pool U.K.

(1) This section applies if expenditure is in a single asset pool under section 211(1) or (4).

(2) The amount of—

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(4) If a person entitled to a writing-down allowance for a chargeable period—

(a) does not claim the allowance, or

(b) claims less than the full amount of the allowance,

the unrelieved qualifying expenditure carried forward from the period is to be treated as not reduced or (as the case may be) only proportionately reduced.

[F605 CHAPTER 16ZA U.K. Asset provided or used only partly for NI rate activity

Textual Amendments

F605 Pt. 2 Ch. 16ZA inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 8

212ZA Apportionment of expenditure incurred partly for NI rate activity U.K.

(1) If in a chargeable period a company has incurred qualifying expenditure on the provision of plant or machinery—

(a) partly for the purposes of an NI rate activity, and

(b) partly for the purposes of a main rate activity,

then for the purposes of any annual investment allowance or first year allowance to which the company is entitled the expenditure is to be apportioned between the NI rate activity and the main rate activity on a basis which is just and reasonable having regard to the relevant circumstances.

(2) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery is likely to be used for purposes of the NI rate activity and the extent to which it appears that it is likely to be used for the main rate activity.

(3) If the allowance falls to be reduced under section 205 or 210, it is the reduced amount that is apportioned under subsection (1).

212ZB Single asset pool etc U.K.

(1) Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

(2) Subsection (1) applies to qualifying expenditure incurred by a company carrying on both an NI rate activity and a main rate activity where the expenditure is incurred—

(a) partly for the purposes of the NI rate activity, and

(b) partly for the purposes of the main rate activity.

(3) If a company is required to bring a disposal value into account in a pool for a chargeable period because the plant or machinery begins to be used for the purposes of an NI rate activity as well as for the purposes of a main rate activity, or begins to be used for the purposes of a main rate activity as well as for the purposes of an NI rate activity, an amount equal to that disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool for that chargeable period.

(4) In the case of a single asset pool under subsection (1) or (3), there is no disposal event merely because the plant or machinery begins to be used to a greater extent for the purposes of the NI rate activity or for the purposes of the main rate activity.

212ZC Allowances and charges on expenditure in single asset pool U.K.

(1) This section applies if a company's expenditure is in a single asset pool under section 212ZB(1) or (3).

(2) The amount of—

(a) any writing-down allowance or balancing allowance to which the company is entitled, or

(b) any balancing charge to which the company is liable,

is to be apportioned between the NI rate activity and the main rate activity on a basis which is just and reasonable having regard to the relevant circumstances.

(3) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery was used in the chargeable period in question for the purposes of the NI rate activity and the extent to which it was used in the chargeable period in question for the purposes of the main rate activity.

212ZD Effect of significant change in balance of use U.K.

(1) This section applies if—

(a) expenditure is allocated to a single asset pool under this Chapter,

(b) there is such a change of circumstances as would make it appropriate for any apportionment falling to be made under section 212ZC—

(i) for the chargeable period in which the change takes place (“the relevant chargeable period”), or

(ii) for any subsequent chargeable period,

to be substantially different from the apportionment that would have been appropriate apart from the change,

(c) no disposal value in respect of the plant and machinery would, apart from this section, fall to be brought into account for the relevant chargeable period, and

(d) the market value of the plant and machinery at the end of the relevant chargeable period exceeds the available qualifying expenditure by more than £1 million.

(2) If this section applies—

(a) a disposal value is required to be brought into account in the single asset pool for the relevant chargeable period, and

(b) section 212ZA applies as if, at the beginning of the following chargeable period, expenditure has been incurred on the provision of the plant or machinery of an amount equal to the disposal value brought into account as a result of paragraph (a).

212ZE Application of Chapter to partnerships U.K.

For the purposes of the corporate partner calculation, this Chapter applies in relation to partnerships as if—

(a) references to a company were references to a partnership,

(b) references to [F606 an SME (Northern Ireland employer) company] were references to a Northern Ireland Chapter 6 firm,

(c) references to a NIRE company were references to a Northern Ireland Chapter 7 firm, and

(d) the reference in section 212ZA(1) to an annual investment allowance were omitted.

Textual Amendments

F606 Words in s. 212ZE(b) substituted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 24(i)

212ZF “Main rate activity” U.K.

In this Chapter “main rate activity” means an activity other than an an NI rate activity.]

[F607 Chapter 16A U.K. [F608 Restrictions on allowance buying]

Textual Amendments

F607 Pt. 2 Ch. 16A inserted (8.4.2010) (with effect in accordance with Sch. 4 para. 5, 6 to the amending Act) by Finance Act 2010 (c. 13), Sch. 4 para. 2

F608 Pt. 2 Ch. 16A heading substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 4

Introduction U.K.

212A Scope of Chapter U.K.

This Chapter provides for restrictions on the ways in which effect may be given to an allowance in certain circumstances where there has been a qualifying change in relation to a company (“C”).

212B Where Chapter applies U.K.

(1) This Chapter applies where—

(a) C carries on [F609 a qualifying activity (“the relevant activity”)] (whether or not in partnership with another person or other persons),

(b) there is a qualifying change in relation to C on any day (“the relevant day”),

(c) C, or (where the relevant [F610 activity] is carried on in partnership) the partnership (“P”), has a relevant excess of allowances in relation to the relevant [F610 activity], and

[F611 (d) the qualifying change meets one of the limiting conditions.]

(2) Sections 212C to 212I specify when there is a qualifying change in relation to C on the relevant day.

(3) Sections 212J to 212L specify when C or P has a relevant excess of allowances in relation to the relevant [F612 activity].

[F613 (4) Sections 212LA and 212M set out the limiting conditions and specify when those conditions are met.]

(5) Sections 212N to 212S make provision about what happens when this Chapter applies.

Textual Amendments

F609 Words in s. 212B(1)(a) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 5(2)(a)

F610 Word in s. 212B(1)(c) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 5(2)(b)

F611 S. 212B(1)(d) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 2(2)

F612 Word in s. 212B(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 5(3)

F613 S. 212B(4) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 2(3)

Qualifying change U.K.

212C When there is qualifying change in relation to C U.K.

(1) There is a qualifying change in relation to C on the relevant day if one or more of conditions A to D is met.

(2) Condition A is that—

(a) the principal company or companies of C at the beginning of the relevant day is not, or are not, the same as at the end of that day, or

(b) there is no principal company of C at the beginning of the relevant day but there is one, or are more than one, at the end of the relevant day.

(3) Condition B is that—

(a) any principal company of C is a consortium principal company (“CPC”), and

(b) CPC's ownership proportion at the end of the relevant day is more than at the beginning of the relevant day.

(4) Condition C is that [F614 the relevant activity is a trade (within the meaning of this Part) and] on the relevant day—

(a) C ceases to carry on the whole or part of the relevant [F615 activity], and

(b) it begins to be carried on in partnership by two or more companies,

in circumstances in which Chapter 1 of Part 22 of CTA 2010 (transfers of trade without change of ownership) applies in relation to the transfer of the relevant [F615 activity].

(5) Condition D is that—

(a) the relevant [F616 activity] is, at the beginning of the relevant day, carried on by C in partnership, and

(b) C's relevant percentage share in the relevant [F616 activity] at the end of the relevant day is less than at the beginning of the relevant day (or is nil).

Textual Amendments

F614 Words in s. 212C(4) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 6(2)(a)

F615 Word in s. 212C(4) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 6(2)(b)

F616 Word in s. 212C(5) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 6(3)

212D Guide to sections explaining section 212C U.K.

(1) Section 212E explains—

(a) what are principal companies of C, and

(b) which are consortium principal companies of C,

for the purposes of section 212C(2) and (3).

(2) Section 212F explains—

(a) when a company is owned by a consortium, and

(b) who are the members of the consortium,

for the purposes of section 212E.

(3) Section 212G explains the meaning of “qualifying 75% subsidiary” for the purposes of sections 212E and 212F.

(4) Section 212H explains the meaning of “ownership proportion” in section 212C(3).

(5) Section 212I explains the meaning of “relevant percentage share” in section 212C(5).

212E Principal companies U.K.

(1) A company (“U”) is a principal company of C if—

(a) C is a qualifying 75% subsidiary of U, and

(b) U is not a qualifying 75% subsidiary of another company.

(2) A company (“V”) is a principal company of C if—

(a) C is a qualifying 75% subsidiary of U,

(b) U is a qualifying 75% subsidiary of V, and

(c) V is not a qualifying 75% subsidiary of another company.

(3) If V is a qualifying 75% subsidiary of another company (“W”), W is a principal company of C unless W is a qualifying 75% subsidiary of another company, and so on.

(4) A company (“X”) is a principal company of C if—

(a) C is owned by a consortium of which X is a member, or

(b) C is a qualifying 75% subsidiary of a company owned by a consortium of which X is a member,

and X is not a qualifying 75% subsidiary of another company.

(5) A company (“Y”) is a principal company of C if—

(a) C is owned by a consortium of which X is a member, or

(b) C is a qualifying 75% subsidiary of a company owned by a consortium of which X is a member,

and X is a qualifying 75% subsidiary of Y but Y is not a qualifying 75% subsidiary of another company.

(6) If Y is a qualifying 75% subsidiary of another company (“Z”), Z is a principal company of C unless Z is a qualifying 75% subsidiary of another company, and so on.

(7) A company that is a principal company of C by virtue of any of subsections (4) to (6) is a consortium principal company of C.

212F When company is owned by consortium and consortium members U.K.

(1) This section defines what a company being owned by, or a member of, a consortium means for the purposes of section 212E.

(2) A company is owned by a consortium if—

(a) it is not a qualifying 75% subsidiary of another company,

(b) at least 75% of its ordinary share capital is beneficially owned between them by other companies, and

(c) none of those other companies owns less than 5% of that capital.

(3) Those other companies are the members of the consortium.

212G Qualifying 75% subsidiaries U.K.

(1) For the purposes of sections 212E and 212F a company (“the subsidiary company”) is a qualifying 75% subsidiary of another company (“the parent company”) if condition 1 or 2 is met and condition 3 is met.

(2) Condition 1 is that—

(a) the subsidiary company has ordinary share capital, and

(b) the subsidiary company is a 75% subsidiary of the parent company (see section 1154(3) of CTA 2010).

(3) Condition 2 is that—

(a) the subsidiary company does not have ordinary share capital, and

(b) the parent company has control of the subsidiary company.

(4) Condition 3 is that the parent company—

(a) is beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company, and

(b) would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.

(5) Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets available for distribution) applies for the purposes of subsection (4) as that Chapter applies for the purposes of section 151(4)(a) and (b) of that Act (meaning of “75% subsidiary”).

(6) But in a case where the subsidiary company does not have ordinary share capital, Chapter 6 of Part 5 of that Act applies for those purposes as if the members of that company were equity holders of that company for the purposes of that Chapter.

212H Ownership proportion U.K.

(1) For the purposes of section 212C(3) CPC's “ownership proportion” is the lowest of—

(a) the percentage of the ordinary share capital of C that is beneficially owned by CPC,

(b) the percentage to which CPC is beneficially entitled of any profits available for distribution to equity holders of C, and

(c) the percentage to which CPC would be beneficially entitled of any assets of C available for distribution to its equity holders on a winding-up.

(2) Chapter 6 of Part 5 of CTA 2010 applies for the purposes of subsection (1) as that Chapter applies for the purposes of section 143(3)(b) and (c) (condition 1: surrendering company owned by consortium) and section 144(3)(b) and (c) (condition 1: claimant company owned by consortium) of that Act.

(3) But in a case where the subsidiary company does not have ordinary share capital, Chapter 6 of Part 5 of that Act applies for those purposes as if the members of that company were equity holders of that company for the purposes of that Chapter.

212I Relevant percentage share U.K.

(1) For the purposes of section 212C(5) C's “relevant percentage share” is C's percentage share in the profits or losses of the [F617 activity].

(2) For this purpose C's percentage share in the profits or losses of [F618 an activity] at any time is determined on a just and reasonable basis.

(3) In making that determination regard must be had, in particular, to any matter that would be taken into account in determining under section 1262 of CTA 2009 (but without regard to sections 1263 and 1264 of that Act) the company's share at that time in the profits or losses of the [F619 activity].

Textual Amendments

F617 Word in s. 212I(1) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 7(2)

F618 Words in s. 212I(2) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 7(3)

F619 Word in s. 212I(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 7(2)

Relevant excess of allowances U.K.

212J Relevant excess of allowances U.K.

(1) C or P has a relevant excess of allowances in relation to the relevant [F620 activity] if—

(2) Section 212K defines RTWDV and section 212L defines BSV.

(3) References in this Chapter to plant and machinery do not include excluded plant and machinery.

(4) Plant and machinery is “excluded plant and machinery” if—

(a) expenditure incurred on the provision of it is not, as a result of section 34A, qualifying expenditure for the purposes of this Part, or

(b) it is, as a result of section 67, treated for the purposes of this Part as owned otherwise than by C or P.

Textual Amendments

F620 Word in s. 212J(1) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 8

212K Relevant tax written-down value U.K.

(1) RTWDV is the relevant tax written-down value and is to be found by adding together amounts 1 and 2.

(2) Amount 1 is the total amount of any unrelieved qualifying expenditure in respect of plant and machinery contained in—

(a) single asset pools,

(b) class pools, or

(c) the main pool,

which is available to be carried forward (in accordance with section 59) from the old period and used in calculating the profits of the relevant [F621 activity].

(3) Amount 2 is the total of any qualifying expenditure incurred on the provision of a ship for the purposes of the relevant [F622 activity] which, at the end of the old period, is unrelieved by virtue of notice having been given under section 130.

(4) For the purposes of this Part the amount of unrelieved qualifying expenditure contained in any pool which is available to be carried forward (in accordance with section 59) from the old period and used in calculating the profits of the relevant [F623 activity] is to be calculated on the assumptions—

(a) that any qualifying expenditure that could have been (but was not) allocated to the pool before the end of the old period had been so allocated at the end of the old period,

(b) that any qualifying expenditure prevented from being allocated to the pool by section 58(5) had been so allocated at the end of the old period, and

(c) that any transaction taking place on the relevant day that has the effect of reducing the amount of unrelieved qualifying expenditure in the pool had not taken place.

(5) Where condition C in section 212C is met—

(a) references in subsection (2) to any unrelieved qualifying expenditure in respect of plant and machinery contained in a pool which is available to be carried forward (in accordance with section 59) from the old period and used in calculating the profits of the relevant [F624 activity], and

(b) the reference in subsection (3) to any qualifying expenditure incurred on the provision of a ship for the purposes of the relevant trade which, at the end of the old period, is unrelieved by virtue of notice having been given under section 130,

are to what it would have been but for the qualifying change.

(6) In this section “the old period” means the period which is the old period for the purposes of section 212O (or would be if this Chapter applied): see section 212N(3).

(7) The plant and machinery in respect of which there is unrelieved qualifying expenditure such as is mentioned in subsection (2), or qualifying expenditure such as is mentioned in subsection (3), is referred to in the following provisions as “the relevant plant and machinery”.

Textual Amendments

F621 Word in s. 212K(2) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 9

F622 Word in s. 212K(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 9

F623 Word in s. 212K(4) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 9

F624 Word in s. 212K(5) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 9

212L Balance sheet value U.K.

(1) BSV is the balance sheet value of the relevant plant and machinery and is to be found by adding together the amounts (if any) which would be shown in respect of it in the appropriate balance sheet of C or P.

(2) For this purpose the amounts shown in the appropriate balance sheet in respect of the relevant plant or machinery are—

(a) the amounts shown in that balance sheet as the net book value (or carrying amount) in respect of it, and

(b) the amounts shown in that balance sheet as the net investment in respect of finance leases of it.

(3) If—

(a) any of the relevant plant or machinery is a fixture in any land, and

(b) the amount which falls (or would fall) to be shown in the appropriate balance sheet as the net book value (or carrying amount) of the land would include an amount in respect of the fixture,

the amount of the net book value (or carrying amount) in respect of the fixture is determined on a just and reasonable basis.

(4) If—

(a) any of the relevant plant or machinery is subject to a finance lease, and

(b) any land or asset which is not plant or machinery is subject to that lease,

the amount of the net investment in respect of the finance lease of that plant or machinery is determined on a just and reasonable basis.

(5) In this section any reference to any amount shown in the appropriate balance sheet of C or P is the amount which, assuming that a balance sheet of C or P were drawn up in accordance with subsection (6), would fall to be shown in that balance sheet.

(6) A balance sheet is drawn up in accordance with this subsection if it is drawn up in accordance with generally accepted accounting practice so as to reflect the position as at the beginning of the relevant day but adjusted to reflect the disposal of any of the relevant plant or machinery which is disposed of on the relevant day.

(7) In this section—

• “finance lease” means a lease which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a finance lease or loan in accounts of C or P;

• “fixture”—

  (a)

  means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

  (b)

  includes any boiler or water-filled radiator installed in a building as part of a space or water heating system.

[F625 Limiting conditions U.K.

Textual Amendments

F625 S. 212LA and cross-heading inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 3

212LA Limiting conditions U.K.

(1) The qualifying change meets one of the limiting conditions if condition A, B, C or D is met.

(2) Condition A is that the amount of the relevant excess of allowances is £50 million or more.

(3) Condition B is that the amount of the relevant excess of allowances—

(a) is £2 million or more but less than £50 million, and

(b) is not insignificant as a proportion of the total amount or value of the benefits derived by any relevant person by virtue of the qualifying change or change arrangements.

(4) “Relevant person” means a person who, at the end of the relevant day, is—

(a) a principal company of C,

(b) a person carrying on the relevant activity in partnership, or

(c) a person who is connected to a person within paragraph (a) or (b) (within the meaning of section 1122 of CTA 2010).

(5) Condition C is that—

(a) the amount of the relevant excess of allowances is less than £2 million, and

(b) the qualifying change has an unallowable purpose.

See section 212M for the meaning of “unallowable purpose”.

(6) Condition D is that the main purpose, or one of the main purposes, of any arrangements is to procure that condition A or B or paragraph (a) of condition C is not met.

(7) In this section—

• the amount of the relevant excess of allowances is the difference between RTWDV and BSV (see sections 212K and 212L);

• “change arrangements” and “arrangements” have the same meaning as in section 212M.]

Unallowable purpose U.K.

212M Unallowable purpose U.K.

(1) The qualifying change has an unallowable purpose if the main purpose, or one of the main purposes, of change arrangements is to obtain a relevant tax advantage (for any person).

(2) “Change arrangements” means any arrangements made to bring about, or otherwise connected with, the qualifying change; and “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(3) “Obtain a relevant tax advantage” means become entitled to a reduction in profits, or an increase in losses, for the purposes of corporation tax in consequence of a claim to allowances in respect of qualifying expenditure in respect of the relevant plant and machinery or qualifying expenditure within section 212K(3).

What happens when Chapter applies U.K.

212N Old and new accounting periods U.K.

(1) The accounting period of C which is current on the relevant day ends with that day and a new accounting period of C begins with the following day (but subject to subsection (2)).

(2) In a case in which condition A, B or D in section 212C is met and the relevant [F626 activity] was, at the beginning of the relevant day, carried on by C in partnership with another company or other companies subsection (1) does not apply but—

(a) the period which, for the purposes of Part 17 of CTA 2009, is the accounting period of the partnership current on the relevant day ends with that day, and

(b) there begins with the following day a new accounting period—

(i) of the partnership, or

(ii) where condition D is met and C's relevant percentage share in the relevant trade is nil after the qualifying change, of the company or partnership by which the relevant trade is carried on after the relevant change.

(3) For the purposes of section 212O “the old period” means the accounting period of C or the partnership in which C carries on the relevant [F627 activity] which ends with the relevant day.

(4) For the purposes of section 212P “the new period” means the accounting period—

(a) of C or that partnership, or

(b) where condition D is met and C's relevant percentage share in the relevant [F628 activity] is nil after the qualifying change, of the company or partnership by which the relevant [F628 activity] is carried on after the relevant change,

which begins with the following day.

Textual Amendments

F626 Word in s. 212N(2) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 10

F627 Word in s. 212N(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 10

F628 Word in s. 212N(4) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 10

212O When there is excess of allowances in pool: amount of excess U.K.

(1) Section 212P has effect where C or P has an excess of allowances in any single asset pool, any class pool or the main pool at the end of the old period; and a pool in the case of which there is an excess of allowances is referred to in this section and section 212P as a “relevant pool”.

(2) For the purposes of this section C or P has an excess of allowances in a pool if—

(3) In this section and section 212Q—

• PA, in relation to a pool, is the amount specified in section 212K(2) in relation to the pool, and

• BSVP, in relation to a pool, is so much of BSV as, on a just and reasonable apportionment, it is appropriate to attribute to the pool.

(4) For the purposes of section 212P the amount of the excess of allowances in relation to any relevant pool (“the relevant pool in question”) is the difference between PA and BSVP.

(5) But if, in relation to any other pool—

what would otherwise be the amount of the excess of allowances in relation to the relevant pool in question for the purposes of section 212P is reduced by so much of the difference between BSVP and PA as is not taken into account under this subsection in relation to another relevant pool or under section 212Q(8).

212P Effect of excess of allowances on pools U.K.

(1) The unrelieved qualifying expenditure in each relevant pool is to be taken to be reduced at the beginning of the new period by the amount of the excess of allowances in relation to the pool.

(2) The amount of the excess of allowances is to be treated from the beginning of the new period as if it were qualifying expenditure in a new pool of the same description as the relevant pool (and so subject to the same provisions of this Part, other than this Chapter).

(3) Where, following the qualifying change, a person ceases to carry on [F629 a qualifying activity (or part of a qualifying activity) ] and C begins to carry on (whether or not in partnership) [F630 that activity (or that part of an activity) ] as part of its trade [F631 or business], for the purposes of claiming any allowance in respect of qualifying expenditure in the new pool the carrying on of [F632 that activity (or that part)] by C is to be regarded as the carrying on of a separate trade [F633 or business].

(4) A loss attributable to an allowance claimed in respect of qualifying expenditure in the new pool may not be set off under section 37[F634 , 62 or 66] of CTA 2010 (F635 ... loss relief against total profits of same or [F636 other] accounting period) [F637 or section 259 or 260(3) of this Act (special leasing)] otherwise than against the profits of a qualifying activity carried on by C, or any company that is a member of P, at the beginning of the relevant day.

(5) And the amount of such a loss which may be so set off by any person is not to exceed the amount of the loss which would have been available for such set off by the person but for the qualifying change.

(6) A loss attributable to an allowance claimed in respect of qualifying expenditure in the new pool may not be set off by way of group relief in accordance with Part 5 of CTA 2010 (surrender of losses by way of group relief) by a company (“the claimant company”) unless it would have been available for such set off but for the qualifying change.

(7) And the amount of such a loss which is available for such set off by the claimant company is not to exceed the amount of the loss which would have been available for such set off by the claimant company but for the qualifying change.

(8) Where any activity not carried on by C, or a company that is a member of P, at the beginning of the relevant day would otherwise be regarded for the purposes of corporation tax as forming part of a qualifying activity carried on by C or the member of P at that time it is not to be so regarded for the purposes of subsection (4).

(9) In a case in which condition C in section 212C is met, the references in subsections (1) and (2) to the beginning of the new period are to the time of the qualifying change (and section 948 of CTA 2010 has effect subject to this section).

Textual Amendments

F629 Words in s. 212P(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(2)(a)

F630 Words in s. 212P(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(2)(b)

F631 Words in s. 212P(3) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(2)(c)

F632 Words in s. 212P(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(2)(d)

F633 Words in s. 212P(3) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(2)(e)

F634 Words in s. 212P(4) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(3)(a)

F635 Word in s. 212P(4) omitted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 26 para. 11(3)(b)

F636 Word in s. 212P(4) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(3)(c)

F637 Words in s. 212P(4) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 11(3)(d)

212Q When there are postponed capital allowances U.K.

(1) This section has effect where C or P has relevant postponed capital allowances.

(2) C or P has relevant postponed capital allowances if amount 2 in section 212K(3) is an amount other than nil.

(3) Where, following the qualifying change, a person ceases to carry on [F638 a qualifying activity (or part of a qualifying activity)] and C begins to carry on (whether or not in partnership) [F639 that activity (or that part of an activity)] as part of its trade [F640 or business], for the purposes of claiming any allowance in respect of qualifying expenditure such as is mentioned in section 212K(3) the carrying on of [F641 that activity (or that part)] by C is to be regarded as the carrying on of a separate trade [F642 or business].

(4) A loss attributable to an allowance claimed in respect of qualifying expenditure such as is mentioned in section 212K(3) may not be set off under section 37[F643 , [F644 45A,] 62 or 66] of CTA 2010 [F645 or section 259 or 260(3) of this Act] otherwise than against the profits of a qualifying activity carried on by C, or any company that is a member of P, at the beginning of the relevant day.

(5) And the amount of such a loss which may be so set off by any person is not to exceed the amount of the loss which would have been available for such set off by the person but for the qualifying change.

(6) A loss attributable to an allowance claimed in respect of qualifying expenditure such as is mentioned in section 212K(3) may not be set off [F646 by a company (“the claimant company”)] by way of group relief in accordance with Part 5 of CTA 2010 [F647 or group relief for carried forward losses in accordance with Part 5A of CTA 2010] F648 ... unless it would have been available for such set off but for the qualifying change.

(7) And the amount of such a loss which is available for such set off by the claimant company is not to exceed the amount of the loss which would have been available for such set off by the claimant company but for the qualifying change.

(8) If, in relation to any pool—

what would otherwise be the amount of qualifying expenditure such as is mentioned in section 212K(3) is to be treated for the purposes of this section as reduced by so much of the difference between BSVP and PA in relation to the pool as is not taken into account under section 212O(5) in relation to a relevant pool.

(9) Where any activity not carried on by C, or a company that is a member of P, at the beginning of the relevant day would otherwise be regarded for the purposes of corporation tax as forming part of a qualifying activity carried on by C or the member of P at that time it is not to be so regarded for the purposes of subsection (4).

Textual Amendments

F638 Words in s. 212Q(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(2)(a)

F639 Words in s. 212Q(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(2)(b)

F640 Words in s. 212Q(3) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(2)(c)

F641 Words in s. 212Q(3) substituted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(2)(d)

F642 Words in s. 212Q(3) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(2)(e)

F643 Words in s. 212Q(4) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(3)(a)

F644 Word in s. 212Q(4) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 124(2)

F645 Words in s. 212Q(4) inserted (with effect in accordance with Sch. 26 para. 13 of the amending Act) by Finance Act 2013 (c. 29), Sch. 26 para. 12(3)(b)

F646 Words in s. 212Q(6) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 124(3)(a)

F647 Words in s. 212Q(6) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 124(3)(b)

F648 Words in s. 212Q(6) omitted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 124(3)(c)

212R Apportionment of proceeds of disposal of relevant plant and machinery U.K.

Any amount required to be brought into account in connection with a disposal event in respect of any relevant plant and machinery is to be apportioned between the new pool and the relevant pool concerned on a just and reasonable basis.

212S Transactions on relevant day U.K.

(1) This section applies if any plant and machinery is transferred on the relevant day and (apart from subsection (4)(c) of section 212K) the transfer would have the effect of reducing RTWDV (as determined in accordance with that section).

(2) No person other than C or P is entitled to claim an allowance in respect of the plant or machinery after the transfer.]

[F649 CHAPTER 16B U.K. Cap on first-year allowancesF650 ...

Textual Amendments

F649 Pt. 2 Ch. 16B inserted (with effect in accordance with Sch. 7 para. 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 7 para. 6

F650 Words in Pt. 2 Ch. 16B heading omitted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 11 para. 7(2)

212T Cap on first-year allowances: zero-emission goods vehicles U.K.

(1) A section 45DA allowance is not available in respect of expenditure (“the current expenditure”) incurred by a person (“the investor”)—

(a) if section 45DA allowances have previously been made in respect of undertaking expenditure of 85 million euros, or

(b) (where paragraph (a) does not apply) if, and to the extent that, the aggregate of—

(i) the undertaking expenditure in respect of which section 45DA allowances have previously been made, and

(ii) the current expenditure,

exceeds 85 million euros.

(2) “Undertaking expenditure” means—

(a) expenditure incurred by the investor,

(b) if the investor is a partnership, expenditure incurred (at any time) by a person who is a partner enterprise forming part of the investor at the time the current expenditure is incurred, and

(c) if the investor and one or more other persons together form, or have at any time formed, an undertaking, expenditure which is—

(i) incurred by that undertaking, or

(ii) incurred by any of those other persons at a relevant time.

(3) Expenditure is incurred by a person at a “relevant time” if it is incurred—

(a) at a time when the investor and the person are part of the same undertaking, or

(b) at a time before the investor and the person became part of the same undertaking (or, if they became part of the same undertaking on more than one occasion, before the last time).

(4) For the purposes of subsection (1), expenditure incurred in a currency other than the euro is to be converted into its equivalent in euros using the spot rate of exchange for the day on which the expenditure is incurred.

(5) The Treasury may by regulations increase the amount specified in subsection (1)(a) and (b).

(6) In this section—

• “section 45DA allowance” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45DA;

• “undertaking” means—

  (a)

  an autonomous enterprise, or

  (b)

  an enterprise (not within paragraph (a)) and its partner enterprises (if any) and its linked enterprises (if any),

and “enterprise”, “autonomous enterprise”, “partner enterprise” and “linked enterprise” have the meaning given by Annex 1 to the Commission Regulation [F651 (EU) No 651/2014] (General block exemption Regulation)] [F652 as it had effect in the United Kingdom immediately before IP completion day].

Textual Amendments

F651 Words in s. 212T(6) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 6

F652 Words in s. 212T(6) inserted (31.12.2020) by The Taxes (State Aid) (Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1499), regs. 1, 3(4)

[F653 212U Cap on first-year allowances: expenditure on plant and machinery for use in designated assisted areas U.K.

(1) A section 45K allowance is not available in respect of expenditure (“the current expenditure”) incurred by a person (“the investor”) in respect of a particular designated assisted area—

(a) if section 45K allowances have previously been made to any person in respect of P&M expenditure of 125 million euros incurred in respect of that area and on the same single investment project as the current expenditure, or

(b) (where paragraph (a) does not apply) if, and to the extent that, the aggregate of—

(i) the P&M expenditure incurred by any person in respect of that area, and on the same single investment project as the current expenditure, in respect of which section 45K allowances have previously been made, and

(ii) the current expenditure,

exceeds 125 million euros.

(2) For the purposes of subsection (1), any reference to P&M expenditure incurred in respect of a designated assisted area is a reference to expenditure incurred on the provision of plant or machinery for use primarily in that area.

(3) For the purposes of subsection (1), expenditure incurred in a currency other than the euro is to be converted into its equivalent in euros using the spot rate of exchange for the day on which the expenditure is incurred.

(4) The Treasury may by regulations increase the amount specified in subsection (1)(a) and (b).

(5) In this section—

• “designated assisted area” has the meaning given by section 45K;

• “section 45K allowance” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45K;

• “single investment project” has the same meaning as in Commission Regulation [F654 (EU) No 651/2014] (General block exemption Regulation)] [F655 as it had effect in the United Kingdom immediately before IP completion day].

Textual Amendments

F653 S. 212U inserted (with effect in accordance with Sch. 11 para. 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 11 para. 7(1)

F654 Words in s. 212U(5) substituted (with effect in accordance with Sch. 13 para. 8 of the amending Act) by Finance Act 2014 (c. 26), Sch. 13 para. 7

F655 Words in s. 212U(5) inserted (31.12.2020) by The Taxes (State Aid) (Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1499), regs. 1, 3(5)

Chapter 17 U.K. [F656 Other anti-avoidance]

Textual Amendments

F656 Pt. 2 Ch. 17 heading substituted (8.4.2010) (with effect in accordance with Sch. 4 para. 5 to the amending Act) by Finance Act 2010 (c. 13), Sch. 4 para. 3

Relevant transactions U.K.

213 Relevant transactions: sale, hire-purchase (etc.) and assignment U.K.

(1) For the purposes of this Chapter, a person (“B”) [F657 and another person (“S”) enter into a relevant transaction] if—

(a) S sells plant or machinery to B,

(b) B enters into a contract with S providing that B shall or may become the owner of plant or machinery on the performance of the contract, or

(c) S assigns to B the benefit of a contract providing that S shall or may become the owner of plant or machinery on the performance of the contract.

(2) For the purposes of this Chapter, references to B’s expenditure under a relevant transaction are references—

(a) in the case of a sale within subsection (1)(a), to B’s capital expenditure on the provision of the plant or machinery by purchase,

(b) in the case of a contract within subsection (1)(b), to B’s capital expenditure under the contract so far as it relates to the plant or machinery, or

(c) in the case of an assignment within subsection (1)(c), to B’s capital expenditure under the contract so far as it relates to the plant or machinery or is by way of consideration for the assignment.

(3) If—

(a) B is treated under section 14 (use for qualifying activity of plant or machinery which is a gift) as having incurred capital expenditure on the provision of plant or machinery, and

(b) the donor of the plant or machinery was S,

B is to be treated for the purposes of this Chapter as having incurred capital expenditure on the provision of the plant or machinery by purchasing it from S.

[F658 (4) For the purposes of this Chapter, references to the disposal value of the plant or machinery under a relevant transaction are references to the disposal value that is to be brought into account by S as a result of the sale, contract or assignment in question.]

Textual Amendments

F657 Words in s. 213(1) substituted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(3)

F658 S. 213(4) inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(4)

Restrictions on allowances U.K.

214 Connected persons U.K.

Allowances under this Part are restricted under sections 217 and 218 [F659 (or, as the case may be, 218ZA(3))] if—

(a) B enters into a relevant transaction with S, and

(b) B and S are connected with each other.

Textual Amendments

F659 Words in s. 214 inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 3

[F660 215 Transactions to obtain tax advantages U.K.

(1) Allowances under this Part are restricted[F661 , and balancing charges are imposed or increased,] under the applicable sections if [F662 B and S enter into a relevant transaction] that either—

(a) has an avoidance purpose, or

(b) is part of, or occurs as a result of, a scheme or arrangement that has an avoidance purpose.

(2) Subsection (1)(b) may be satisfied—

(a) whether the scheme or arrangement was made before or after the relevant transaction was entered into, and

(b) whether or not the scheme or arrangement is legally enforceable.

(3) A transaction, scheme or arrangement has an “avoidance purpose” if the main purpose, or one of the main purposes, of a party in entering into the transaction, scheme or arrangement is to enable a person to obtain a tax advantage under this Part that would not otherwise be obtained.

(4) The reference in subsection (3) to obtaining a tax advantage that would not otherwise be obtained includes[F663 —

(a)] obtaining an allowance that is in any way more favourable to a person than the one that would otherwise be obtained[F664 , and

(b) avoiding liability for the whole or part of a balancing charge to which a person would otherwise be liable].

[F665 (4A) If the tax advantage relates to the disposal value of the plant or machinery under the relevant transaction (whether by obtaining a more favourable allowance or by avoiding the whole or part of a balancing charge) then—

(a) the applicable section is section 218ZB, and

(b) the tax advantage is to be disregarded for the purposes of subsection (6) and (8)(b).]

(5) If the tax advantage is of a kind described in subsection (7), “the applicable sections” are sections 217 and 218ZA(5).

(6) Otherwise, “the applicable sections” are sections 217 and 218ZA(1) or, as the case may be, 218ZA(3).

(7) The kinds of tax advantage are—

(a) that an allowance to which B is entitled for a chargeable period is calculated using a percentage rate that is higher than the one that would otherwise be used, or

(b) that B is entitled to an allowance in respect of an amount of capital expenditure sooner than B would otherwise be entitled to it.

(8) If a transaction, scheme or arrangement involves—

(a) a tax advantage of a kind described in subsection (7), and

(b) a tax advantage not of such a kind,

subsections (5) and (6) have effect separately in relation to each tax advantage.]

Textual Amendments

F660 S. 215 substituted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 1

F661 Words in s. 215(1) inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(6)(a)

F662 Words in s. 215(1) substituted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(6)(b)

F663 Word in s. 215(4) inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(7)(a)

F664 S. 215(4)(b) and preceding word inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(7)(b)

F665 S. 215(4A) inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(8)

216 Sale and leaseback, etc. U.K.

(1) Allowances under this Part are restricted under sections 217 and 218 [F666 (or, as the case may be, 218ZA(3))] if—

(a) B enters into a relevant transaction with S, and

(b) the plant or machinery—

(i) continues to be used for the purposes of a qualifying activity carried on by S [F667 or by a person (other than B) who is connected with S], or

(ii) is used after the date of the transaction for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery.

(2) In this section—

• “the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c), and

• “qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Textual Amendments

F666 Words in s. 216(1) inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 4

F667 Words in s. 216(1)(b)(i) inserted (with effect in accordance with Sch. 32 para. 25 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 23

217 No [F668 annual investment allowance or] first-year allowance for B’s expenditure U.K.

(1) If this section applies as a result of section 214, 215 or 216, [F669 no annual investment allowance or first-year allowance is] to be made in respect of B’s expenditure under the relevant transaction.

(2) Any [F670 annual investment allowance or ] first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.

[F671 (3) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221).]

Textual Amendments

F668 Words in s. 217 heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 8(4)

F669 Words in s. 217(1) substituted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 8(2)

F670 Words in s. 217(2) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 8(3)

F671 S. 217(3) substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(8)

218 Restriction on B’s qualifying expenditure[F672 : section 214 or 216] U.K.

(1) If this section applies as a result of [F673 section 214 or 216], the amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.

D is defined in subsections [F674 (2), (2A) and] (3).

(2) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.

[F675 (2A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction, and

(b) at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(3) [F676 Otherwise,] D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.

[F677 (3A) “Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the relevant transaction, and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the relevant transaction.

(3B) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]

[F678 (4) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), but see section 225.]

[F679 (5) This section is subject to section 218ZA(3).]

Textual Amendments

F672 Words in s. 218 heading inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 5(4)

F673 Words in s. 218(1) substituted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 5(2)

F674 Words in s. 218(1) substituted (with effect in accordance with Sch. 10 para. 3(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 3(2)

F675 S. 218(2A) inserted (with effect in accordance with Sch. 10 para. 3(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 3(3)

F676 Word in s. 218(3) substituted (with effect in accordance with Sch. 10 para. 3(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 3(4)

F677 S. 218(3A)(3B) inserted (with effect in accordance with Sch. 10 para. 3(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 3(5)

F678 S. 218(4) substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(9)

F679 S. 218(5) inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 5(3)

[F680 218ZA Restrictions on writing-down allowances: section 215 U.K.

(1) If this subsection applies as a result of section 215, all or part of B's expenditure under the relevant transaction is to be left out of account in determining B's available qualifying expenditure.

(2) The amount of expenditure to be left out of account is—

(a) such amount as would or would in effect cancel out the tax advantage mentioned in section 215 (whether that advantage is obtained by B or another person and whether it relates to the relevant transaction or something else), or

(b) if the amount found under paragraph (a) exceeds the whole of B's expenditure under the relevant transaction, the whole of that expenditure.

(3) But if subsection (1) applies as a result of section 215 and—

(a) section 218 also applies as a result of section 214 or 216, or

(b) section 228 also applies by virtue of an election under section 70I(11) or 227,

the amount of expenditure to be left out of account is the greater of X and Y.

(4) For the purposes of subsection (3)—

• “X” is the amount found under subsection (2), and

• “Y” is the amount by which B's expenditure under the relevant transaction exceeds D (as defined in section 218 or, as the case may be, section 228).

(5) If this subsection applies as a result of section 215—

(a) the allowance mentioned in subsection (7)(a) of that section is to be calculated using the rate that would be used without the tax advantage, or (as the case may be)

(b) the entitlement mentioned in subsection (7)(b) of that section is to be available as and when it would be available without the tax advantage.

(6) Subsection (5) applies whether or not section 218 also applies as a result of section 214 or 216, or section 228 also applies by virtue of an election under section 70I(11) or 227.]

Textual Amendments

F680 S. 218ZA inserted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 6

[F681 218ZB Disposal values: section 215 U.K.

(1) If—

(a) this section applies as a result of section 215,

(b) a payment is payable to any person under the transaction, scheme or arrangement mentioned in that section,

(c) some or all of the payment would not (apart from this section) be taken into account in determining the disposal value of the plant or machinery under the relevant transaction, and

(d) as a result of the matters mentioned in paragraphs (b) and (c) S would otherwise obtain a tax advantage as mentioned in section 215(3) and (4),

the disposal value of the plant or machinery under the relevant transaction is to be adjusted in a just and reasonable manner so as to include an amount representing so much of the payment as would or would in effect cancel out the tax advantage.

(2) In subsection (1) “payment” includes the provision of any benefit, the assumption of any liability and any other transfer of money or money's worth, and “payable” is to be construed accordingly.]

Textual Amendments

F681 S. 218ZB inserted (with effect in accordance with s. 70(11) of the amending Act) by Finance Act 2016 (c. 24), s. 70(9)

[F682 218A Further restriction on annual investment allowance U.K.

(1) This section applies where an arrangement is entered into wholly or mainly for a disqualifying purpose.

(2) Arrangements are entered into for a disqualifying purpose if their main purpose, or one of their main purposes, is to enable a person to obtain an annual investment allowance to which the person would not otherwise be entitled.

(3) The annual investment allowance mentioned in subsection (2) is not to be made.

(4) Any annual investment allowance which is prohibited by subsection (3), but which has already been made, is to be withdrawn.]

Textual Amendments

F682 S. 218A inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 9

[F683 Finance leases and certain operating leases] U.K.

Textual Amendments

F683 S. 219 cross-heading substituted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(5)

219 Meaning of “finance lease” U.K.

(1) In this Chapter “finance lease” means any arrangements—

(a) which provide for plant or machinery to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”), and

(b) which, under [F684 generally accepted accounting practice]—

(i) fall (or would fall) to be treated, in the accounts of the lessor or a person connected with the lessor, as a finance lease or a loan, or

(ii) are comprised in arrangements which fall (or would fall) to be so treated.

F685 ...

(2) F686 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) In this section “accounts”, in relation to a company, includes any accounts which—

(a) relate to two or more companies of which that company is one, and

[F687 (b) are drawn up in accordance with generally accepted accounting practice.]

Textual Amendments

F684 Words in s. 219(1) substituted (24.7.2002) by Finance Act 2002 (c. 23), s. 103(4)(g)

F685 Words in s. 219(1) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(10)

F686 S. 219(2) repealed (with effect as mentioned in s. 107 of the amending Act) by Finance Act 2002 (c. 23), s. 141, Sch. 40 Pt. 3(16)

F687 S. 219(3)(b) substituted (7.4.2005) by Finance Act 2005 (c. 7), Sch. 4 para. 33

220 Allocation of expenditure to a chargeable period U.K.

[F688 (A1) Subsection (1) applies to a company for a chargeable period if—

(a) at the end of the [F689 CTA] period of account which is the basis period for the chargeable period, the company is a member of a group, and

(b) the last day of that [F690 CTA] period of account is not also the last day of [F691 a CTA] period of account of the principal company of the group.]

(1) Subject to subsection (2), if [F692 the company] incurs at any time in [F693 the chargeable period] capital expenditure on the provision of plant or machinery for leasing under a finance lease [F694 or under a qualifying operating lease (see subsection (4))] —

(a) the part of the expenditure which is proportional to the part of that chargeable period falling before that time is not to be taken into account in determining that [F695 company's] available qualifying expenditure for that period, but

(b) this does not prevent that part of the expenditure being taken into account in determining that [F695 company's] available qualifying expenditure for any subsequent chargeable period.

(2) Subsection (1)(a) does not apply to a chargeable period if a disposal event occurs in that period in respect of the plant or machinery.

[F696 (3) The following provisions have effect for the interpretation of this section.

(4) A “qualifying operating lease” is a plant or machinery lease that meets the following conditions—

(a) it is not a finance lease,

(b) it is a funding lease,

(c) its term is longer than 4 years but not longer than [F697 7] years.

(5) [F698 A CTA] period of account is the basis period for a chargeable period if the chargeable period coincides with, or falls within, the [F699 CTA] period of account.

(6) [F700 A “CTA] period of account” is a period of account as defined in [F701 section 1119 of CTA 2010].

(7) The provisions of section 170(3) to (6) of TCGA 1992 apply to determine for the purposes of this section—

(a) whether a company is member of a group, and

(b) which company is the principal company of the group.

(8) But, in applying those provisions for the purposes of this section, a company (“the subsidiary company”) that does not have ordinary share capital is to be treated as being a qualifying 75% subsidiary of another company (“the parent company”) if the parent company—

(a) has control of the subsidiary companyF702 ..., and

(b) is beneficially entitled to the appropriate proportion of profits and assets.

(9) The parent company is beneficially entitled to the appropriate proportion of profits and assets if (and only if) it—

(a) is beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company, and

(b) would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.

(10) The provisions of [F703 Chapter 6 of Part 5 of CTA 2010] (equity holders and profits or assets etc) also apply for the purposes of this section.

(11) In this section, the following expressions have the same meaning as in Chapter 6A of Part 2 (interpretation of provisions about long funding leases)—

• “funding lease”,

• “plant or machinery lease”,

• “term”, in relation to a lease.]

Textual Amendments

F688 S. 220(A1) inserted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(2)

F689 Words in s. 220(A1)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(2)(a) (with Sch. 2)

F690 Words in s. 220(A1)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(2)(b)(i) (with Sch. 2)

F691 Words in s. 220(A1)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(2)(b)(ii) (with Sch. 2)

F692 Words in s. 220(1) substituted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(3)(a)

F693 Words in s. 220(1) substituted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(3)(b)

F694 Words in s. 220(1) inserted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(3)(c)

F695 Word in s. 220(1) substituted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(3)(d)

F696 S. 220(3)-(11) inserted (with effect in accordance with Sch. 9 para. 15(6) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 15(4)

F697 Word in s. 220(4)(c) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(3)

F698 Words in s. 220(5) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(3)(a) (with Sch. 2)

F699 Words in s. 220(5) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(3)(b) (with Sch. 2)

F700 Words in s. 220(6) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(4)(a) (with Sch. 2)

F701 Words in s. 220(6) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(4)(b) (with Sch. 2)

F702 Words in s. 220(8)(a) omitted (6.4.2007) by virtue of Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 402, Sch. 3 Pt. 1 (with Sch. 2)

F703 Words in s. 220(10) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 344(5) (with Sch. 2)

Sale and finance leasebacks U.K.

221 Meaning of “sale and finance leaseback” U.K.

(1) For the purposes of this section and [F704 section 225], plant or machinery is the subject of a sale and finance leaseback if—

(a) B enters into a relevant transaction with S,

(b) after the date of the transaction, the plant or machinery—

(i) continues to be used for the purposes of [F705 an activity carried on by S or by a person (other than B) who is connected with S,]

(ii) is used for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery, or

(iii) is used for the purposes of a non-qualifying activity carried on by [F706 S or by a person (other than B) who is connected with S], without having been used since that date for the purposes of a qualifying activity except that of leasing the plant or machinery, and

(c) it is directly or indirectly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date.

(2) In this section—

• “the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c),

• “non-qualifying activity” means any activity which is not a qualifying activity, and

• “qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Textual Amendments

F704 Words in s. 221(1) substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(11)

F705 Words in s. 221(1)(b)(i) substituted (with effect in accordance with Sch. 32 para. 26 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 24

F706 Words in s. 221(1)(b)(iii) substituted (with effect as mentioned in s. 69(2) of the amending Act) by Finance Act 2001 (c. 9), s. 69(1), Sch. 21 para. 3

Modifications etc. (not altering text)

C61 S. 221 applied (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 771(8), 1184(1) (with Sch. 2)

F707 222 Disposal value restricted U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F707 S. 222 omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(12)(a)

F708 223 No first-year allowance for B’s expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F708 S. 223 omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(12)(b)

F709 224 Restriction on B’s qualifying expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F709 S. 224 omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(12)(c)

225 B’s qualifying expenditure if lessor not bearing non-compliance risk U.K.

(1) This section applies if plant or machinery is the subject of a sale and finance leaseback, and the finance lease, or any transaction or series of transactions of which it forms a part, makes provision which—

(a) removes from the lessor the whole, or the greater part, of any risk, which would otherwise fall directly or indirectly on the lessor, of any person sustaining a loss if payments under the lease are not made in accordance with its terms, and

(b) does so otherwise than by means of guarantees from persons connected with the lessee.

(2) In such a case the following are not qualifying expenditure for the purposes of this Part —

(a) B’s expenditure under the relevant transaction;

(b) if the lessor is a different person from B, the expenditure incurred by the lessor on the provision of the plant or machinery.

(3) For the purposes of determining whether this section applies, the lessor and the persons connected with the lessor are treated as the same person.

F710 226 Qualifying expenditure limited in subsequent transactions U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F710 S. 226 omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(12)(d)

[F711 Sale and leaseback: election for special treatment] U.K.

Textual Amendments

F711 S. 227 heading heading substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(13)(b)

227 [F712 Sale and leaseback: election for special treatment ] U.K.

(1) Section 228 applies if—

(a) B enters into a relevant transaction with S,

(b) the plant or machinery—

(i) is within section 216(1)(b) (sale and leaseback), F713 ...

F713 (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) the conditions set out in subsection (2) are met, and

(d) B and S elect that section 228 should apply.

(2) The conditions are—

(a) that S incurred capital expenditure on the provision of the plant or machinery,

(b) that the plant or machinery was unused and not second-hand at or after the time when it was acquired by S,

(c) that the plant or machinery was acquired by S otherwise than as a result of a transaction to which section [F714 217 or 218] applies,

(d) that the relevant transaction is effected not more than 4 months after the first occasion on which the plant or machinery is brought into use by any person for any purpose, and

(e) that S has not—

(i) made a claim for an allowance under this Act in respect of expenditure incurred on the provision of the plant or machinery,

(ii) made a tax return in which such expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or

(iii) given notice of any such amendment of a tax return as provides for such expenditure to be so taken into account.

(3) In subsection (2)(b) and (c), the references to the plant or machinery being acquired by S are, in a case where the relevant transaction between S and B falls within section 213(1)(c) (assignment), references to the making of the contract the benefit of which S assigns to B.

(4) An election under this section—

(a) must be made by notice to [F145 an officer of Revenue and Customs] no later than 2 years after the date of the transaction, and

(b) is irrevocable.

(5) Nothing in—

(a) section 42 of, or Schedule 1A to, TMA 1970 (claims and elections for income tax purposes), or

(b) paragraphs 54 to 60 of Schedule 18 to FA 1998 (claims and elections for corporation tax purposes),

applies to such an election.

(6) In subsection (4) “the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c).

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F712 S. 227 heading substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(13)

F713 S. 227(1)(b)(ii) and preceding word omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(13)(a)

F714 Words in s. 227(2)(c) substituted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 6(13)(b)

228 Effect of election: relaxation of restriction on B’s qualifying expenditure, etc. U.K.

(1) The effect of an election under section 227 in relation to B is that subsections (2) and (3) apply instead of section 218 F715 ... (restriction on B’s qualifying expenditure).

(2) The amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.

(3) D is whichever of the following is the smaller—

(a) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;

(b) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.

F716 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) The effect of an election under section 227 in relation to S is—

(a) that no allowance is to be made to S under this Act in respect of the capital expenditure on the provision of the plant or machinery, and

(b) that the whole of that expenditure must be left out of account in determining the amount for any period of Ss’ available qualifying expenditure for the purposes of this Part.

Textual Amendments

F715 Words in s. 228(1) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(14)(a)

F716 S. 228(4) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(14)(b)

[F717 Finance leaseback: parties' income and profits U.K.

Textual Amendments

F717 Ss. 228A-228J and cross-heading inserted (with effect in accordance with s. 134(3) of the amending Act) by Finance Act 2004 (c. 12), s. 134

[F718 228A Application of sections 228B and 228C U.K.

(1) Sections 228B and 228C apply where plant or machinery is the subject of a lease and finance leaseback.

(2) Plant or machinery is the subject of a lease and finance leaseback if—

(a) a person (“S”) leases the plant or machinery to another (“B”),

(b) after the date of that transaction, the use of the plant or machinery falls within sub-paragraph (i), (ii) or (iii) of section 221(1)(b), and

(c) it is directly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date.

(3) For the purposes of subsection (2), S leases the plant or machinery to B only if—

(a) S grants B rights over the plant or machinery,

(b) consideration is given for that grant, and

(c) S is not required to bring all of that consideration into account under this Part.]

Textual Amendments

F718 S. 228A substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(2)

228B [F719 S's income or profits [F720 etc]: deductions] U.K.

(1) For the purpose of income tax or corporation tax, in calculating [F721 S's] income or profits for a period of account the amount deducted in respect of amounts payable under the leaseback may not exceed the permitted maximum.

(2) The permitted maximum is [F722 the amount of the finance charges shown in the accounts.]

(3) In relation to a period of account during which the leaseback terminates, the permitted maximum shall also include an amount calculated in accordance with subsection (4).

(4) The calculation is—

where—

• “Current Book Value” means the net book value of the leased plant or machinery immediately before the termination,

• “Original Consideration” means the consideration payable to S for [F723 granting B rights over the plant or machinery], and

• “Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.

[F724 (5) If the use mentioned in section 228A(2)(b) includes use by a person (other than B) who is connected with S, this section applies in relation to that person as it applies in relation to S.]

Textual Amendments

F719 S. 228B heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(d)

F720 Word in s. 228B heading inserted (with effect in accordance with Sch. 20 para. 13(4) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 13(3)

F721 Word in s. 228B(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(a)

F722 Words in s. 228B(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(b)

F723 Words in s. 228B(4) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(c)

F724 S. 228B(5) inserted (with effect in accordance with Sch. 20 para. 13(4) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 13(2)

228C [F725 S's income or profits: termination of leaseback] U.K.

(1) Subsection (2) applies where the leaseback terminates.

(2) For the purpose of the calculation of income tax or corporation tax, the income or profits of [F726 S] from the relevant qualifying activity for the period in which the termination occurs shall be increased by an amount calculated in accordance with subsection (3).

(3) The calculation is—

where—

• [F727 “Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery,]

• “Current Book Value” means the net book value of the leased plant or machinery immediately before the termination, and

• “Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.

(4) In this section “relevant qualifying activity” means the qualifying activity for the purposes of which the leased plant or machinery was used immediately before the termination.

(5) Section 228B has no effect on the treatment for the purposes of income tax or corporation tax of amounts received by way of refund on the termination of a leaseback of amounts payable under it.

(6) In subsection (5), “amounts received by way of refund” includes any amount that would be so received in respect of [F728 S's] interest under the leaseback if any amounts due to [F729 B (or, where appropriate, an assignee of B)] under the leaseback were disregarded.

Textual Amendments

F725 S. 228 heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(d)

F726 Word in s. 228C(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(a)

F727 Definition and word in formula in s. 228C(3) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(b)

F728 Word in s. 228C(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(c)

F729 Words in s. 228C(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(c)

F730 228D Lessor’s income or profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F730 S. 228D omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(a)

F731 228E Lessor’s income or profits: termination of leaseback U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F731 S. 228E omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(b)

F732 228F Lease and finance leaseback U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F732 S. 228F omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(c)

228G [F733 Leaseback not accounted for as finance lease in S's accounts] U.K.

(1) Sections 228B and 228C are subject to this section in their application in relation to a leaseback that is not accounted for as a finance lease in the accounts of [F734 S].

(2) Subsection (3) applies where the leaseback is accounted for as a finance lease in the accounts of a person connected with [F735 S]; and in that subsection “ relevant calculation ” means the calculation of—

(a) the permitted maximum for the purposes of section 228B, or

(b) the amount by which the income or profits of [F735 S] are to be increased in accordance with section 228C.

(3) Where an amount that falls to be used for the purposes of a relevant calculation—

(a) cannot be ascertained by reference to [F736 S's] accounts because the leaseback is not accounted for as a finance lease in those accounts, but

(b) can be ascertained by reference to the connected person’s accounts for one or more periods,

that amount as ascertained by reference to the connected person’s accounts shall be used for the purposes of the relevant calculation.

(4) Subsections (5) and (6) apply in a case where the leaseback is not accounted for as a finance lease in the accounts of a person connected with [F737 S].

(5) Sections 228B and 228C do not apply in relation to the leaseback.

(6) If the term of the leaseback begins on or after 18 May 2004 then, for the purposes of income tax or corporation tax, the income or profits of [F738 S] from the relevant qualifying activity for the period of account during which the term of the leaseback begins shall be [F739 increased by the consideration payable to S for granting B rights over the plant or machinery.]

(7) For the purposes of this section the leaseback is accounted for as a finance lease in a person’s accounts if—

(a) the leaseback falls, under generally accepted accounting practice, to be treated in that person’s accounts as a finance lease or loan, or

(b) in a case where the leaseback is comprised in other arrangements, those arrangements fall, under generally accepted accounting practice, to be so treated.

Textual Amendments

F733 S. 228G heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(f)

F734 Word in s. 228G(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(a)

F735 Word in s. 228G(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(b)

F736 Word in s. 228G(3) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(c)

F737 Word in s. 228G(4) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(d)

F738 Word in s. 228G(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(e)

F739 Words in s. 228G(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(e)

228H Sections 228A to 228G: supplementary U.K.

(1) In sections 228A to 228G—

• [F740 “consideration” does not include rentals;]

• F741 ...

• the “ net book value ”of leased plant or machinery means the book value of the plant or machinery having regard to any relevant entry in [F742 S's] accounts, but—

  (a)

  also having regard to depreciation up to the time in question, and

  (b)

  disregarding any revaluation gains or losses and any impairments;

• F743 ...

• [F744 “S” does not include an assignee of S;]

• “ termination ” in relation to a leaseback includes F745 ...—

  (a)

  the assignment of [F746 S's] interest,

  (b)

  the making of any arrangements (apart from an assignment of [F746 S's] interest) under which a person other than [F746 S] becomes liable to make some or all payments under the leaseback, and

  (c)

  a variation as a result of which the leaseback ceases to be a finance lease.

[F747 (1A) For the purposes of sections 228A to 228G, references to consideration given (or payable to S) for the grant to B of rights over the plant or machinery do not include—

(a) rentals payable under that grant, or

(b) any relevant capital payment (within the meaning of [F748 section 890 of CTA 2010] or section 809ZA of ITA 2007) to which either of those sections applies.

(1B) In relation to a case where some but not all of the consideration mentioned in subsection (1A) falls within paragraph (b) of that subsection, sections 228B to 228G or section 228J have effect subject to such modifications as are just and reasonable.]

(2) In a case where accounts drawn up are not correct accounts, or no accounts are drawn up—

(a) the provisions of sections 228A to 228G apply as if correct accounts had been drawn up, and

(b) amounts referred to in any of those sections as shown in accounts are those that would have been shown in correct accounts.

(3) In a case where accounts are drawn up in reliance upon amounts derived from an earlier period of account for which correct accounts were not drawn up, or no accounts were drawn up, amounts referred to in sections 228A to 228G as shown in the accounts for the later period are those that would have been shown if correct accounts had been drawn up for the earlier period.

(4) In subsections (2) and (3) “ correct accounts ” means accounts drawn up in accordance with generally accepted accounting practice.

Textual Amendments

F740 Words in s. 228H(1) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(a)

F741 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(b)

F742 Word in s. 228H(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(c)

F743 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(d)

F744 Words in s. 228H(1) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(e)

F745 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(f)

F746 Word in s. 228H(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(f)

F747 S. 228H(1A)(1B) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(9)

F748 Words in s. 228H(1A)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 345 (with Sch. 2)

228J Plant or machinery subject to further operating lease U.K.

(1) This section applies where—

(a) plant or machinery is the subject of—

(i) a sale and finance leaseback, or

(ii) a lease and finance leaseback, and

(b) some or all of the plant or machinery becomes, while the subject of the leaseback, also the subject of a lease in relation to which the following conditions are met—

(i) the term of the lease begins on or after 18 May 2004;

(ii) S, or a person connected with S, is the lessee under the lease;

(iii) the lease is not accounted for as a finance lease in the accounts of the lessee.

(2) For the purpose of income tax or corporation tax, in calculating the lessee’s income or profits for a period of account the amount deducted in respect of amounts payable under the operating lease shall not exceed the relevant amount.

(3) Subsections (4) and (5) apply in relation to the calculation of the lessor’s income or profits for a period of account for the purpose of income tax or corporation tax.

(4) Where—

(a) an amount receivable in respect of the lessor’s interest under the operating lease falls to be taken into account in that calculation, and

(b) that amount is reduced by an amount due to the lessee under the operating lease,

that reduction shall be disregarded when taking the amount receivable into account.

(5) The amounts receivable in respect of the lessor’s interest under the operating lease that fall to be taken into account in that calculation may be disregarded to the extent that they exceed the relevant amount (whether or not subsection (4) applies).

(6) Where only some of the plant or machinery is the subject of the operating lease, subsections (2) to (5) shall apply subject to such apportionments as may be just and reasonable.

(7) For the purposes of this section a lease is accounted for as a finance lease in a person’s accounts if—

[F749 (a) the lease—

(i) falls, under generally accepted accounting practice, to be treated in that person's accounts as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the lease falls to be so treated,]

(b) in a case where the lease is comprised in other arrangements, those arrangements [F750 —

(i) fall, under generally accepted accounting practice, to be treated as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the arrangements fall to be so treated.]

(8) In this section—

• “ lease and finance leaseback ” has the meaning given in [F751 section 228A];

• “ lessee ” means the lessee under the operating lease;

• “ lessor ” means the lessor under the operating lease;

• “ operating lease ” means the lease referred to in subsection (1)(b);

• “ relevant amount ” means an amount equal to the permitted maximum under section 228B as it applies in relation to the leaseback. ]

Textual Amendments

F749 S. 228J(7)(a) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(6)(a)

F750 Words in s. 228J(7)(b) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(6)(b)

F751 Words in s. 228J(8) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(10)

[F752 Disposal of plant or machinery subject to lease where income retained U.K.

Textual Amendments

F752 Ss. 228K-228M and cross-heading inserted (with effect in accordance with s. 84(5)(6) of the amending Act) by Finance Act 2006 (c. 25), s. 84(3)

228K Disposal of plant or machinery subject to lease where income retained U.K.

(1) This section applies for corporation tax purposes if—

(a) on any day (“the relevant day”) a person (“the lessor”) carries on a business of leasing plant or machinery (the “leasing business”),

(b) on the relevant day the lessor sells or otherwise disposes of any relevant plant or machinery subject to a lease to another person,

(c) the lessor remains entitled immediately after the disposal to some or all of the rentals under the lease in respect of the plant or machinery which are payable on or after the relevant day, and

(d) the lessor is required to bring a disposal value of the plant or machinery into account under this Part.

(2) The disposal value to be brought into account is determined as follows.

(3) If the amount or value of the consideration for the disposal exceeds the limit that would otherwise be imposed on the amount of the disposal value by section 62 (general limit) or 239 (limit on disposal value where additional VAT rebate)—

(a) that limit is not to apply, and

(b) the whole of the amount or value of the consideration for the disposal is to be the disposal value to be brought into account.

(4) In any other case, the disposal value to be brought into account is the sum of—

(a) the amount or value of the consideration for the disposal, and

(b) the value of the rentals under the lease in respect of the plant or machinery (see subsections (7) and (8)) which are payable on or after the relevant day and to which the lessor remains entitled immediately after the disposal,

but subject to the limit imposed on the amount of the disposal value by section 62 or 239.

(5) If—

(a) any of the rentals under the lease are receivable by the lessor on or after the relevant day, and

(b) the value of any of those rentals is represented in the amount of the disposal value under subsection (4)(b),

the amount of those rentals that is equal to their value as so represented is left out of account in calculating the income of the lessor's leasing business for corporation tax purposes.

(6) If, in determining under subsection (5) the amount of any rental to be so left out of account, it is necessary to apportion the amount of the rental, the apportionment is to be made on a just and reasonable basis.

(7) For the purposes of this section, the value of any rentals under the lease in respect of the plant or machinery is taken to be the amount of the net present value of the rentals (see section 228L).

(8) If any land or other asset which is not plant or machinery is subject to the lease, the value of any rentals under the lease in respect of the plant or machinery is taken to be so much of the amount of the net present value of the rentals as, on a just and reasonable basis, relates to the plant or machinery.

(9) This section is supplemented by—

(a) section 228L (which provides rules for determining the net present value of the rentals), and

(b) section 228M (which defines other expressions used in this section).

228L Determining the net present value of the rentals for purposes of s.228K U.K.

(1) For the purposes of section 228K, the amount of the net present value of the rentals is calculated as follows—

• Step 1

  Find the amount (“RI”) of each rental payment—

  (a)

  which is payable at any time during the term of the lease, and

  (b)

  which is payable on or after the relevant day.

• Step 2

  For each rental payment find the day (“the payment day”) on which it becomes payable.

• Step 3

  For each rental payment find the number of days in the period (“P”) which—

  (a)

  begins with the relevant day, and

  (b)

  ends with the payment day.

• Step 4

  Calculate the net present value of each payment (“NPVRI”) by applying the following formula—

  

  where—

  • T is the temporal discount rate, and

  • i is the number of days in P divided by 365.

• Step 5

  Add together each amount of NPVRI determined under step 4.

(2) For the purposes of this section the “term” of a lease has the meaning given in Chapter 6A of this Part.

(3) For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.

(4) The regulations may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).

(5) Subsection (5) of that section (power of Commissioners to specify rate by order in certain circumstances) applies in relation to regulations under this section as it applies in relation to regulations under that section.

228M Other definitions for the purposes of s.228K U.K.

(1) This section applies for the purposes of section 228K.

(2) “Business of leasing plant or machinery”—

(a) has the same meaning as in [F753 Chapter 3 of Part 9 of CTA 2010] (if the business is carried on otherwise than in partnership), or

(b) has the same meaning as in [F754 Chapter 4 of that Part] (if the business is carried on in partnership).

(3) “Lease” includes—

(a) an underlease, sublease, tenancy or licence, and

(b) an agreement for any of those things.

(4) “Relevant plant or machinery”, in relation to a business of leasing plant or machinery, means plant or machinery on whose provision expenditure is incurred wholly or partly for the purposes of the business.]

Textual Amendments

F753 Words in s. 228M(2)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 346(a) (with Sch. 2)

F754 Words in s. 228M(2)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 346(b) (with Sch. 2)

[F755 228MA Restriction of qualifying expenditure U.K.

(1) This section applies where capital expenditure is incurred on the provision of plant or machinery (“the asset”) and at the time the expenditure is incurred—

(a) the asset is leased or arrangements exist under which it is to be leased, and

(b) arrangements have been entered into in relation to payments under the lease that have the effect of reducing the value of the asset to the lessor (“V”).

(2) For the purposes of capital allowances the lessor's qualifying expenditure on the asset is restricted to V.

(3) The value of the asset to the lessor is given by—

where—

VI is the present value of the lessor's income from the asset, and

VR is the present value of the residual value of the asset reduced by the amount of any rental rebate.

(4) For this purpose—

(a) the lessor's income from the asset is the total of all the amounts that—

(i) have been received by the lessor, or it is reasonable to expect the lessor will receive, in connection with the lease, and

(ii) have been brought into account by the lessor, or it is reasonable to expect the lessor will bring into account, as income in computing profits chargeable to tax, and

(b) the residual value of the asset is what it is reasonable to expect will be the market value of the lessor's interest in the asset immediately after the termination of the lease.

(5) In determining the lessor's income from the asset, exclude—

(a) disposal receipts brought, or to be brought, into account under Part 2, and

(b) so much of any amount as represents charges for services or qualifying UK or foreign tax (within the meaning of section 70YE) to be paid by the lessor.

(6) Where capital expenditure has previously been incurred by the lessor on the provision of the asset, the reference in subsection (2) to the lessor's qualifying expenditure on the asset is to be read as a reference to the total amount of the lessor's qualifying expenditure on the asset.

(7) The following provisions supplement this section—

(a) section 228MB provides for the calculation of “present value”, and

(b) section 228MC defines what is meant by a rental rebate.

(8) In this section and sections 228MB and 228MC “lease” includes any arrangements which provide for plant or machinery to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”).

Textual Amendments

F755 Ss. 228MA-228MC inserted (8.4.2010) (with effect in accordance with Sch. 5 para. 1(2) to the amending Act) by Finance Act 2010 (c. 13), Sch. 5 para. 1(1)

228MB Calculation of present value U.K.

(1) For the purposes of section 228MA the “present value” of an amount is to be calculated by using the interest rate implicit in the lease.

(2) The general rule is that the interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable).

(3) If the interest rate implicit in the lease cannot be determined in accordance with subsection (2), it is taken to be [F756 the incremental borrowing rate].

[F757 (4) For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes.

(5) The Treasury may by regulations amend this section for the purpose of replacing references to the incremental borrowing rate with references to another rate.]

Textual Amendments

F755 Ss. 228MA-228MC inserted (8.4.2010) (with effect in accordance with Sch. 5 para. 1(2) to the amending Act) by Finance Act 2010 (c. 13), Sch. 5 para. 1(1)

F756 Words in s. 228MB(3) substituted (with effect in accordance with s. 132(5) of the amending Act) by Finance Act 2021 (c. 26), s. 132(2)(a)

F757 S. 228MB(4)(5) substituted for s. 228MB(4) (with effect in accordance with s. 132(5) of the amending Act) by Finance Act 2021 (c. 26), s. 132(2)(b)

228MC Rental rebate U.K.

(1) For the purposes of section 228MA “rental rebate” means any sum payable to the lessee that is calculated by reference to the termination value of the asset.

(2) The general rule is that the termination value of an asset is the value of the asset at or about the time when the lease terminates.

(3) Calculation by reference to the termination value includes calculation by reference to any one or more of—

(a) the proceeds of sale, if the asset is sold,

(b) any insurance proceeds, compensation or similar sums in respect of the asset, and

(c) an estimate of the market value of the asset.

(4) Calculation by reference to the termination value also includes—

(a) determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(b) any other form of calculation indirectly by reference to the termination value.]

Textual Amendments

F755 Ss. 228MA-228MC inserted (8.4.2010) (with effect in accordance with Sch. 5 para. 1(2) to the amending Act) by Finance Act 2010 (c. 13), Sch. 5 para. 1(1)

Miscellaneous and supplementary U.K.

229 Hire-purchase etc. U.K.

(1) This section applies if—

(a) a person carrying on a qualifying activity incurs capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity, and

(b) the expenditure is incurred under a contract providing that the person shall or may become the owner of the plant or machinery on the performance of the contract.

(2) If—

(a) the person assigns the benefit of the contract to another before the plant or machinery is brought into use, and

(b) the circumstances are such that allowances to the assignee fall to be restricted under this Chapter,

section 68(3) (disposal value where person ceases to be entitled to benefit of contract before plant or machinery brought into use) does not apply.

(3) If the expenditure is incurred on the provision of plant or machinery for leasing under a finance lease—

(a) section 67(3) (expenditure due to be incurred under contract treated as incurred when plant or machinery brought into use), and

(b) section 68 (disposal values where person ceases to be entitled to benefit of contract),

do not apply.

(4) Subsection (5) applies if—

(a) a person is treated under section 67(4) as ceasing to own plant or machinery, and

(b) as a result of subsection (2) or (3), section 68(3) or (as the case may be) section 68 does not apply.

(5) If this subsection applies—

(a) the disposal value is the total of—

(i) any relevant capital sums, and

(ii) any capital expenditure that the person would have incurred if he had wholly performed the contract, but

(b) the person is to be treated, for the purpose only of bringing the disposal value into account, as having incurred the capital expenditure mentioned in paragraph (a)(ii) in the relevant chargeable period.

(6) “Relevant capital sums” means capital sums that the person receives or is entitled to receive by way of consideration, compensation, damages or insurance money in respect of—

(a) his rights under the contract, or

(b) the plant or machinery.

(7) The relevant chargeable period, for the purposes of subsection (5)(b), is the chargeable period in which the person is treated under section 67(4) as ceasing to own the plant or machinery.

[F758 229A Transfer followed by hire-purchase etc: restrictions on hirer's allowances U.K.

(1) This section applies where—

(a) a person (“S”) transfers plant or machinery to another person (“B”),

(b) at any time after the date of the transfer, the plant or machinery is available to be used by S, or a person (other than B) who is connected with S (“CS”),

(c) it is available to be so used under a contract which provides that S or CS is to or may become the owner of the plant or machinery on the performance of the contract, and

(d) S or CS incurs capital expenditure on the provision of the plant or machinery under that contract.

(2) No annual investment allowance or first-year allowance is to be made in respect of the expenditure of S or CS under the contract.

(3) The amount, if any, by which E exceeds D is to be left out of account in determining the available qualifying expenditure of S or CS.

(4) E is the capital expenditure of S or CS on the provision of the plant or machinery under the contract referred to in subsection (1)(c).

(5) If S is required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), D is that disposal value.

[F759 (5A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), and

(b) at any time before that transfer S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(6) Otherwise, D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery before the transfer referred to in subsection (1)(a), the amount of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery before that transfer, the amount of that expenditure.

(7) Sections 214 and 215 do not apply in relation to the contract referred to in subsection (1)(c).

(8) Section 70Y(3) applies to references in this section to a transfer of plant or machinery by a person.

(9) For the purposes of this section a transfer involving the grant of a lease takes place on the commencement of the term of the lease.

[F760 (10) Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the transfer referred to in subsection (1)(a), and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the transfer referred to in subsection (1)(a).

(11) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]]

Textual Amendments

F758 S. 229A inserted (with effect in accordance with Sch. 32 para. 22 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 21

F759 S. 229A(5A) inserted (with effect in accordance with Sch. 10 para. 4(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 4(2)

F760 S. 229A(10)(11) inserted (with effect in accordance with Sch. 10 para. 4(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 4(3)

230 Exception for manufacturers and suppliers U.K.

[F761 (1) The restrictions in sections 217 and 218 do not apply in relation to any plant or machinery if—

(a) the relevant transaction is within section 213(1)(a) or (b),

(b) the case does not fall within section 215, and

(c) the conditions in subsection (3) are met.]

F762 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The conditions are that—

(a) the plant or machinery has never been used before the sale or the making of the contract,

(b) S’s business, or part of S’s business, is the manufacture or supply of plant or machinery of that class, and

(c) the sale is effected or the contract made in the ordinary course of that business.

Textual Amendments

F761 S. 230(1) substituted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 7(2)

F762 S. 230(2) omitted (with effect in accordance with Sch. 9 para. 9(1)(3) of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 9 para. 7(3)

231 Adjustments of assessments etc. U.K.

All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

232 Meaning of connected person U.K.

(1) For the purposes of this Chapter one person is to be treated as connected with another if—

(a) they would be treated as connected under [F763 section 575], or

(b) they are to be treated as connected under subsection (2).

(2) If—

(a) a public authority has at any time acquired plant or machinery from another public authority otherwise than by purchase, and

(b) it is directly or indirectly as a consequence of having been leased under a finance lease that the plant or machinery is available for any use to which it is put,

the authority from whom the plant or machinery was acquired is to be treated, in relation to that plant or machinery, as connected with the acquiring authority and with every person connected with the acquiring authority.

(3) In subsection (2), “public authority” includes the Crown or any government or local authority.

(4) Subsection (2) does not apply in relation to section 219 (meaning of “finance lease”).

Textual Amendments

F763 Words in s. 232(1)(a) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 403 (with Sch. 2)

233 Additional VAT liabilities and rebates U.K.

This Chapter needs to be read with sections 241 to 245 (provision for cases where a person involved in a relevant transaction or a sale and finance leaseback incurs an additional VAT liability or receives an additional VAT rebate).

Chapter 18 U.K. Additional VAT liabilities and rebates

Introduction U.K.

234 Introduction U.K.

For the purposes of this Chapter—

(a) “additional VAT liability” and “additional VAT rebate” have the meaning given by section 547,

(b) the time when—

(i) a person incurs an additional VAT liability, or

(ii) an additional VAT rebate is made to a person,

is given by section 548, and

(c) the chargeable period in which an additional VAT liability or an additional VAT rebate accrues is given by section 549.

Additional VAT liability U.K.

235 Additional VAT liability treated as qualifying expenditure U.K.

(1) This section applies if a person—

(a) has incurred qualifying expenditure (“the original expenditure”), and

(b) incurs an additional VAT liability in respect of the original expenditure at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(2) The additional VAT liability is to be treated as qualifying expenditure—

(a) which is incurred on the same plant or machinery as the original expenditure, and

(b) which may be taken into account in determining the person’s available qualifying expenditure for the chargeable period in which the additional VAT liability accrues.

236 Additional VAT liability generates first-year allowance [F764 or annual investment allowance] U.K.

(1) Subsection (2) applies if—

(a) the original expenditure was first-year qualifying expenditure, and

(b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(2) The additional VAT liability is to be regarded for the purposes of this Part as first-year qualifying expenditure which—

(a) is incurred on the same plant or machinery and is the same type of first-year qualifying expenditure as the original expenditure, and

(b) entitles the person incurring the liability to a first-year allowance for the chargeable period in which the liability accrues.

(3) Subsections (3) and (4) of section 52 apply to first-year qualifying expenditure constituted by the additional VAT liability as they apply to other first-year qualifying expenditure.

[F765 (3A) Subsection (3B) applies if—

(a) the original expenditure was AIA qualifying expenditure, and

(b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(3B) The additional VAT liability is to be regarded for the purposes of this Part as AIA qualifying expenditure incurred on the same plant or machinery as the original expenditure in the chargeable period in which the liability accrues.

(3C) Section 51A(7) applies to AIA qualifying expenditure constituted by the additional VAT liability as it applies to other AIA qualifying expenditure.]

(4) This section is subject to sections 237 and 241.

Textual Amendments

F764 Words in s. 236 heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 10(3)

F765 S. 236(3A)-(3C) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 10(2)

237 Exceptions to section 236 U.K.

(1) An additional VAT liability is not [F766 AIA qualifying expenditure or] first-year qualifying expenditure if at the time when the liability is incurred the plant or machinery is used for overseas leasing which is not protected leasing.

F767 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F766 Words in s. 237(1) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 11

F767 S. 237(2) omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 76(5)(e) (with s. 76(7)(8))

Additional VAT rebate U.K.

238 Additional VAT rebate generates disposal value U.K.

(1) This section applies if—

(a) a person has incurred qualifying expenditure (“the original expenditure”),

(b) an additional VAT rebate is made to the person in respect of the original expenditure, and

(c) the person owns the plant or machinery on which the original expenditure was incurred at any time in the chargeable period in which the rebate is made.

(2) If (apart from this section) there would not be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as a disposal value for that chargeable period.

(3) If (apart from this section) there would be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as an addition to that disposal value.

239 Limit on disposal value where additional VAT rebate U.K.

(1) Subsection (2) applies if—

(a) a person is required to bring a disposal value into account in respect of any plant or machinery, and

(b) any additional VAT rebate or rebates has or have been made to him in respect of the original expenditure.

(2) The amount of the disposal value is limited to the amount of the original expenditure reduced by the total of any additional VAT rebates accruing in previous chargeable periods in respect of that expenditure.

But this is subject to subsections (3) to (6).

(3) Subsection (4) applies if the disposal value is required to be brought into account by section 238(2) (disposal value for additional VAT rebate on its own).

(4) The amount of the disposal value to be brought into account is limited to the amount of the original expenditure reduced by the amount of any disposal values brought into account in respect of the plant or machinery as a result of any earlier event.

(5) If—

(a) the person required to bring the disposal value into account has acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons, and

(b) an additional VAT rebate has been made to any party to the transaction, or to any of the transactions,

the amount of the disposal value is limited to the greatest relevant expenditure of any of the parties.

(6) The relevant expenditure of a party is that party’s qualifying expenditure on the provision of the plant or machinery, less any additional VAT rebate made to that party.

Short-life assets: balancing allowance U.K.

240 Additional VAT liability U.K.

(1) This section applies if a person—

(a) was entitled to a balancing allowance for the final chargeable period for a short-life asset pool for a qualifying activity,

(b) has incurred, after the end of that period, an additional VAT liability in respect of the original expenditure on the provision of the short-life asset, and

(c) has not brought the liability into account in determining the amount of the balancing allowance.

(2) The person is entitled to a further balancing allowance, of an amount equal to the additional VAT liability, for the chargeable period of the qualifying activity in which the additional VAT liability accrues.

Anti-avoidance U.K.

241 No [F768 annual investment allowance or] first-year allowance in respect of additional VAT liability U.K.

(1) This section applies if—

(a) one person (“B”) enters into a transaction with another person (“S”) which is a relevant transaction for the purposes of Chapter 17 (anti-avoidance), and

(b) [F769 an annual investment allowance or] a first-year allowance in respect of B’s expenditure under the relevant transaction is prohibited by section 217(1)F770 ....

(2) [F771 No annual investment allowance or first-year allowance is] to be made in respect of any additional VAT liability incurred by B in respect of his expenditure under the relevant transaction.

(3) Any [F772 annual investment allowance or] first-year allowance which is prohibited by subsection (2), but which has already been made, is to be withdrawn.

Textual Amendments

F768 Words in s. 241 heading inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 12(5)

F769 Words in s. 241(1)(b) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 12(2)

F770 Words in s. 241(1)(b) omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(16)

F771 Words in s. 241(2) substituted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 12(3)

F772 Words in s. 241(3) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 12(4)

242 Restriction on B’s qualifying expenditure: general U.K.

(1) This section applies instead of section 218 (restriction on B’s qualifying expenditure in case other than sale and finance leaseback) if—

(a) apart from this subsection, section 218 would apply, and

(b) an additional VAT liability has been incurred by, or an additional rebate has been made to, any of the persons mentioned in that section.

(2) The amount, if any, by which E exceeds D is to be left out of account in determining B’s available qualifying expenditure.

E and D are defined in subsections (3) to (6).

(3) Except where subsection (6) applies, E is the sum of—

(a) B’s expenditure under the relevant transaction, and

(b) any additional VAT liability incurred by B in respect of that expenditure.

(4) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.

[F773 (4A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction, and

(b) at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(5) [F774 Otherwise,] D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—

(i) increased by the amount of any additional VAT liability incurred by S in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to S in respect of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—

(i) increased by the amount of any additional VAT liability incurred by that person in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to that person in respect of that expenditure.

(6) If—

F775 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) [F776 subsection (5) applies and the smallest amount under that subsection] is the market value of the plant or machinery, and

(c) that value is determined inclusive of value added tax,

E is the amount of B’s expenditure under the relevant transaction.

[F777 (7) Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the relevant transaction, and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the relevant transaction.

(8) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]

Textual Amendments

F773 S. 242(4A) inserted (with effect in accordance with Sch. 10 para. 5(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 5(2)

F774 Word in s. 242(5) substituted (with effect in accordance with Sch. 10 para. 5(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 5(3)

F775 S. 242(6)(a) omitted (with effect in accordance with Sch. 10 para. 5(6) of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 10 para. 5(4)(a)

F776 Words in s. 242(6)(b) substituted (with effect in accordance with Sch. 10 para. 5(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 5(4)(b)

F777 S. 242(7)(8) inserted (with effect in accordance with Sch. 10 para. 5(6) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 5(5)

F778 243 Restriction on B’s qualifying expenditure: sale and finance leaseback U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F778 S. 243 omitted (with effect in accordance with Sch. 20 para. 6(19) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 6(17)

244 B’s qualifying expenditure if lessor not bearing non-compliance risk U.K.

An additional VAT liability is not qualifying expenditure for the purposes of this Part if—

(a) section 225 (restriction on B’s qualifying expenditure if lessor not bearing compliance risk) applies, and

(b) the additional VAT liability is incurred—

(i) by B, in respect of the expenditure referred to in section 225(2)(a), or

(ii) by the lessor, in respect of the expenditure referred to in section 225(2)(b).

245 Effect of election under section 227 on additional VAT liability U.K.

(1) This section applies if—

(a) an election is made under section 227 (sale and leaseback or sale and finance leaseback: election for special treatment), and

(b) an additional VAT liability is incurred by S in respect of the capital expenditure incurred on the provision of the plant or machinery to which the election relates.

(2) The effect of the election is—

(a) that no allowance is to be made to S under this Act in respect of the additional VAT liability, and

(b) that the additional VAT liability must be left out of account in determining Ss’ available qualifying expenditure for any period.

246 Miscellaneous U.K.

(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to sections 241 to 245.

(2) Section 232 (meaning of connected person) applies for the purposes of sections 242 and 243.

Chapter 19 U.K. Giving effect to allowances and charges

Trades U.K.

247 Trades U.K.

[F779 (1)] If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a trade, the allowance or charge is to be given effect in calculating the profits of that person’s trade, by treating—

(a) the allowance as an expense of the trade, and

(b) the charge as a receipt of the trade.

[F780 (1A) Subsection (1) is subject to section 6E (giving effect to allowances and charges: NI rate activity cases).]

[F781 (2) See Chapter 16A for provision restricting in certain circumstances the ways in which effect may be given to an allowance by virtue of subsection (1)(a).]

Textual Amendments

F779 S. 247(1): s. 247 renumbered (8.4.2010) (with effect in accordance with Sch. 4 para. 5 to the amending Act) by Finance Act 2010 (c. 13), Sch. 4 para. 4

F780 S. 247(1A) inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 9

F781 S. 247(2) inserted (8.4.2010) (with effect in accordance with Sch. 4 para. 5 to the amending Act) by Finance Act 2010 (c. 13), Sch. 4 para. 4

Property businesses U.K.

248 Ordinary [F782 UK] [F783 property] businesses U.K.

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an ordinary [F784 UK] [F785 property] business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—

(a) the allowance as an expense of that business, and

(b) the charge as a receipt of that business.

Textual Amendments

F782 Word in s. 248 heading inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(11)(a)

F783 Word in s. 248 substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 546(b) (with Sch. 2 )

F784 Word in s. 248 inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(11)(b)

F785 Word in s. 248 substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 546(a) (with Sch. 2 )

249 [F786 UK furnished] holiday lettings businesses U.K.

(1) If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a [F787 UK furnished] holiday lettings business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—

(a) the allowance as an expense of that business, and

(b) the charge as a receipt of that business.

(2) [F788 Section 65 of CTA 2010] (letting of furnished holiday accommodation treated as trade for purposes of loss relief rules, etc.) applies to profits calculated in accordance with subsection (1).

Textual Amendments

F786 Words in s. 249 heading substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(12)(a)

F787 Words in s. 249(1) substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(12)(b)

F788 Words in s. 249(2) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 347 (with Sch. 2)

250 [F789 Ordinary overseas] property businesses U.K.

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an [F790 ordinary overseas] property business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—

(a) the allowance as an expense of that business, and

(b) the charge as a receipt of that business.

Textual Amendments

F789 Words in s. 250 heading substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(13)(a)

F790 Words in s. 250 substituted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(13)(b)

[F791 250A EEA furnished holiday lettings businesses U.K.

(1) If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an EEA furnished holiday lettings business, the allowance or charge is to be given effect in calculating the profits of that business by treating—

(a) the allowance as an expense of that business, and

(b) the charge as a receipt of that business.

(2) Section 67A of CTA 2010 (letting of EEA furnished holiday accommodation treated as trade for purposes of loss relief rules, etc) applies to profits calculated in accordance with subsection (1).]

Textual Amendments

F791 S. 250A inserted (with effect in accordance with Sch. 14 para. 13 of the amending Act) by Finance Act 2011 (c. 11), Sch. 14 para. 12(14)

Activities analogous to trades U.K.

251 Professions and vocations U.K.

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is carrying on a profession or vocation, the allowance or charge is to be given effect in calculating the profits or gains of that person’s profession or vocation, by treating—

(a) the allowance as an expense of the profession or vocation, and

(b) the charge as a receipt of the profession or vocation.

252 Mines, transport undertakings etc. U.K.

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a concern listed in [F792 section 12(4) of ITTOIA 2005 or] [F793 section 39(4) of CTA 2009] (mines, transport undertakings etc.) the allowance or charge is to be given effect in calculating the profits of the concern under [F794 Chapter 2 of Part 2 of ITTOIA 2005 or, as the case may be, under] Case I of Schedule D, by treating—

(a) the allowance as an expense of the concern, and

(b) the charge as a receipt of the concern.

Textual Amendments

F792 Words in s. 252 inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 547(a) (with Sch. 2 )

F793 Words in s. 252 substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 490 (with Sch. 2 Pts. 1, 2)

F794 Words in s. 252 inserted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 547(b) (with Sch. 2 )

[F795 Companies with investment business] U.K.

Textual Amendments

F795 S. 253 heading substituted (with effect in accordance with art. 1(2) of the commencing S.I.) by Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendments of Enactments) Order 2004 (S.I. 2004/2310) , art. 1(2) , Sch. para. 54(3)

253 [F795 Companies with investment business] U.K.

(1) This section applies if the qualifying activity of a person entitled to an allowance or liable to a charge for a chargeable period is [F796 managing the investment business].

(2) The allowance is, as far as possible, to be given effect by deducting the amount of the allowance from any income for the period of the business; and [F797 section 1233 of CTA 2009] (addition of allowances to company’s expenses of management) applies only in so far as it cannot be given effect in this way.

(3) The charge is to be given effect by treating the amount of the charge as income of the business.

(4) Except as provided by subsections (2) and (3), the Corporation Tax Acts apply in relation to the allowance or charge as if they were required to be given effect in calculating the profits of that person’s trade for the purposes of [F798 Part 3 of CTA 2009].

(5) Corresponding allowances or charges in the case of the same plant or machinery are not to be made under this Part both under this section and in another way.

(6) Expenditure to which this section applies is not to be taken into account otherwise than under this Part or as provided by [F799 section 1233 [F800 or 1244A] of CTA 2009].

(7) This section is subject to [F801 sections 682(3) and 699(3) of CTA 2010].

Textual Amendments

F796 Words in s. 253(1) substituted (with effect in accordance with art. 1(2) of the commencing S.I.) by Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendments of Enactments) Order 2004 (S.I. 2004/2310) , art. 1(2) , Sch. para. 54(2)

F797 Words in s. 253(2) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 491(2) (with Sch. 2 Pts. 1, 2)

F798 Words in s. 253(4) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 491(3) (with Sch. 2 Pts. 1, 2)

F799 Words in s. 253(6) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 491(4) (with Sch. 2 Pts. 1, 2)

F800 Words in s. 253(6) inserted (with effect in accordance with Sch. 5 para. 9 of the amending Act) by Finance Act 2015 (c. 11), Sch. 5 para. 8

F801 Words in s. 253(7) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 348 (with Sch. 2)

Modifications etc. (not altering text)

C62 S. 253 modified by Corporation Tax Act 2010 (c. 4), s. 676AJ(3) (as inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 75)

[F802 Long-term] business U.K.

Textual Amendments

F802 Words in s. 254 heading substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 96

254 Introductory U.K.

(1) Sections 255 and 256 apply if a company which is carrying on any [F803 long-term business] is entitled or liable to any allowances or charges for a chargeable period in respect of plant or machinery consisting of a management asset.

(2) In this Chapter “management asset” has the same meaning as in Chapter 1 of Part 12 (life assurance business).

Textual Amendments

F803 Words in s. 254(1) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 97

[F804 255 [F804 Apportionment of allowances and charges] U.K.

(1) This section applies if the long-term business of the company consists of—

(a) basic life assurance and general annuity business, and

(b) non-BLAGAB long-term business.

(2) In that case—

(a) any allowance to which the company is entitled for a chargeable period in respect of a management asset, and

(b) any charge to which it is liable for a chargeable period in respect of a management asset,

must be apportioned between the businesses in accordance with Chapter 7 of Part 2 of FA 2012.]

Textual Amendments

F804 S. 255 substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 98

Modifications etc. (not altering text)

C63 S. 255 modified (31.12.2012) by The Friendly Societies (Modifications of the Tax Acts) Regulations 2012 (S.I. 2012/3008), regs. 1(1), 4 (with regs. 1(2), 2)

256 Different giving effect rules for [F805 BLAGAB] U.K.

(1) Subsection (2) applies if a company—

(a) carries on basic life assurance and general annuity business, and

[F806 (b) is charged to tax [F807 in accordance with the I - E rules] in respect of [F808 that business].]

(2) If this subsection applies—

(a) any allowances (or parts of allowances) to which the company is entitled in respect of the basic life assurance and general annuity business are to be given effect by treating them [F809 for the purposes of section 76 of FA 2012 as deemed BLAGAB management expenses for the chargeable period in question], and

(b) any charges (or parts of charges) to which the company is liable in respect of that business are to be given effect by treating the [F810 company as receiving for the chargeable period in question an amount which is equal to the amount of the charges (or parts of charges) and to which the charge to corporation tax on income applies].

F811 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F812 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F805 Word in s. 256 heading substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 99(5)

F806 S. 256(1)(b) substituted (with effect in accordance with s. 39(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 8 para. 23 (with Sch. 8 Pt. 2)

F807 Words in s. 256(1)(b) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 99(2)(a)

F808 Words in s. 256(1)(b) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 99(2)(b)

F809 Words in s. 256(2)(a) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 99(3)

F810 Words in s. 256(2)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 492(2) (with Sch. 2 Pts. 1, 2)

F811 S. 256(3) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 99(4)

F812 S. 256(4) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 99(4)

Modifications etc. (not altering text)

C64 S. 256 modified (1.1.2002) by S.I. 1997/473, reg. 53C (as inserted by S.I. 2001/3975, reg. 8)

C65 S. 256 modified (with effect in accordance with reg. 1(2) of the commencing S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 2005 (S.I. 2005/2014), regs. 1(1), 44

257 Supplementary U.K.

(1) Allowances and charges to which sections 255 and 256 apply are not to be given effect otherwise than in accordance with those sections.

(2) Subsection (1) does not prevent any allowance which is to be given effect under those sections from being taken into account in any calculation for the purposes of—

[F813 (a) section 93(5) of FA 2012 (minimum profits test), or

(b) section 103 of FA 2012 (rules for determining policyholders' share of I - E profit).

F814 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F813 S. 257(2)(a)(b) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 100

F814 S. 257(3) repealed (with effect in accordance with Sch. 10 para. 17(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 10 para. 14(8)(a), Sch. 27 Pt. 2(10)

Special leasing of plant or machinery U.K.

258 Special leasing: income tax U.K.

(1) This section applies for income tax purposes if the qualifying activity of a person entitled or liable to an allowance or charge for a chargeable period (“the current tax year”) is special leasing of plant or machinery.

(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the person’s income for the current tax year from any qualifying activity the person has of special leasing of plant or machinery.

(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current tax year for the purposes of a qualifying activity carried on by the lessee—

(a) the allowance, or

(b) a proportionate part of it,

is to be given effect by deducting the allowance, or the part of the allowance, from the person’s income for the current tax year from that special leasing only.

[F815 (3A) The allowance or (as the case may be) the proportionate part of the allowance is given effect at Step 2 of the calculation in section 23 of ITA 2007.]

(4) Any charge is to be given effect by treating the charge as income to be [F816 assessed to income tax].

(5) If the amount to be deducted from a description of income specified in subsection (2) or (3) exceeds the person’s income of that description for the current tax year, the excess must be deducted from the person’s income of the same description for the next tax year, and so on for subsequent tax years.

(6) For the purposes of this section, income from special leasing of plant or machinery includes any charge treated as income under subsection (4).

(7) In this section, references to deducting an allowance (or a part of an allowance) from income include setting it off against income.

Textual Amendments

F815 S. 258(3A) inserted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 404 (with Sch. 2)

F816 Words in s. 258(4) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 548 (with Sch. 2 )

259 Special leasing: corporation tax (general) U.K.

(1) This section applies for corporation tax purposes if the qualifying activity of a company entitled or liable to an allowance or charge for a chargeable period (“the current accounting period”) is special leasing of plant or machinery.

(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the company’s income for the current accounting period from any qualifying activity it has of special leasing of plant or machinery.

(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current accounting period for the purposes of a qualifying activity carried on by the lessee—

(a) the allowance, or

(b) a proportionate part of it,

is to be given effect by deducting the allowance, or the part of the allowance, from the company’s income for the current accounting period from that special leasing only.

(4) Any charge is to be given effect by treating the charge as income from special leasing of plant or machinery.

260 Special leasing: corporation tax (excess allowance) U.K.

(1) This section applies if the amount to be deducted from a description of income specified in section 259(2) or (3) exceeds the company’s income of that description for the current accounting period.

(2) Subject to subsections (3) to (6), the excess must (if the company remains within the charge to tax) be deducted from the company’s income of the same description for the next accounting period (and so on for subsequent accounting periods).

(3) The company may, on making a claim, require the excess to be deducted from any profits—

(a) of the current accounting period, and

(b) if the company was then within the charge to tax, of any previous accounting period ending within the carry-back period.

(4) The carry-back period is a period which—

(a) is of the same length as the current accounting period, and

(b) ends at the start of the current accounting period.

(5) If the preceding accounting period began before the start of the carry-back period, the total amount of deductions that may be made from the profits of the preceding accounting period under—

(a) subsection (3), and

(b) any corresponding provision of the Corporation Tax Acts relating to losses,

must not exceed a part of those profits proportionate to the part of the period falling within the carry-back period.

(6) A claim under subsection (3) must be made no later than 2 years after the end of the current accounting period.

(7) If the deduction of the allowance (or of part of it) was subject to the restriction in section 259(3)—

(a) subsections (3) to (6), and

(b) [F817 sections 99 and 113 of CTA 2010] (group relief),

do not apply in relation to the allowance (or part of it).

(8) In this section “profits” has the same meaning as in [F818 Part 2 of CTA 2009 (see section 2(2) of that Act)].

Textual Amendments

F817 Words in s. 260(7)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 349 (with Sch. 2)

F818 Words in s. 260(8) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 494 (with Sch. 2 Pts. 1, 2)

Modifications etc. (not altering text)

C66 S. 260(1) applied (1.4.2010) (with modifications) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 101(2)-(4), 1184(1) (with Sch. 2)

261 Special leasing: [F819 long-term business] U.K.

In the case of a company which is carrying on any [F820 long-term business]—

(a) subsections (3) to (6) of section 260, and

(b) [F821 sections 99 and 113 of CTA 2010] (group relief),

do not apply in relation to an allowance to which the company is entitled under section 19 (special leasing of plant or machinery).

Textual Amendments

F819 Words in s. 261 heading substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 101(3)

F820 Words in s. 261 substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 101(2)

F821 Words in s. 261(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 350 (with Sch. 2)

[F822 261A Special leasing: leasing partnerships U.K.

(1) This section applies for corporation tax purposes if—

(a) a company carries on a business in partnership with other persons in a chargeable period of the partnership,

(b) the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

(c) the company is entitled to an allowance under section 19 (special leasing of plant or machinery) for any chargeable period comprised (wholly or partly) in the chargeable period of the partnership, and

(d) the interest of the company in the leasing business during the chargeable period of the partnership is not determined on an allowable basis.

(2) Subsections (3) to (6) of section 260 do not apply in relation to the allowance.

(3) For the purposes of this section—

(a) “business of leasing plant or machinery” has the same meaning as in [F823 Chapter 4 of Part 9 of CTA 2010 (sales of lessors: leasing business carried on by a company in partnership)], and

(b) [F824 section 887 of CTA 2010] applies for determining whether the interest of the company in the leasing business during the chargeable period of the partnership is determined on an allowable basis.]

Textual Amendments

F822 S. 261A inserted (with effect in accordance with s. 83(4)-(6) of the amending Act) by Finance Act 2006 (c. 25), s. 83(3)

F823 Words in s. 261A(3)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 351(a) (with Sch. 2)

F824 Words in s. 261A(3)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 351(b) (with Sch. 2)

Employments and offices U.K.

262 Employments and offices U.K.

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an employment or office, the allowance or charge is to be given effect, by treating—

(a) the allowance as [F825 a deduction from the taxable earnings from] the employment or office, and

(b) the charge as [F826 earnings] of the employment or office.

Textual Amendments

F825 Words in s. 262(a) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 253(a) (with Sch. 7 )

F826 Word in s. 262(b) substituted (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1) , s. 723 , Sch. 6 para. 253(b) (with Sch. 7 )

[F827 First-year tax credits] U.K.

Textual Amendments

F827 S. 262A and cross-heading inserted (with effect in accordance with Sch. 25 para. 9 of the amending Act) by Finance Act 2008 (c. 9), Sch. 25 para. 4

F828 262A First-year tax credits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F828 S. 262A repealed (with effect in accordance with s. 33(5) of the amending Act) by Finance Act 2019 (c. 1), s. 33(1)(c)

Chapter 20 U.K. Supplementary provisions

[F829 Co-ownership authorised contractual schemes U.K.

Textual Amendments

F829 Ss. 262AA-262AF and cross-heading inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), s. 40

262AA Co-ownership schemes: carrying on qualifying activity U.K.

(1) This section applies where the participants in a co-ownership authorised contractual scheme together carry on a qualifying activity.

(2) Each participant in the scheme is for the purposes of this Part to be regarded as carrying on the qualifying activity.

(3) Subsection (2) applies in relation to a participant only to the extent that the profits or gains arising to the participant from the qualifying activity are, or (if there were any) would be, chargeable to tax.

(4) But in determining for the purposes of subsection (1) whether or to what extent the participants in a co-ownership authorised contractual scheme together carry on a qualifying activity, assume that profits or gains arising to all participants from the qualifying activity are, or (if there were any) would be, chargeable to tax.

262AB Co-ownership schemes: election U.K.

(1) The operator of a co-ownership authorised contractual scheme may make an election under this section.

(2) The election must specify an accounting period of the scheme as the first accounting period in relation to which the election has effect.

(3) That first accounting period must not—

(a) be longer than 12 months, or

(b) begin before 1 April 2017.

(4) The election has effect for that first accounting period and all subsequent accounting periods of the scheme.

(5) The election is irrevocable [F830 (subject to section 262AEA)].

(6) The election is made by notice to an officer of Revenue and Customs.

[F831 (7) See sections 262AC to 262AE and sections 270ID and 270IE for provision about the effect of an election.]

Textual Amendments

F830 Words in s. 262AB(5) inserted (5.7.2019) by The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (S.I. 2019/1087), regs. 1, 3(7)(a)

F831 S. 262AB(7) inserted (5.7.2019) by The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (S.I. 2019/1087), regs. 1, 3(7)(b)

262AC Co-ownership schemes: calculation of allowance after election U.K.

(1) This section applies where an election under section 262AB has effect for an accounting period of a co-ownership authorised contractual scheme (“the relevant period”).

(2) The operator of the scheme is to calculate the allowances that would be available to the scheme under this Part in relation to the relevant period on the basis of the assumptions in subsection (3).

(3) The assumptions are—

(a) the scheme is a person;

(b) the relevant period is a chargeable period for the purposes of this Act;

(c) any qualifying activity carried on by the participants in the scheme together is carried on by the scheme;

(d) property which was subject to the scheme at the beginning of the first accounting period for which the election has effect—

(i) ceased to be owned by the participants at that time, and

(ii) was acquired by the scheme at that time;

(e) the disposal value to be brought into account in relation to the cessation of ownership and the acquisition referred to in paragraph (d) is the tax written-down value;

(f) any property which became subject to the scheme at a time during an accounting period for which the election has effect was acquired by the scheme at that time;

(g) property which ceased to be subject to the scheme at any such time ceased to be owned by the scheme at that time;

(h) the disposal value to be brought into account in relation to the cessation of ownership referred to in paragraph (g) is the tax written-down value;

(i) the scheme is not entitled to a first-year allowance or an annual investment allowance in respect of any expenditure.

(4) The operator of the co-ownership authorised contractual scheme must allocate to each participant in the scheme a proportion (which may be zero) of the allowances calculated under this section.

(5) The allocation is to be on the basis of what is just and reasonable.

(6) In determining what is just and reasonable—

(a) regard is to be had in particular to the relative size of each participant's holding of units in the scheme;

(b) no regard is to be had to—

(i) whether or to what extent a participant is liable to income tax or corporation tax, or

(ii) any other circumstances relating to a participant's liability to tax.

(7) If the participants in the scheme together carry on more than one qualifying activity, the calculation and allocation under this section are to be made separately for each activity.

(8) The proportion of an allowance allocated by the operator to a participant under this section for a qualifying activity is the total amount of the allowance available to the participant under this Part in relation to the relevant period by virtue of carrying on that activity as a participant in the scheme.

(9) In this section “tax written-down value”, in relation to any cessation of ownership or acquisition, means such amount as would give rise to neither a balancing allowance nor a balancing charge.

(10) For the purposes of subsection (9) assume that expenditure to which the disposal value relates is in its own pool.

(11) For the purposes of subsections (3)(c) and (9), assume that profits or gains arising to all participants from the qualifying activity are, or (if there were any) would be, chargeable to tax.

262AD Co-ownership schemes: effect of election for participants U.K.

(1) This section has effect where an election under section 262AB is made by the operator of a co-ownership authorised contractual scheme.

(2) For the purposes of sections 61(1) and 196(1) (disposal events and values)—

(a) a participant in the scheme is to be regarded as ceasing to own the participant's interest in the property subject to the scheme at the beginning of the first accounting period of the scheme for which the election has effect, and

(b) the disposal value to be brought into account in relation to that cessation of ownership is the tax written-down value.

(3) In subsection (2)(b) “tax written-down value” means such amount as would give rise to neither a balancing allowance nor a balancing charge.

(4) For the purposes of subsection (3) assume that—

(a) expenditure to which the disposal value relates is in its own pool;

(b) profits or gains arising to all participants from the qualifying activity are, or (if there were any) would be, chargeable to tax.

262AE Co-ownership schemes: effect of election for purchasers U.K.

(1) This section has effect where—

(a) an election under section 262AB is made by the operator of a co-ownership authorised contractual scheme,

(b) property consisting of a fixture ceased to be subject to the scheme at any time in an accounting period for which the election has effect,

(c) in a calculation made by the operator of the scheme under section 262AC(2) the assumption in section 262AC(3)(g) was made in relation to that fixture, and

(d) a person (“the current owner”) is treated as the owner of the fixture as a result of incurring capital expenditure on its provision (“the new expenditure”).

(2) In determining the current owner's qualifying expenditure—

(a) if the disposal value statement requirement is not satisfied, the new expenditure is to be treated as nil, and

(b) in any other case, any amount of the new expenditure which exceeds the assumed disposal value is to be left out of account (or, if such an amount has already been taken into account, is to be treated as an amount that should never have been taken into account).

(3) The disposal value statement requirement is that—

(a) the operator of the scheme has, no later than 2 years after the date when the fixture ceased to be property subject to the scheme, made a written statement of the assumed disposal value, and

(b) the current owner has obtained that statement or a copy of it (directly or indirectly) from the operator of the scheme.

(4) Sections 185 (fixture on which a plant and machinery allowance has been claimed) and 187A (effect of changes in ownership of fixture) do not apply in relation to the new expenditure.

(5) In this section “assumed disposal value” means the disposal value that, in making the calculation referred to in subsection (1)(c), was assumed to be brought into account pursuant to section 262AC(3)(h).

[F832 262AEA Co-ownership schemes: withdrawal of election U.K.

(1) This section applies if—

(a) an election under section 262AB has been made in relation to the scheme before the relevant date (within the meaning of section 270ID(8)), and

(b) an allowance under Part 2A (structures and buildings allowances) is available by reference to a building or structure which is subject to the scheme.

(2) The operator of the scheme may, by notice to an officer of Revenue and Customs, withdraw the election.

(3) The notice of withdrawal may not be given more than 12 months after the end of the accounting period in which the building or structure mentioned in subsection (1)(b) is first brought into qualifying use for the purposes of that Part.

(4) The election ceases to have effect for the accounting period in which the notice of withdrawal is given and all subsequent accounting periods of the scheme.

(5) If an election is withdrawn under this section—

(a) the property which was subject to the scheme at the beginning of the accounting period in which the notice of withdrawal is given is treated for the purposes of this Part—

(i) as ceasing to be owned by the scheme at that time, and

(ii) as being acquired by the participants at that time in such proportions as are just and reasonable, and

(b) the disposal value to be brought into account in relation to the cessation of ownership is the tax written-down value.

(6) Subsections (6) and (9) to (11) of section 262AC apply for the purposes of this section as they apply for the purposes of that section.]

Textual Amendments

F832 S. 262AEA inserted (5.7.2019) by The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (S.I. 2019/1087), regs. 1, 3(8)

262AF Co-ownership schemes: definitions relating to schemes U.K.

In sections 262AA to 262AE and this section—

• “co-ownership authorised contractual scheme” means a co-ownership scheme which is authorised for the purposes of the Financial Services and Markets Act 2000 by an authorisation order in force under section 261D(1) of that Act;

• “co-ownership scheme” has the same meaning as in Part 17 of that Act (see section 235A(2) of that Act);

• “operator” and “units”, in relation to a co-ownership authorised contractual scheme, have the meanings given by section 237(2) of that Act;

• “participant”, in relation to such a scheme, is to be read in accordance with section 235 of that Act.]

Partnerships and successions U.K.

263 Qualifying activities carried on in partnership U.K.

(1) This section applies if—

(a) a qualifying activity has been set up and is at any time carried on in partnership,

(b) there has been a change in the persons engaged in carrying on the qualifying activity, and

[F833 (c) if the qualifying activity is a trade or property business, the condition in subsection (1A) or (1B) (whichever is appropriate) is met.]

[F834 (1A) For income tax purposes, the condition is that a person carrying on the trade or property business immediately before the change continues to carry it on after the change.

(1B) For corporation tax purposes, the condition is that a company carrying on the trade or property business in partnership immediately before the change continues to carry it on in partnership after the change.]

(2) In this section—

• “the present partners” means the person or persons for the time being carrying on the qualifying activity,

• “the partners at the time of the event” means the person or persons carrying on the qualifying activity at the time of the event in question,

• “predecessors”—

  (a)

  in relation to the present partners, means their predecessors in carrying on the qualifying activity, and

  (b)

  in relation to the partners at the time of the event, means their predecessors in carrying on the qualifying activity, and

• “qualifying activity”—

  (a)

  does not include an employment or office, but

  (b)

  includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

(3) Any [F835 annual investment allowance,] first-year allowance or writing-down allowance under this Part is to be made to the present partners.

(4) The amount of any allowance arising under subsection (3) is to be calculated as if—

(a) the present partners had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the present partners.

(5) If any event occurs which gives rise or may give rise to a balancing allowance or a balancing charge under this Part, the allowance or charge is to be made to or on the partners at the time of the event.

(6) The amount of any allowance or charge arising under subsection (5) is to be calculated as if—

(a) the partners at the time of the event had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the partners at the time of the event.

Textual Amendments

F833 S. 263(1)(c) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 495(2) (with Sch. 2 Pts. 1, 2)

F834 S. 263(1A)(1B) substituted for s. 263(1A) (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 495(3) (with Sch. 2 Pts. 1, 2)

F835 Words in s. 263(3) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 13

264 Partnership using property of a partner U.K.

(1) Subsection (2) applies if—

(a) a qualifying activity is carried on in partnership,

(b) plant or machinery is used for the purposes of the qualifying activity, and

(c) the plant or machinery is owned by one or more of the partners but is not partnership property.

(2) The same allowances, deductions and charges are to be made under this Part in respect of the plant or machinery as would fall to be made if—

(a) the plant or machinery had at all material times been owned by all the partners and been partnership property, and

(b) everything done by or to any of the partners in relation to that plant or machinery had been done by or to all the partners.

(3) The disposal value of plant or machinery is not required to be brought into account if—

(a) the plant or machinery is used for the purposes of a qualifying activity carried on in partnership,

(b) a sale or gift of the plant or machinery is made by one or more of the partners to one or more of the partners, and

(c) the plant or machinery continues to be used after the sale or gift for the purposes of the qualifying activity.

(4) The references in this section to use for the purposes of a qualifying activity do not include use—

(a) as a result of a letting by the partner or partners in question to the partnership, or

(b) in consideration of the making to the partner or partners in question of any payment which may be deducted in calculating the profits of the qualifying activity.

265 Successions: general U.K.

(1) This section applies if—

(a) a person (“the successor”) succeeds to a qualifying activity which until that time was carried on by another person (“the predecessor”), and

[F836 (b) if the qualifying activity is a trade or property business, the condition in subsection (1A) or (1B) (whichever is appropriate) is met.]

[F837 (1A) For income tax purposes, the condition is that no person carrying on the trade or property business immediately before the succession continues to carry it on after the succession.

(1B) For corporation tax purposes, the condition is that no company carrying on the trade or property business in partnership immediately before the succession continues to carry it on in partnership after the succession.]

(2) Relevant property is to be treated for the purposes of this Part as if—

(a) it had been sold to the successor when the succession takes place, and

(b) the net proceeds of the sale were the market value of the property.

(3) “Relevant property” means any property which—

(a) immediately before the succession, was owned by the predecessor and was either in use or provided and available for use for the purposes of the discontinued qualifying activity, and

(b) immediately after the succession, and without being sold, is either in use or provided and available for use for the purposes of the new qualifying activity.

(4) No entitlement to [F838 an annual investment allowance or] a first-year allowance arises under this section.

(5) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Textual Amendments

F836 S. 265(1)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 496(2) (with Sch. 2 Pts. 1, 2)

F837 S. 265(1A)(1B) substituted for s. 265(1A) (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 496(3) (with Sch. 2 Pts. 1, 2)

F838 Words in s. 265(4) inserted (with effect in accordance with Sch. 24 para. 23 of the amending Act) by Finance Act 2008 (c. 9), Sch. 24 para. 14

266 Election where predecessor and successor are connected persons U.K.

(1) This section applies if a person (“the successor”) succeeds to a qualifying activity which was until that time carried on by another person (“the predecessor”) and—

(a) the two persons are connected with each other,

(b) each of them is within the charge to tax on the profits of the qualifying activity, and

(c) the successor is not a dual resident investing company.

(2) If this section applies, the predecessor and the successor may jointly elect for the provisions of section 267 to have effect.

(3) The election may be made whether or not any plant or machinery has actually been sold or transferred.

(4) The election must be made by notice to the [F145 an officer of Revenue and Customs] within 2 years after the date on which the succession takes effect.

(5) For the purposes of this section, the predecessor and the successor are connected with each other if any of the following conditions is met—

(a) they would be treated as connected persons under [F839 section 575];

(b) one of them is a partnership and the other has the right to a share in that partnership;

(c) one of them is a body corporate and the other has control over that body;

(d) both of them are partnerships and another person has the right to a share in both of them;

(e) both of them are bodies corporate, or one of them is a partnership and the other is a body corporate, and (in either case) another person has control over both of them.

(6) In subsection (5) any reference to a right to a share in a partnership is to be read as a reference to a right to a share of the assets or income of the partnership.

(7) Sections [F840 104E], 108 and 265 (disposal value [F841 in connection with special rate expenditure], effect of disposal to connected person on overseas leasing pool and general provisions about successions) do not apply if an election is made under this section [F842 (but see section 267A)].

(8) This section does not apply if section 561 applies ([F843 transfer or division of UK business]).

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F839 Words in s. 266(5)(a) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 405 (with Sch. 2)

F840 Word in s. 266(7) substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 12(a)

F841 Words in s. 266(7) substituted (with effect in accordance with Sch. 26 para. 14 of the amending Act) by Finance Act 2008 (c. 9), Sch. 26 para. 12(b)

F842 Words in s. 266(7) inserted (with effect in accordance with s. 85(5) of the amending Act) by Finance Act 2006 (c. 25), s. 85(2)

F843 Words in s. 266(8) substituted (31.12.2020) by The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 10(3) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

267 Effect of election U.K.

(1) If an election is made under section 266, the following provisions have effect.

(2) For the purposes of making allowances and charges under this Part, relevant plant or machinery is treated as sold by the predecessor to the successor—

(a) when the succession takes place, and

(b) at a price which gives rise to neither a balancing allowance nor a balancing charge.

(3) “Relevant plant or machinery” means any plant or machinery which—

(a) immediately before the succession, was owned by the predecessor, and was either in use or provided and available for use for the purposes of the qualifying activity, and

(b) immediately after the succession, is owned by the successor, and is either in use or provided and available for use for the purposes of the qualifying activity.

(4) Allowances and charges are to be made under this Part to or on the successor as if everything done to or by the predecessor had been done to or by the successor.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

[F844 (6) This section is subject to section 267A.]

Textual Amendments

F844 S. 267(6) inserted (with effect in accordance with s. 85(5) of the amending Act) by Finance Act 2006 (c. 25), s. 85(3)

[F845 267A Restriction on effect of election U.K.

(1) This section applies for corporation tax purposes if—

(a) on any day (“the relevant day”) a person (“the predecessor”) carries on a business of leasing plant or machinery,

(b) on the relevant day another person (“the successor”) succeeds to the business, and

(c) the predecessor and the successor make an election under section 266.

(2) Neither—

(a) section 266(7), nor

(b) the provisions of section 267,

have effect in relation to any plant or machinery which, in determining whether the business is a business of leasing plant or machinery on the relevant day, [F846 falls within section 387(7) of CTA 2010 (if the business is carried on otherwise than in partnership) or within section 410(6) of that Act (if the business is carried on in partnership)].

(3) In this section “business of leasing plant or machinery”—

(a) has the same meaning as in [F847 Chapter 3 of Part 9 of CTA 2010] (if the business is carried on otherwise than in partnership), or

(b) has the same meaning as in [F848 Chapter 4 of that Part] (if the business is carried on in partnership).]

Textual Amendments

F845 S. 267A inserted (with effect in accordance with s. 85(5) of the amending Act) by Finance Act 2006 (c. 25), s. 85(4)

F846 Words in s. 267A(2) substituted (with effect in accordance with Sch. 6 para. 27 of the amending Act) by Finance Act 2011 (c. 11), Sch. 6 para. 23

F847 Words in s. 267A(3)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 352(a) (with Sch. 2)

F848 Words in s. 267A(3)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 352(b) (with Sch. 2)

268 Successions by beneficiaries U.K.

(1) This section applies if—

(a) a person succeeds to a qualifying activity as a beneficiary under the will or on the intestacy of a deceased person who carried on the qualifying activity,

[F849 (b) all of the persons carrying on the qualifying activity before the succession permanently cease to carry it on, and]

(c) the beneficiary elects by notice to [F145 an officer of Revenue and Customs] for this section to apply.

(2) In relation to the succession and any previous succession occurring on or after the death of the deceased, relevant plant or machinery is treated as if it had been sold to the beneficiary when the succession takes place.

(3) The net proceeds of the sale are treated as being the lesser of—

(a) the market value of the plant or machinery, and

(b) the unrelieved qualifying expenditure which would have been taken into account in calculating the amount of a balancing allowance for the appropriate chargeable period if the disposal value of the plant or machinery had been nil.

• “Appropriate chargeable period” means the chargeable period in which the deceased person’s qualifying activity was permanently discontinued.

(4) “Relevant plant or machinery” means plant or machinery which—

(a) was previously owned by the deceased,

(b) passes to the beneficiary with the qualifying activity, and

(c) is either used or provided and available for use by the beneficiary for the purposes of the qualifying activity.

(5) Subsections (6) and (7) apply if the beneficiary is required to bring a disposal value into account in respect of relevant plant or machinery.

(6) The provisions limiting the amount of the disposal value of property, that is—

(a) section 62 (limit on disposal value: general), and

(b) section 239 (limit on disposal value where additional VAT rebate),

apply in relation to the beneficiary to limit the disposal value by reference to expenditure incurred by the deceased or additional VAT rebates made to the deceased.

(7) Section 73 (limit on disposal value: software and rights to software) applies as if the previous disposal values to be taken into account in determining whether the limit under those provisions is exceeded were those of the deceased.

(8) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Textual Amendments

F145 Words in Act substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), s. 53(1), Sch. 4 para. 83(1); S.I. 2005/1126, art. 2(2)(h)

F849 S. 268(1)(b) substituted for s. 268(1)(b) (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5) , s. 883(1) , Sch. 1 para. 551 (with Sch. 2 )

[F850 Cars etc U.K.

Textual Amendments

F850 Ss. 268A-268C and cross-heading inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 11 (with Sch. 11 paras. 30-32)

268A Meaning of “car” and “motor cycle” U.K.

(1) In this Part “car” means a mechanically propelled road vehicle other than—

(a) a motor cycle,

(b) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description, or

(c) a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.

(2) In this Part “motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988.

268B Electrically-propelled vehicles U.K.

For the purposes of this Part a vehicle is electrically-propelled only if—

(a) it is propelled solely by electrical power, and

(b) that power is derived from—

(i) a source external to the vehicle, or

(ii) an electrical storage battery which is not connected to any source of power when the vehicle is in motion.

268C Terms relating to emissions U.K.

(1) In this Part “qualifying emissions certificate”, in relation to a vehicle, means [F851 a certificate or other document on the basis of which the vehicle is registered] that specifies—

(a) in the case of a vehicle other than a bi-fuel vehicle, a CO₂ emissions figure in terms of grams per kilometre driven, or

(b) in the case of a bi-fuel vehicle, separate CO₂ emissions figures in terms of grams per kilometre driven for different fuels.

(2) For the purposes of this Part, [F852 and subject to subsection (3A),] in relation to a vehicle other than a bi-fuel vehicle, the applicable CO₂ emissions figure is—

(a) where the qualifying emissions certificate specifies only one CO₂ emissions figure, that figure, and

(b) where the certificate specifies more than one CO₂ emissions figure, the figure specified as the CO₂ emissions (combined) figure.

(3) For the purposes of this Part, [F853 and subject to subsection (3A),] in relation to a bi-fuel vehicle, the applicable CO₂ emissions figure is—

(a) where the qualifying emissions certificate specifies more than one CO₂ emissions figure in relation to each fuel, the lowest CO₂ emissions (combined) figure specified, and

(b) in any other case, the lowest CO₂ figure specified by the certificate.

[F854 (3A) For the purposes of determining the vehicle’s CO₂ emissions figure in a case where the vehicle is first registered on or after IP completion day, ignore any values specified in the qualifying emissions certificate that are not WLTP (worldwide harmonised light vehicle test procedures) values.]

(4) In this section—

• “bi-fuel”, in relation to a vehicle, means capable of being propelled by—

  (a)

  petrol and road fuel gas, or

  (b)

  diesel and road fuel gas;

• “diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council;

• F855 ...

• “petrol” has the meaning given by Article 2 of Directive 98/70/EC of the European Parliament and of the Council;

• “road fuel gas” has the same meaning as in section 171(1) of ITEPA 2003;

• F855 ...]

Textual Amendments

F851 Words in s. 268C(1) substituted (with effect in accordance with Sch. 18 para. 1(7) of the amending Act) by Finance Act 2022 (c. 3), Sch. 18 para. 1(2)

F852 Words in s. 268C(2) inserted (with effect in accordance with Sch. 18 para. 1(7) of the amending Act) by Finance Act 2022 (c. 3), Sch. 18 para. 1(3)

F853 Words in s. 268C(3) inserted (with effect in accordance with Sch. 18 para. 1(7) of the amending Act) by Finance Act 2022 (c. 3), Sch. 18 para. 1(4)

F854 S. 268C(3A) inserted (with effect in accordance with Sch. 18 para. 1(7) of the amending Act) by Finance Act 2022 (c. 3), Sch. 18 para. 1(5)

F855 Words in s. 268C(4) omitted (with effect in accordance with Sch. 18 para. 1(7) of the amending Act) by virtue of Finance Act 2022 (c. 3), Sch. 18 para. 1(6)

[F856 268D Hire cars for disabled persons U.K.

(1) For the purposes of this Part a car is a hire car for a disabled person if it is provided wholly or mainly for hire to, or the carriage of, disabled persons in the ordinary course of a trade.

(2) “Disabled person” means a person in receipt of—

(a) a disability living allowance under—

(i) the Social Security Contributions and Benefits Act 1992, or

(ii) the Social Security Contributions and Benefits (Northern Ireland) Act 1992,

because of entitlement to the mobility component,

[F857 (aa) personal independence payment under the Welfare Reform Act 2012, or the corresponding provision having effect in Northern Ireland, because of entitlement to the mobility component,

[F858 (aaa) a category of disability assistance, given in accordance with regulations made under section 31 of the Social Security (Scotland) Act 2018, because of entitlement to a mobility component,]

(ab) armed forces independence payment under a scheme established under section 1 of the Armed Forces (Pensions and Compensation) Act 2004,]

(b) a mobility supplement under a scheme made under the Personal Injuries (Emergency Provisions) Act 1939,

(c) a mobility supplement under an Order in Council made under section 12 of the Social Security (Miscellaneous Provisions) Act 1977, or

(d) a payment that appears to the Treasury to be similar to those mentioned in paragraphs (a) to (c) and that is specified by order made by the Treasury.]

Textual Amendments

F856 S. 268D inserted (with effect in accordance with Sch. 11 paras. 26, 27, 28(1) to the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 22 (with Sch. 11 paras. 30-32)

F857 S. 268D(2)(aa)(ab) inserted (with effect in accordance with s. 72(2) of the amending Act) by Finance Act 2013 (c. 29), s. 72(1)

F858 S. 268D(2)(aaa) inserted (26.7.2021) by The Social Security (Scotland) Act 2018 (Disability Assistance, Young Carer Grants, Short-term Assistance and Winter Heating Assistance) (Consequential Provision and Modifications) Order 2021 (S.I. 2021/886), arts. 1(2), 10(2)

[F859 268E Meaning of “assigns” U.K.

(1) For the purposes of this Part—

(a) a person (“A”) is taken to assign the benefit of a contract, or rights under a contract, to another person (“B”) whenever B becomes entitled, and A ceases to be entitled, to the benefit or rights (whether by assignment, novation, variation or replacement of the contract, by operation of law or otherwise), and

(b) references to an assignment are to be read accordingly.

(2) Any reference in this Part to the benefit of a contract or to rights under a contract includes a reference to part of the benefit of a contract or to part of the rights under a contract.]

Textual Amendments

F859 S. 268E inserted (with effect in accordance with Sch. 9 para. 9(2)(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 9 para. 8

Miscellaneous U.K.

269 Use of plant or machinery for business entertainment U.K.

(1) If—

(a) a person carrying on a qualifying activity, or

(b) an employee of that person,

provides business entertainment in connection with that activity, the use of plant or machinery for providing the entertainment is to be treated as use for purposes other than those of that activity.

(2) For the purposes of this section—

(a) “entertainment” includes hospitality of any kind, and

(b) the use of an asset for providing entertainment includes the use of an asset for providing anything incidental to the entertainment.

(3) “Business entertainment” does not include anything provided by a person for employees unless its provision for them is incidental to its provision for others.

(4) “Business entertainment” does not include the use of plant or machinery for the provision of anything by a person if—

(a) it is a function of that person’s qualifying activity to provide it, and

(b) it is provided by that person in the ordinary course of that qualifying activity—

(i) for payment, or

(ii) free of charge with the object of advertising to the public generally.

(5) For the purposes of this section—

(a) directors of a company, or

(b) persons engaged in the management of a company,

are to be regarded as employed by the company.

270 Shares in plant or machinery U.K.

(1) This Part applies in relation to a share in plant or machinery as it applies (under section 571) in relation to a part of plant or machinery.

(2) For the purposes of this Part, a share in plant or machinery is treated as used for the purposes of a qualifying activity so long as, and only so long as, the plant or machinery is used for the purposes of the qualifying activity.