Finance (No. 2) Act 1992

68 Computer software

(1) In Part II of the [1990 c. 1.] Capital Allowances Act 1990 (machinery and plant) after section 67 there shall be inserted the following section—

“67A Computer software

(1) If a person carrying on a trade incurs capital expenditure in acquiring for the purposes of the trade a right to use or otherwise deal with computer software, then, for the purposes of this Part—

(a) the right and the software to which it relates shall be treated as machinery or plant;

(b) that machinery or plant shall be treated as provided for the purposes of the trade; and

(c) so long as he is entitled to the right, that machinery or plant shall be treated as belonging to him.

(2) In any case where—

(a) a person carrying on a trade incurs capital expenditure on the provision of computer software for the purposes of the trade, and

(b) in consequence of his incurring that expenditure, the computer software belongs to him, but

(c) the computer software does not constitute machinery or plant,

then for the purposes of this Part the computer software shall be treated as machinery or plant.”

(2) In section 24 of that Act (writing-down allowances and balancing adjustments) in subsection (6) (disposal value) for the words “subsection (7)” there shall be substituted “subsections (6A) and (7)”.

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

“(6A) In the case of machinery or plant consisting of computer software or the right to use or otherwise deal with computer software, the disposal value to be brought into account by a person for any chargeable period by virtue of subsection (6) above shall also include the disposal value of all such machinery or plant—

(a) on the provision of which for the purposes of the trade he has incurred capital expenditure;

(b) which belongs to him at some time in the chargeable period or its basis period;

(c) in respect of which, in the chargeable period or its basis period, the following event occurs, namely, he grants to another person a right to use or otherwise deal with the whole or part of the computer software concerned in circumstances where the consideration in money for the grant constitutes (or if there were consideration in money for the grant would constitute) a capital sum; and

(d) in respect of which, whilst the machinery or plant belongs or belonged to him, no event falling within paragraph (iv) or (v) of subsection (6)(c) above has occurred before the event referred to in paragraph (c) above.”

(4) In subsection (8) of that section for the words “subsection (7)” in both places where they occur there shall be substituted “subsections (6A) and (7)”.

(5) In section 26 of that Act (disposal value) in subsection (1) after paragraph (e) there shall be inserted—

“(ea) if that event is the grant of a right to use or otherwise deal with computer software for a consideration not consisting or not wholly consisting in money, equals the consideration in money which would have been given if the right had been granted in the open market;

(eb) unless paragraph (ea)

above applies, if that event is the grant of a right to use or otherwise deal with computer software for no consideration or for a consideration in money lower than that which would have been given if the right had been granted in the open market, and otherwise than in circumstances such that—

(i) the grantee’s expenditure on the acquisition of the right can be taken into account in making allowances to him under this Part or under Part VII and the grantee is not a dual resident investing company which is connected with the grantor within the terms of section 839 of the principal Act, or

(ii) there is a charge to tax under Schedule E,

equals the consideration in money which would have been given if the right had been granted in the open market;

(ec) if that event is the grant of a right to use or otherwise deal with computer software and neither paragraph (ea) nor paragraph (eb) above applies, equals the net consideration in money received by the grantor in respect of the grant, together with any insurance moneys received by him in respect of the computer software by reason of any event affecting the consideration obtainable on the grant and, so far as it consists of capital sums, any other compensation of any description so received;”.

(6) After subsection (2) of that section there shall be inserted—

“(2AA) In deciding for the purposes of subsection (2) above whether the disposal value of machinery or plant consisting of computer software or the right to use or otherwise deal with computer software exceeds the capital expenditure incurred by a person on its provision, the disposal value shall (for the purposes of that subsection only) be taken to be increased by the amount of any disposal value which, in respect of that person and that machinery or plant, falls or has fallen to be taken into account for the purposes of section 24 by virtue of any previous event falling within subsection (6A)(c) of that section.”

(7) In section 37 of that Act (election for certain machinery or plant to be treated as short-life assets) in subsection (5) for the words “section 24(7)” there shall be substituted “section 24(6A) and (7)”.

(8) Subsection (1) above shall apply in relation to expenditure incurred on or after 10th March 1992.

(9) Subsections (2) to (6) above shall apply in relation to rights granted on or after 10th March 1992.

(10) Subsection (7) above shall be deemed to have come into force on 10th March 1992.