Capital Allowances Act 1990 (repealed)

Part VII U.K. Scientific Research

Modifications etc. (not altering text)

C1 Pt. 7 modified (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 17(1)(2)

F1 136 Allowances for expenditure on scientific research not of a capital nature, and on payments to research associations, universities etc. U.K.

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Textual Amendments

F1 S. 136 repealed (with effect in accordance with s. 68(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(7)

137 Allowances for capital expenditure on scientific research. U.K.

(1) Subject to the provisions of this section and section 138, where a person—

(a) while carrying on a trade, incurs expenditure of a capital nature on [F2 research and development] related to that trade and directly undertaken by him or on his behalf, or

(b) incurs expenditure of a capital nature on [F2 research and development] directly undertaken by him or on his behalf, and thereafter sets up and commences a trade connected with that research [F3 and development],

a deduction equal to the whole of the expenditure shall be allowed in taxing the trade for the relevant chargeable period as defined in subsections (5) to (7) below.

F4 [(1A) Where a person—

(a) has incurred allowable [F2 research and development] expenditure of a capital nature as mentioned in paragraph (a) or (b) of subsection (1) above, and

(b) incurs an additional VAT liability in respect of that expenditure at any time before the relevant event (as defined in section 138(1)) occurs in relation to the asset in question,

that liability shall, subject to the following provisions of this section, be regarded for the purposes of this Act as expenditure of a capital nature incurred on the [F2 research and development].]

(2) No allowance shall be made under subsection (1) above in respect of expenditure on the acquisition of, or of rights in or over, any land except in so far as, on a just apportionment, that expenditure is referable to the acquisition of, or of rights in or over, or of machinery or plant which forms part of, a building or other structure already constructed on that land.

(3) For the purposes of this section, expenditure on the provision of a dwelling is not [F2 research and development] expenditure; but where part of a building is used for [F2 research and development] and part consists of a dwelling and[F5 , disregarding any additional VAT liability or rebate,] the capital expenditure which it is just to apportion to the construction or acquisition of the dwelling is not more than one-quarter of the capital expenditure which is referable to the construction or acquisition of the whole building, the whole of the building shall be treated for the purposes of this Part as used for [F2 research and development].

(4) Subject to subsections (2) and (3) above, where after 26th July 1989 a person incurs capital expenditure which is partly within subsection (1) above and partly not, such apportionment of the expenditure shall be made for the purposes of this Part as may be just.

[F6 (5) The relevant chargeable period shall be the chargeable period in which the expenditure was incurred or, if it was incurred before the setting up and commencement of the trade, the chargeable period beginning with that setting up and commencement.]

Textual Amendments

F2 Words in s. 137(1)(1A)(3) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F3 Words in s. 137(1)(b) inserted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 para. 9

F4 S. 137(1A) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 12(1).

F5 Words in s. 137(3) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 12(2).

F6 S. 137(5) substituted for s. 137(5)-(7) (with effect in accordance with s. 211(2) of the amending Act) by Finance Act 1994 (c. 9), s. 213(10)

Modifications etc. (not altering text)

C2 S. 137 restricted (in relation to tax for the year 1992/93 and subsequent years subject as mentioned in s. 289 of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 195(6)(a), 289(1) (with ss. 60, 101(1), 201(3)).

138 Assets ceasing to belong to traders. U.K.

(1) Subsections (2) and (3) below shall have effect where an asset representing allowable [F7 research and development] expenditure of a capital nature incurred by the person carrying on a trade ceases to belong to him; and the occasion of that asset ceasing to belong to him is referred to below as “the relevant event”.

(2) If the relevant event occurs in or after the chargeable period for which an allowance in respect of the expenditure is made under section 137, then, subject to subsection (6) below—

(a) the sum by which the aggregate of the disposal value of the asset and the amount of the allowance exceeds the amount of the expenditure, or

(b) the amount of the allowance if it is less than that sum,

shall be treated as a trading receipt of the trade accruing at the time of the relevant event or, if the relevant event occurs on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.

F8 [(2A) Where one or more additional VAT rebates have been made in respect of the expenditure at any time before the relevant event, the amount of the allowance and the amount of the expenditure shall each be treated for the purposes of subsection (2)(a) and (b) above as reduced by the aggregate amount of such of those rebates as fell, or fall, to be treated as trading receipts under subsection (3A) below.]

(3) If the relevant event occurs before the chargeable period for which an allowance in respect of the expenditure would fall to be so made, that allowance shall not be made, but, subject to subsection (6) below, if the disposal value of the asset is less than the expenditure, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the relevant event occurs.

F9 [(3A) In any case where—

(a) a person carrying on a trade has incurred allowable [F10 research and development] expenditure of a capital nature as mentioned in paragraph (a) or (b) of section 137(1), and

(b) an additional VAT rebate in respect of that expenditure is made to him at any time before the relevant event occurs in relation to the asset in question,

then, unless that rebate falls to be brought into account for the purpose of making allowances and charges under Part I or Part II, an amount equal to the rebate shall be treated as a trading receipt of the trade accruing for the chargeable period related to the making of the rebate or, if the rebate is made on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.]

(4) For the purposes of this section the disposal value of an asset depends upon the nature of the relevant event, and—

(a) if that event is the actual sale of the asset at a price not lower than that which it would have fetched in the open market, equals the proceeds of that sale;

(b) if that event is the deemed sale of the asset under subsection (5) below, equals the deemed proceeds of sale under that subsection; and

(c) in any other event, equals the price which the asset would have fetched if sold in the open market.

(5) Where an asset is destroyed, it shall for the purposes of this section be treated as if it had been sold immediately before its destruction, and any insurance moneys or other compensation of any description received by the person carrying on the trade in respect of the destruction, and any moneys received by him for the remains of the asset, shall be treated as if they were proceeds of that sale; and where this subsection has effect on the demolition of an asset—

(a) the cost of demolition to the person carrying on the trade shall, for the purposes of subsections (2) and (3) above, be added to the expenditure represented by the asset, and

(b) if the case falls within the first of those subsections but, by reason of that addition, the aggregate there referred to is less than the amount of the expenditure represented by the asset, then, unless prior to its demolition the asset had begun to be used for purposes other than [F11 research and development] related to the trade, and subject to subsection (6) below, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the asset is treated as having been sold or, if it is treated as having been sold on or after the date on which the trade is permanently discontinued, for the last chargeable period in which the trade was carried on before the discontinuance.

(6) No amount shall be allowed or charged by virtue of this section in respect of any relevant event if that event gives rise to a balancing allowance or balancing charge under Part I or Part II.

(7) In relation to any chargeable period F12 ... ending after 26th July 1989, subsection (6) above shall have effect with the omission of the words “allowed or" and “balancing allowance or".

[F13 (7A) Where the relevant event is the material disposal of a licence for the purposes of section 118A, subsection (4) above shall have effect subject to that section.]

F14 [(8) For the purposes of subsections (2) and (3) above, any question arising whether the relevant event occurred in or after, or (as the case may be) before, the chargeable period for which an allowance is given in respect of the expenditure there mentioned shall be determined without reference to the making of any allowance by virtue of section 137(1A); but this subsection is without prejudice to any question as to the amount of the expenditure or of the allowance for the purposes of those subsections.]

Textual Amendments

F7 Words in s. 138(1) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F8 S. 138(2A) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(1).

F9 S. 138(3A) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(2).

F10 Words in s. 138(3A)(a) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F11 Words in s. 138(5)(b) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F12 Words in Act repealed (with effect in accordance with s. 211(2) of the amending Act) by Finance Act 1994 (c. 9), s. 213(1), Sch. 26 Pt. 5(24)

F13 S. 138(7A) inserted (in relation to tax for the year 1992/93 and subsequent years subject as mentioned in s. 289 of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289(1), 290(1), Sch. 10 para. 21(2) (with ss. 60, 101(1), 201(3)).

F14 S. 138(8) added(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(3).

Modifications etc. (not altering text)

C3 S. 138 modified (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 20(6); S.I. 1994/2189, art. 2, Sch.

C4 S. 138(3) (in relation to tax for the year 1992/93 and subsequent years subject as mentioned in s. 289 of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 195(6)(b),289(1) (with ss. 60, 101(1), 201(3)).

[F15 138A Disposal of oil licences etc. U.K.

(1) For the purposes of section 138 where—

(a) a person (“the transferor”) disposes of any interest in an oil licence to another (“the transferee”), and

(b) part of the value of that interest is attributable to any allowable exploration expenditure incurred by the transferor,

that disposal shall be deemed (subject to section 138B) to be a disposal by which an asset representing the allowable exploration expenditure to which that part of the value is attributable ceases to belong to the transferor.

(2) Section 138 shall have effect in relation to the disposal of an interest in an oil licence, to the extent that the disposal is treated by virtue of subsection (1) above as a disposal of an asset representing allowable exploration expenditure, as if the disposal value of the asset were an amount equal to such part of the transferee’s expenditure on acquiring the interest as it is just and reasonable to attribute to the part of the value of that interest that is attributable to the allowable exploration expenditure.

(3) In this section and section 138B references to allowable exploration expenditure are references to any allowable [F16 research and development] expenditure of a capital nature incurred on mineral exploration and access.

(4) In this section and section 138B—

• “foreign oil concession” means any right to search for or win overseas petroleum, being a right conferred or exercisable (whether or not by virtue of a licence) in relation to a particular area;

  “interest” in relation to an oil licence, includes, where there is an agreement which—

  (a)

  relates to oil from the whole or any part of the area to which the licence applies, and

  (b)

  was made before the extraction of the oil to which it relates,

  any entitlement under that agreement to, or to a share of, either that oil or the proceeds of its sale;

• “mineral exploration and access” has the same meaning as in Part IV;

  “oil”—

  (a)

  except in relation to a UK licence, means any petroleum; and

  (b)

  in relation to such a licence, has the same meaning as in Part I of the M1 Oil Taxation Act 1975;

• “oil licence” means any UK licence or foreign oil concession;

  “overseas petroleum” means any petroleum that exists in its natural condition at a place to which neither [F17 Part I of the Petroleum Act 1998] nor the M2 Petroleum (Production) Act (Northern Ireland) 1964 applies;

  “petroleum” has the same meaning as in [F17 Part I of the Petroleum Act 1998]; and

  “UK licence” means a licence within the meaning of Part I of the Oil Taxation Act 1975.

Textual Amendments

F15 Ss. 138A, 138B inserted (retrospectively) by Finance Act 1996 (c. 8), s. 180(1)

F16 Words in s. 138A(3) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F17 Word in s. 138A(4) substituted (15.2.1999) by Petroleum Act 1998 (c. 17), s. 52(4), Sch. 4 para. 27(4); S.I. 1999/161, art. 2(1)

Marginal Citations

M1 1975 c. 22.

M2 1964 c. 28 (N.I.).

138B Disposal of oil licences: election for alternative tax treatment. U.K.

(1) Subsections (2) and (3) below apply where—

(a) a person (“the transferor”) disposes of any interest in an oil licence to another (“the transferee”) during the transitional period;

(b) part of the value of the interest is attributable to allowable exploration expenditure incurred by the transferor; and

(c) an election is made in accordance with this section specifying an amount as the amount to be treated as so attributable.

(2) Section 138 shall have effect in relation to the disposal as if—

(a) the disposal were a disposal by which an asset representing the allowable exploration expenditure ceases to belong to the transferor; and

(b) the disposal value of that asset were an amount equal to the amount specified in the election.

(3) For the purposes of Part IV, the amount of any expenditure incurred—

(a) by the transferee in acquiring the interest from the transferor, or

(b) by any person subsequently acquiring the interest (or an interest deriving from the interest),

which is taken to be attributable to expenditure incurred, before the disposal to the transferee, on mineral exploration and access shall be the lesser of the amount specified in the election and the amount which, apart from this subsection, would be taken to be so attributable.

(4) An election—

(a) shall be made by notice to the Board given by the transferor; and

(b) subject to subsection (5) below, shall not have effect unless a copy of it is served on the transferee and the transferee consents to it.

(5) If the Special Commissioners are satisfied—

(a) that the disposal was made under or in pursuance of an agreement entered into by the transferor and the transferee on the mutual understanding that a quantified (or quantifiable) part of the value of the interest disposed of was attributable to allowable exploration expenditure, and

(b) that the part quantified in accordance with that understanding and the amount specified in the election are the same,

they may dispense with the need for the transferee to consent to the election.

(6) Any question falling to be determined by the Special Commissioners under subsection (5) above shall be determined by them in like manner as if it were an appeal; but both the transferor and the transferee shall be entitled to appear and be heard by those Commissioners or to make representations to them in writing.

(7) Subject to subsection (8) below, an election may specify any amount, including a nil amount, as the amount to be treated as mentioned in subsection (1)(c) above.

(8) Where—

(a) a return has been made for a chargeable period of the transferor, and

(b) the return includes, at the time when it is made, an amount which, disregarding the provisions of this section, would be treated under section 138 as a trading receipt accruing in that period,

the election must not specify an amount less than the amount included in the return unless the Board agrees the lesser amount in question.

(9) An election made in accordance with this section—

(a) is irrevocable; and

(b) shall not be varied after it is made.

(10) For the purposes of this section a disposal is a disposal made during the transitional period if it is one made—

(a) before 13th September 1995; or

(b) on or after that date in pursuance of any obligation to make the disposal which, immediately before that date, was an unconditional obligation.

(11) For the purposes of subsection (10) above, the fact that a third party who is not connected with the transferor or the transferee may, by exercising any right or withholding any permission, prevent the fulfilment of an obligation does not prevent the obligation from being treated as unconditional.

(12) In subsection (11) above the reference to a third party is a reference to any person, body, government or public authority, whether within or outside the United Kingdom; and section 839 of the principal Act (connected persons) applies for the purposes of that subsection.

(13) All such assessments and adjustments of assessments shall be made as may be necessary to give effect to this section.]

Textual Amendments

F15 Ss. 138A, 138B inserted (retrospectively) by Finance Act 1996 (c. 8), s. 180(1)

139 Supplemental. U.K.

(1) In this Part—

[F18 (a) “research and development” has the meaning given by section 837A of the principal Act and includes oil and gas exploration and appraisal;]

(b) “[F19 research and development] expenditure” means expenditure incurred on [F19 research and development];

(c) references to expenditure incurred on [F19 research and development] do not include any expenditure incurred in the acquisition of rights in, or arising out of, [F19 research and development], but, subject to that, include all expenditure incurred for the prosecution of, or the provision of facilities for the prosecution of, [F19 research and development];

(d) references to [F19 research and development] related to a trade F20 ... include—

(i) any [F19 research and development] which may lead to or facilitate an extension of that trade F21 ... ;

(ii) any [F19 research and development] of a medical nature which has a special relation to the welfare of workers employed in that trade F21 ... ; and

(e) “asset” includes part of an asset.

(2) The same expenditure shall not be taken into account for any of the purposes of this Part in relation to more than one trade.

F22 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Any reference in this Part to the time when an asset ceases to belong to a person shall, in the case of a sale, be construed as a reference to the time of completion or the time when possession is given, whichever is the earlier.

This subsection shall have effect in any case where the sale is effected, or the contract for sale entered into, after 26th July 1989.

(5) The cost to a person of the demolition of any property shall not, if section 138(5)(a) applies to it, be treated for the purposes of this Act as expenditure incurred in respect of any other property by which that property is replaced.

Textual Amendments

F18 S. 139(1)(a) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 para. 10

F19 Words in s. 139(1)(b)-(d) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F20 Words in s. 139(1)(d) repealed (with effect in accordance with s. 68(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(7)

F21 Words in s. 139(1)(d)(i)(ii) repealed (with effect in accordance with s. 68(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(7)

F22 S. 139(3) repealed (with effect in accordance with s. 68(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(7)