http://www.legislation.gov.uk/id/ukpga/2001/2

Part 1 Introduction

Chapter 1 Capital allowances: general

1 Capital allowances

1

This Act provides for allowances in respect of capital expenditure (and for charges in connection with those allowances).

2

The allowances for which this Act provides are those under—

a

Part 2 (plant and machinery allowances);

b

Part 3 (industrial buildings allowances);

c

Part 4 (agricultural buildings allowances);

F1ca

Part 4A (flat conversion allowances);

d

Part 5 (mineral extraction allowances);

e

Part 6 (research and development allowances);

f

Part 7 (know-how allowances);

g

Part 8 (patent allowances);

h

Part 9 (dredging allowances);

i

Part 10 (assured tenancy allowances).

3

This Act also provides for allowances in respect of contributions to expenditure incurred on plant or machinery, industrial buildings or agricultural buildings, for the purposes of a mineral extraction trade or on dredging (see Part 11).

2 General means of giving effect to capital allowances

1

Allowances and charges are to be given effect—

a

for income tax purposes, in calculating income for a chargeable period, and

b

for corporation tax purposes, in calculating profits for a chargeable period.

2

For the meaning of “chargeable period”, see section 6.

3

Subsection (1) needs to be read with the following provisions about giving effect to allowances and charges—

sections 247 to 262 (plant and machinery allowances);
sections 352 to 355 (industrial buildings allowances);
sections 391 and 392 (agricultural buildings allowances);
F2section 393T (flat conversion allowances);
section 432 (mineral extraction allowances);
section 450 (research and development allowances);
section 463 (know-how allowances);
sections 478 to 480 (patent allowances);
section 489 (dredging allowances);
section 529 (assured tenancy allowances).

4

In subsection (1)(b) “profits” has the same meaning as in section 6 of ICTA.

3 Claims for capital allowances

1

No allowance is to be made under this Act unless a claim for it is made.

2

The claim must be included in a tax return.

3

In this Act “tax return” means—

a

for income tax purposes, a return required to be made under TMA 1970, and

b

for corporation tax purposes, a company tax return required to be made under Schedule 18 to FA 1998 (company tax returns, assessments and related matters).

4

Subsection (2) does not apply for income tax purposes to a claim for an allowance under—

a

section 258 (claim for allowance in respect of special leasing of plant or machinery),

b

section 355 (claim to carry back balance of allowance in respect of buildings for miners etc.), or

c

section 479 (claim for patent allowance in respect of non-trading expenditure),

which is instead subject to section 42 of TMA 1970 (procedure for making claims and claims not included in returns).

5

Subsection (2) does not apply for corporation tax purposes to a claim for an allowance under—

a

section 260(3)(b) (claim to carry back allowance in respect of special leasing of plant or machinery), or

b

section 355 (claim to carry back balance of allowance in respect of buildings for miners etc.),

any amounts that are to be added in calculating the profits or gains of a trade, profession or vocation or property business carried on by the recipient, or

b

any amounts that are F97earnings of an employment or office held by the recipient.

4

“Capital expenditure” and “capital sums” do not include, in relation to—

a

a person incurring the expenditure or paying the sums, or

b

a recipient of the expenditure or sums,

any expenditure or sum in the case of which a deduction of income tax falls or may fall to be made under section 348 or 349(1) of ICTA (annual payments).

5

Subsection (4) does not apply to any expenditure or sum in the case of which a deduction of income tax falls or may fall to be so made as a result of section 524(3)(b) of ICTA (receipts from sale of patent rights by person not resident in the UK).

5 When capital expenditure is incurred

1

For the purposes of this Act, the general rule is that an amount of capital expenditure is to be treated as incurred as soon as there is an unconditional obligation to pay it.

2

The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.

3

There are the following exceptions to the general rule.

two periods of account overlap, or

b

one period of account includes another,

the period common to both is to be treated as part of the first period of account only.

5

If there is a gap between two periods of account, the gap is to be treated as part of the first period of account.

6

If a period of account would (apart from this subsection) be longer than 18 months, that period must be treated as divided into separate periods of account—

a

the first beginning with the start date of the original period, and

b

each subsequent one beginning with an anniversary of that date,

so as to ensure that none of the periods of account is longer than 12 months.

Chapter 2 Exclusion of double relief

7 No double allowances

1

If an allowance is made under any Part of this Act to a person in respect of capital expenditure, no allowance is to be made to him under any other Part in respect of—

a

that expenditure, or

b

the provision of any asset to which that expenditure related.

2

This section does not apply in relation to Parts 7 and 8 (know-how and patent allowances).

1

A person is not entitled to make a fixtures claim in respect of any capital expenditure relating to an asset if—

a

any person entitled to do so has at any previous time claimed an allowance under any Part other than Part 2, and

b

the claim was for an allowance in respect of capital expenditure relating, in whole or part, to the asset.

2

Subsection (1) does not prevent a person making a fixtures claim in respect of capital expenditure if—

a

the only previous claim was under Part 3 or 6 (industrial buildings and research and development allowances), and

b

section 186(2) or 187(2) (limit on amount of expenditure that may be taken into account) applies to that expenditure.

3

If a person entitled to do so has made a fixtures claim in respect of capital expenditure relating to an asset, no one is entitled to an allowance on a later claim under any Part other than Part 2 in respect of any capital expenditure relating to the asset.

4

A person makes a fixtures claim in respect of expenditure if he makes a claim (in the sense given in section 202(3)) under Chapter 14 of Part 2 in respect of the expenditure as expenditure on the provision of a fixture.

10 Interpretation

1

In this Chapter “capital expenditure” includes any contribution to capital expenditure.

2

For the purposes of this Chapter—

a

expenditure relates to an asset only if it relates to its provision, and

b

the provision of an asset includes its construction or acquisition.

C14Part 2 Plant and machinery allowances

Annotations:

Modifications etc. (not altering text)

C14

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. 34) (as amended (20.2.2003) by S.I. 2003/333, art. 14)

Chapter 1 Introduction

11 General conditions as to availability of plant and machinery allowances

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

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.

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

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 218 or 224 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).

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

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

5

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

Chapter 2 Qualifying activities

15 Qualifying activities

1

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

a

a trade,

b

an ordinary Schedule A business,

c

a furnished holiday lettings business,

d

an overseas property business,

e

a profession or vocation,

f

a concern listed in section 55(2) of ICTA (mines, transport undertakings etc.),

F132g

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.

3

This section, in so far as it provides for—

a

an ordinary Schedule A business,

b

an 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).

16 Ordinary Schedule A businesses

In this Part “ordinary Schedule A business” means a Schedule A business except in so far as it is a furnished holiday lettings business.

17 Furnished holiday lettings businesses

1

In this Part “furnished holiday lettings business” means a Schedule A business in so far as it consists of the commercial letting of furnished holiday accommodation in the United Kingdom.

2

All 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

“Commercial letting of furnished holiday accommodation” has the meaning given by section 504 of ICTA.

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.

18F133Managing the investments of a company with investment business

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 section 75 of ICTA .

2

In this Part “company with investment business” has the meaning given by section 130 of ICTA .

19 Special leasing of plant or machinery

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 life assurance 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.

20 Employments and offices

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 section 314 of ICTA (divers and diving supervisors in the North Sea etc.).

2

Subsection (3) applies if the F98earnings for any duties of an employment or office F99fall within section 22 or 26 of ITEPA 2003.

3

This Part applies in relation to—

a

F100those earnings , or

b

any F101other 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.

Chapter 3 Qualifying expenditure

Buildings, structures and land

21 Buildings

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.

22 Structures, assets and works

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.

23 Expenditure unaffected by sections 21 and 22

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 industrial buildings);
section 29 (fire safety);
section 30 (safety at designated sports grounds);
section 31 (safety at regulated stands at sports grounds);
section 32 (safety at other sports grounds);
section 33 (personal security);
section 71 (software and rights to software);
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.	Electrical systems (including lighting systems) and cold water, 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.	Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any floor or ceiling comprised in such systems.
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.	Lifts, hoists, escalators and moving walkways.
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.

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

26 Demolition costs

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) (abandonment expenditure before cessation of ring fence trade: election for special allowance).

Expenditure on thermal insulation, safety measures, etc.

27 Application of Part to thermal insulation, safety measures, etc.

1

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

a

it is expenditure to which any of sections 28 to 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.

28 Thermal insulation of industrial buildings

1

This section applies to expenditure if a person carrying on a qualifying activity consisting of a trade has incurred it in adding insulation against loss of heat to an industrial building occupied by him for the purposes of the trade.

2

This section also applies to expenditure if a person carrying on a qualifying activity consisting of an ordinary Schedule A business F3or an overseas property business has incurred it in adding insulation against loss of heat to an industrial building let by him in the course of the business.

3

“Industrial building” means a building or structure which is in use for the purposes of a qualifying trade (within the meaning of Chapter 2 of Part 3).

for the references to a fire authority substitute references to the Fire Authority for Northern Ireland.

he takes the steps specified in the document.

he takes the steps specified in the document.

32 Safety at other sports grounds

1

This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a sports ground—

a

which is of a kind described in section 1(1) of the Safety of Sports Grounds Act 1975 (c. 52) but in respect of which no designation order under that section is in force at the time when he takes those precautions, and

b

which he uses for the purposes of the qualifying activity,

and the expenditure is not incurred in respect of a sports ground stand which is within section 31(1)(a).

2

A person takes required safety precautions in respect of the sports ground if he takes steps which the relevant local authority certify would have fallen within section 30(2) or (3) if—

a

a designation order under section 1 of the 1975 Act had then been in force, and

b

a safety certificate had then been issued or applied for under the 1975 Act.

3

Any provision of regulations made under section 6(1)(b) of the 1975 Act (power of local authorities to charge fees) applies, with the necessary modifications, to the issue of a certificate for the purposes of subsection (2) as it applies to the issue of a safety certificate.

4

In subsection (2)—

a

“the relevant local authority” means the local authority for the area in which the sports ground is situated, and

b

“local authority” has the same meaning as in the 1975 Act.

33 Personal security

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—

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.

F436 Restriction on qualifying expenditure in case of employment or office

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.

37 Exclusion where sums payable in respect of depreciation

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.

Expenditure is not qualifying expenditure if it is incurred on—

a

animals or other creatures to which Schedule 5 to ICTA (treatment of farm animals etc. for purposes of Case I of Schedule D) applies, or

b

shares in such animals or creatures.

Chapter 4 First-year qualifying expenditure

General

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

A first-year allowance is not available unless the qualifying expenditure is first-year qualifying expenditure under F111any of the following provisions—

section 40	expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises,
section 44	expenditure incurred by small or medium-sized enterprises, F5...
section 45	ICT expenditure incurred by small enterprises , F7...
F6section 45A	expenditure on energy-saving plant or machinery
F8section 45D	expenditure on cars with low CO₂ emissions,
F9section 45E	expenditure on plant or machinery for gas refuelling stationF112...
F10section 45F	expenditure on plant and machinery for use wholly in a ring fence trade.
F113section 45H	expenditure on environmentally beneficial plant or machinery.

Types of expenditure which may qualify for first-year allowances

40 Expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises

1

Expenditure is first-year qualifying expenditure if—

a

it is incurred on or before 11th May 2002,

b

it is incurred by a small or medium-sized enterprise,

c

it is incurred on the provision of plant or machinery for use primarily in Northern Ireland, and

d

it is not excluded by—

i

section 41 (miscellaneous exclusions from this section),

ii

section 42 (plant or machinery partly for use outside Northern Ireland), or

iii

section 46 (general exclusions).

2

This section is subject to section 43 (effect of plant or machinery subsequently being primarily for use outside Northern Ireland).

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

1

Expenditure is not first-year qualifying expenditure under section 40 if—

a

it is long-life asset expenditure,

b

it is expenditure on the provision of an aircraft or hovercraft, or

c

it is expenditure on the provision of a goods vehicle for the purposes of a trade which consists primarily of the conveyance of goods.

2

Expenditure is not first-year qualifying expenditure under section 40 if it is incurred on the provision of plant or machinery for use primarily in—

a

agriculture, fishing or fish farming, or

b

any relevant activity carried out in relation to agricultural produce, fish or any fish product for the purpose of bringing it to market,

unless it is authorised for the purposes of this section by the Department of Agriculture and Rural Development in Northern Ireland.

3

An authorisation given by the Department—

a

may be given either generally or specially, and

b

may in any case be absolute or conditional;

and, if the authorisation is given generally, it may be modified by the Department.

4

An authorisation is given specially if it is given so as to apply only to a specified item of expenditure or a specified person; otherwise, it is given generally.

5

In this section—

F11 “ agricultural produce ” has the same meaning as in section 6 of the European Communities Act 1972 (c. 68),
“ agriculture ” has the same meaning as in the Agriculture Act 1947 (c. 48),
“fish” includes shellfish,
“fish farming” means the intensive rearing, on a commercial basis, of fish intended for human consumption,
“fishing” means a trade, or part of a trade, which consists of the catching or taking of fish,
“goods vehicle” has the same meaning as in the Road Traffic (Northern Ireland) Order 1995 (S.I.1995/2994 (N.I.18)),
“hovercraft” has the same meaning as in the Hovercraft Act 1968 (c. 59), and
“relevant activity” means transportation, storage, preparation, processing or packaging.

42 Exclusion of plant or machinery partly for use outside Northern Ireland

1

Expenditure on plant or machinery is not first-year qualifying expenditure under section 40 if—

a

at the time when it is incurred, the person incurring it intends the plant or machinery to be used partly outside Northern Ireland, and

b

the main benefit, or one of the main benefits, which could reasonably be expected to arise from 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 outside Northern Ireland.

2

For the purposes of subsection (1)—

a

“the relevant arrangements” means—

i

the transaction under which the expenditure is incurred, and

ii

any scheme or arrangements of which that transaction forms part, and

b

the part of the expenditure that is attributable under subsection (1)(b) is to be determined on a just and reasonable basis.

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, he must give notice to the Inland Revenue 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.

C2044 Expenditure incurred by small or medium-sized enterprises

1

Expenditure is first-year qualifying expenditure if—

a

it is incurred by a small or medium-sized enterprise, and

b

it is not excluded by subsection (2) or section 46 (general exclusions).

2

Long-life asset expenditure is not first-year qualifying expenditure under subsection (1).

45ICT expenditure incurred by small enterprises

1

Expenditure is first-year qualifying expenditure if—

a

it is incurred on or before F11531st March 2004,

b

it is incurred by a small enterprise,

c

it is expenditure on information and communications technology, and

d

it is not excluded by section 46 (general exclusions) F116or subsection (4) below.

2

“Expenditure on information and communications technology” means expenditure on items within any of the following classes.

Class A. Computers and associated equipment

This class covers—

a

computers,

b

peripheral devices designed to be used by being connected to or inserted in a computer,

c

equipment (including cabling) for use primarily to provide a data connection between—

i

one computer and another, or

ii

a computer and a data communications network, and

d

dedicated electrical systems for computers.

For this purpose “computer” does not include computerised control or management systems or other systems that are part of a larger system whose principal function is not processing or storing information.

Class B. Other qualifying equipment

This class covers—

a

wireless application protocol telephones,

b

third generation mobile telephones,

c

devices designed to be used by being connected to a television set and capable of receiving and transmitting information from and to data networks, and

d

other devices—

i

substantially similar to those within paragraphs (a), (b) and (c), and

ii

capable of receiving and transmitting information from and to data networks.

This is subject to any order under subsection (3).

Class C. Software

This class covers the right to use or otherwise deal with software for the purposes of any equipment within Class A or B.

3

The Treasury may make provision by order—

a

further defining the kinds of equipment within Class B, or

b

adding further kinds of equipment to that class.

F1144

Expenditure on an item within Class C is not first-year qualifying expenditure under this section if the person incurring it does so with a view to granting to another person a right to use or otherwise deal with any of the software in question.

plant or machinery constructed to a particular design,

meets the energy-saving criteria specified in relation to that description of plant or machinery by order under section 45A.

3

A relevant certificate of energy efficiency means one issued—

a

by the Secretary of State or a person authorised by the Secretary of State;

b

in the case of plant or machinery used or for use in Scotland, by the Scottish Ministers or a person authorised by them;

c

in the case of plant or machinery used or for use in Wales, by the National Assembly for Wales or a person authorised by it;

d

in the case of plant or machinery used or for use in Northern Ireland, by the Department of Enterprise, Trade and Investment in Northern Ireland or a person authorised by it.

4

If a certificate of energy efficiency is revoked—

a

the certificate is to be treated for the purposes of this section as if it had never been issued, and

b

all such assessments and adjustments of assessments are to be made as are necessary as a result of the revocation.

5

If a person who has made a tax return becomes aware that, as a result of the revocation of a certificate of energy efficiency after the return was made, the return has become incorrect, he must give notice to the Inland Revenue 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 tax return had become incorrect because of the revocation of the certificate.

45C Energy-saving components of plant or machinery

1

This section applies for the purpose of apportioning expenditure incurred on plant or machinery if one or more components of the plant or machinery (but not all of it) is of a description specified by Treasury order under section 45A(3).

2

If—

a

only one of the components is of such a description, and

b

an amount is specified by the order in respect of that component,

the part of the expenditure that is section 45A expenditure must not exceed that amount.

3

If—

a

more than one of the components are of such a description, and

b

an amount is specified by the order in respect of each of those components,

the part of the expenditure that is section 45A expenditure must not exceed the total of those amounts.

4

If the expenditure is treated under this Act as incurred in instalments, the proportion of each instalment that is section 45A expenditure is the same as the proportion of the whole of the expenditure that is section 45A expenditure.

5

If this section applies, the expenditure is not apportioned under section 562(3) (apportionment where property sold with other property).

6

In this section “ section 45A expenditure ” means expenditure that is first-year qualifying expenditure under section 45A.

any storage tank for natural gas or hydrogen fuel,

b

any compressor, pump, control or meter used for or in connection with refuelling vehicles with natural gas or hydrogen fuel, and

c

any equipment for dispensing natural gas or hydrogen fuel to the fuel tank of a vehicle.

4

For the purposes of this section—

“ gas refuelling station ” means any premises, or that part of any premises, where vehicles are refuelled with natural gas 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.

45FF23 Expenditure on plant and machinery for use wholly in a ring fence trade

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 section 501A of the Taxes Act 1988 (supplementary charge in respect of ring fence trades).

45GF24 Plant or machinery used for less than five years in a ring fence trade

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

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.

F109Expenditure on environmentally beneficial plant or machinery

Annotations:

Amendments (Textual)

F109

S. 45H-45J inserted (with effect in accordance with s. 167 of the amending Act) by Finance Act 2003 (c. 14), Sch. 30 para. 3

The Treasury may make such orders under subsection (3) as appear to them appropriate to promote the use of technologies, or products, designed to remedy or prevent damage to the physical environment or natural resources.

5

Any such order may make provision by reference to any technology list, or product list, issued by the Secretary of State (whether before or after the coming into force of this section).

Certification of environmentally beneficial plant and machinery

45I

1

The Treasury may by order provide that, in such cases as may be specified in the order, no section 45H allowance may be made unless a relevant certificate of environmental benefit is in force.

A “ section 45H allowance ” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45H.

2

A certificate of environmental benefit is one certifying that—

a

particular plant or machinery, or

b

plant or machinery constructed to a particular design,

an amount is specified by the order in respect of that component,

the part of the expenditure that is section 45H expenditure must not exceed that amount.

3

If—

a

more than one of the components is of such a description, and

b

an amount is specified by the order in respect of each of those components,

the part of the expenditure that is section 45H expenditure must not exceed the total of those amounts.

4

If the expenditure is treated under this Act as incurred in instalments, the proportion of each instalment that is section 45H expenditure is the same as the proportion of the whole expenditure that is section 45H expenditure.

5

Where this section applies, the expenditure is not apportioned under section 562(3) (apportionment where property sold with other property).

6

In this section “ section 45H expenditure ” means expenditure that is first-year qualifying expenditure under section 45H.

46 General exclusions applying to sections 40, 44 and 45

1

Expenditure within any of the general exclusions in subsection (2) is not first-year qualifying expenditure under F117any of the following provisions—

section 40 (expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises),
section 44 (expenditure incurred by small or medium-sized enterprises), F12...
section 45 (ICT expenditure incurred by small enterprises) F13, F14...
section 45A (expenditure on energy-saving plant or machinery). F15 ,
section 45D (expenditure on cars with low CO ₂ emissions),
F16 section 45E (expenditure on plant or machinery for gas refuelling station) , F118...
section 45F (expenditure on plant and machinery for use wholly in a ring fence trade).
F119section 45H expenditure on environmentally beneficial plant or machinery.

F172

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 81).

General exclusion 3

The expenditure is of the kind described in section 94 (ships).

General exclusion 4

The expenditure is of the kind described in section 95 (railway assets).

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

Either of the following sections applies—

section 13 (use for qualifying activity of plant or machinery provided for other purposes);
section 14 (use for qualifying activity of plant or machinery which is a gift).

“Company” means—

a

a company, or an oversea company, within the meaning of the 1985 Act, or

b

a company, or a Part XXIII company, within the meaning of the 1986 Order.

“financial year” has the same meaning as in Part VII of that Act;

and the reference in subsection (5)(d) to accounts being duly drawn up is to their being drawn up in accordance with that Act.

9

In the case of such a business—

a

“the relevant companies legislation” means Article 255 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)), and

b

“financial year” has the same meaning as in Part VIII of that Order;

and the reference in subsection (5)(d) to accounts being duly drawn up is to their being drawn up in accordance with that Order.

would, at that time, have been a member of a large or medium-sized group,

the company incurring the expenditure is to be treated as a member of a large group or (as the case may be) a large or medium-sized group at that time.

5

For the purposes of subsections (2) and (3), the question whether—

a

a group qualifies as small or medium-sized, or

b

a group qualifies as small,

is to be decided by reference to the relevant companies legislation (but reading references in that legislation to a parent company as references to a parent undertaking).

6

In subsection (5) “the relevant companies legislation” means—

a

except in the case of a company formed and registered in Northern Ireland, section 249 of the Companies Act 1985 (c. 6);

b

in the case of such a company, Article 257 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)).

7

For the purposes of subsection (4) a company is the successor of another if—

a

it carries on a trade which, in whole or in part, the other company has ceased to carry on, and

b

the circumstances are such that section 343 of ICTA (company reconstructions without a change of ownership) applies in relation to the two companies as the predecessor and the successor within the meaning of that section,

and “arrangements” means arrangements of any kind (whether or not in writing or legally enforceable).

8

In this section “financial year”, “group”, “parent undertaking” and “subsidiary undertaking” have the same meaning as in—

a

except in the case of a company formed and registered in Northern Ireland, Part VII of the 1985 Act;

b

in the case of such a company, Part VIII of the 1986 Order.

Supplementary

50 Time when expenditure is incurred

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.

for the purposes of any proceedings connected with a matter in relation to which the Board of Inland Revenue or the Department carry out the functions mentioned in subsection (2)(a) or (b).

Chapter 5 Allowances and charges

First-year allowances

52 First-year allowances

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
Expenditure qualifying under section 40 (expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises)	100%
Expenditure qualifying under section 44 (expenditure incurred by small or medium-sized enterprises)	40%
Expenditure qualifying under section 45 (ICT expenditure incurred by small enterprises)	100%
F25Expenditure qualifying under section 45A (expenditure on energy-saving plant or machinery	100%
F26Expenditure qualifying under section 45D (expenditure on cars with low CO₂ emissions)	100%
F27Expenditure qualifying under section 45E (expenditure on plant or machinery for gas refuelling station)	100%
F28Expenditure qualifying under section 45F (expenditure on plant and machinery for use wholly in a ring fence trade) which is long-life asset expenditure	24%
Expenditure qualifying under section 45F (expenditure on plant and machinery for use wholly in a ring fence trade) other than long-life asset expenditure	100%
F121Expenditure qualifying under section 45H (expenditure on environmentally beneficial plant or machinery)	100%

F127In the case of expenditure qualifying under section 44, see also section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004).

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—

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), and
sections 217, 223 and 241 (anti-avoidance: no first-year allowance in certain cases).

Pooling

53 Pooling of qualifying expenditure

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

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—

section 74 (car above the cost threshold);
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—

section 101 (long-life assets);
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.

Writing-down and balancing allowances and balancing charges

55 Determination of entitlement or liability

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 section 110(1) (overseas leasing: allowances prohibited in certain cases).

56 Amount of allowances and charges

1

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

Subsection (1) is subject to—

a

section 102 (long-life asset expenditure: 6%), 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.

Available qualifying expenditure

57 Available qualifying expenditure

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);
F29section 161C(2)(decommissioning expenditure incurred by person carrying on trade of oil extraction);
section 165(3) (abandonment 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);
section 166(2) (transfers of interests in oil fields: anti-avoidance);
section 185(2), 186(2) or 187(2) (restrictions where other claims made in respect of fixture);
section 218(1), 224(1), 228(2), 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).

58 Initial allocation of qualifying expenditure to pools

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.

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.

59 Unrelieved qualifying expenditure

1

A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period 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.

Disposal events and disposal values: general

60 Meaning of “disposal receipt” and “disposal event”

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

paragraph 11 of Schedule 12 to FA 1997 (finance lease or loan: receipt of major lump sum) 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).

61 Disposal events and disposal values

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;

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 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 F102ITEPA 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.
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.
6. Permanent discontinuance of the qualifying activity followed by the occurrence of an event within any of items 1 to 5.	The disposal value for the item in question.
7. Any event not falling within any of items 1 to 6.	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.

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).

62 General limit on amount of disposal value

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).

63 Cases in which disposal value is nil

1

If a person disposes of plant or machinery by way of gift in circumstances such that there is a charge to tax under F103ITEPA 2003, the disposal value of the plant or machinery is nil.

C22

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 charity within the meaning of section 506 of ICTA (charities: qualifying and non-qualifying expenditure),

b

to a body listed in section 507(1) of ICTA (various heritage bodies and museums), or

c

for the purposes of a designated educational establishment within the meaning of section 84 of ICTA (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 Schedule A business,

c

a furnished holiday lettings business,

d

an overseas property business, or

e

a profession or vocation.

4

Subsection (2) needs to be read with sections 83A(4) and 84(4) of ICTA (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).

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.

64 Case in which no disposal value need be brought into account

b

a long-life asset 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—

sections 77(1) and 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 four-year 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.

List of provisions outside this Chapter about disposal values

66 List of provisions outside this Chapter about disposal values

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
sections 72 and 73	grant of new software right: disposal value
section 79	cars: disposal value in avoidance cases
sections 88 and 89	short-life assets: disposal at under-value or to connected person
section 104	long-life assets: 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
section 211	effect of payment of partial depreciation subsidy
section 222	anti-avoidance: limit on disposal value
section 229	hire-purchase: disposal values in finance leasing and anti-avoidance cases
sections 238 and 239	additional VAT rebates

Chapter 6 Hire-purchase etc. and plant or machinery provided by lessee

Hire-purchase and similar contracts

67 Plant or machinery treated as owned by person entitled to benefit of contract, etc.

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

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.

3

At the time when the plant or machinery is brought into use for the purposes of the qualifying 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.

5

This section is subject to section 69 (hire-purchase and fixtures) and subsection (3) is subject to section 229 (anti-avoidance).

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,

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).

Chapter 7 Computer software

71 Software and rights to software

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

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 F104ITEPA 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.

73 Limit on disposal values

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 Cars, etc.

Cars above the cost threshold

74 Single asset pool

1

Qualifying expenditure incurred on the provision of a car to which this section applies, if allocated to a pool, must be allocated to a single asset pool.

C32

This section applies to a car if—

a

the car is not a qualifying hire car (as defined by section 82), F30...

b

the capital expenditure incurred on its provision for the purposes of the qualifying activity exceeds £12,000.F31, and

c

the qualifying expenditure incurred on the provision of the car is not first-year qualifying expenditure under section 45D (expenditure on cars with low CO ₂ emissions)

3

In this Chapter “car” has the meaning given by section 81 (extended meaning of “car”).

4

The Treasury may by order increase or further increase the sums of money specified in subsection (2) and in sections 75 and 76.

75 General limit on amount of writing-down allowance

C41

The amount of the writing-down allowance to be made to a person for a chargeable period in respect of qualifying expenditure incurred on the provision of a car to which section 74 applies must not exceed £3,000.

2

The limit under subsection (1) is proportionately increased or reduced if the chargeable period is more or less than a year.

3

The amount of the writing-down allowance may be further limited under—

section 76 (expenditure met by another person),
section 77 (effect of use partly for other purposes), or
section 78 (effect of partial depreciation subsidy).

76 Limit where part of expenditure met by another person

1

Subsection (2) applies if, as a result of section 532 (general rule excluding contributions), only part of the capital expenditure incurred on the provision of a car to which section 74 applies is treated as incurred by a person.

C52

The amount of the writing-down allowance to be made to that person for a chargeable period in respect of the qualifying expenditure on the car must not exceed—

£3,000x \frac{E - X}{E}

where—

E is the amount of capital expenditure incurred on the provision of the car, and

X is the amount of the expenditure excluded by section 532.

C63

Subsection (4) applies if—

a

capital expenditure exceeding £12,000 is incurred on the provision of a car to which section 74 applies, and

b

a person (“the contributor”) is entitled to writing-down allowances as a result of section 538 (contribution allowances for plant and machinery).

C74

The amount of the writing-down allowance to be made to the contributor for a chargeable period in respect of his contribution to the expenditure on the car must not exceed—

£3,000x \frac{C}{E}

where—

E is the amount of capital expenditure incurred on the provision of the car, and

C is the amount of the contribution.

5

The limit under subsection (2) or (4) is proportionately increased or reduced if the chargeable period is more or less than a year.

77 Car used partly for purposes other than those of qualifying activity

if less, the capital expenditure incurred, or treated as incurred, on the provision of the car by the person disposing of it.

3

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 (2).

Vehicles provided for purposes of employment or office

80Vehicles provided for purposes of employment or office

F32. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation

81 Extended meaning of “car”

In this Part “car” means a mechanically propelled road vehicle other than one—

a

of a construction primarily suited for the conveyance of goods or burden of any description, or

b

of a type not commonly used as a private vehicle and unsuitable for such use.

References to a car accordingly include a motor cycle.

the Social Security Contributions and Benefits Act 1992 (c. 4), or

ii

the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

because of entitlement to the mobility component,

b

a mobility supplement under a scheme made under the Personal Injuries (Emergency Provisions) Act 1939 (c. 82),

c

a mobility supplement under an Order in Council made under section 12 of the Social Security (Miscellaneous Provisions) Act 1977 (c. 5), or

d

any payment appearing to the Treasury to be of a similar kind and specified by them by order.

5

For the purposes of subsection (2) persons who are connected with each other are to be treated as the same person.

Chapter 9 Short-life assets

83 Meaning of “short-life asset”

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

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 (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 81).	The car is within section 82(4) (cars hired out to persons receiving disability allowances etc.).
4. The expenditure is long-life asset expenditure (see Chapter 10).
5. The plant or machinery is provided for leasing.	The plant or machinery is a car which is within section 82(4) (cars hired out to persons receiving disability allowances etc.). 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).

All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

86 Short-life asset pool

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 four-year cut-off—

a

the pool ends at the four-year cut-off without a final chargeable period,

b

the available qualifying expenditure in the pool is allocated to the main pool for the first chargeable period ending after the four-year cut-off, and

c

the asset ceases to be a short-life asset.

3

In this Chapter “the four-year cut-off” means the fourth anniversary of the end of—

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 four-year cut-off only if it ends on or before it.

87 Short-life assets provided for leasing

1

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 four-year cut-off” means the date that would have been the four-year 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 the Inland Revenue no later than 2 years after the end of the chargeable period in which the disposal occurred.

Chapter 10 Long-life assets

Long-life asset expenditure

90 Long-life asset expenditure

“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”

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.

92 Application of Chapter to part of expenditure

1

If, under any of the following provisions of this Chapter, this Chapter applies to part only of the capital expenditure on plant and machinery—

a

the part to which this Chapter applies, and

b

the part to which it does not,

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

95 Railway assets

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—
1. a
  anything included in the definitions of “station” and “track” in section 83 of the 1993 Act, and
2. 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—
1. a
  any light maintenance depot within the meaning of Part I of the 1993 Act, and
2. 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

Expenditure is not long-life asset expenditure if it is incurred on the provision of a car (as defined by section 81).

97 Expenditure within the relevant monetary limit: general

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.

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

C81

The monetary limit in the case of a chargeable period of 12 months is £100,000.

C92

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.

C103

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

If, in a chargeable period, a company has one or more associated companies, the monetary limit for that period is—

\frac{L}{N + 1}

where—

L is the monetary limit applicable under subsection (1) or (3), and

N is the number of the associated companies.

5

Section 13(4) and (5) of ICTA (companies which count as associated companies for the purposes of section 13(3)) applies for the purposes of subsection (4).

100 Exceeding the monetary limit

The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of expenditure which is long-life asset expenditure is 6% of the amount by which AQE exceeds TDR (see Chapter 5).

2

Subsection (1) applies even if the long-life asset expenditure is in a single asset pool.

3

In the case of expenditure which is within section 107(2)(a) and (b) (overseas leasing which is not protected leasing), this section is subject to sections 110, 114 and 115 (allowances prohibited in certain cases etc.).

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.

Anti-avoidance provisions

103 Later claims

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

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 long-life asset.

3

The notional written-down value is—

QE - A

where—

QE is the taxpayer’s expenditure on the plant or machinery 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 his available qualifying expenditure,

(b) that expenditure had not been prevented by the application of a monetary limit from being long-life asset expenditure, and

Chapter 11 Overseas leasing

106 The designated period

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

111 Excess allowances: standard recovery mechanism

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

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),

b

none of the relevant provisions of ICTA under which the qualifying activity might have been treated as continuing has applied in respect of the transaction (or transactions), 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.

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.

5

“The relevant provisions of ICTA” means section 113(2), 114(1) or 343(2) (effect of change in persons carrying on a trade etc. or of company reconstruction).

113 Excess allowances: special provision for ships

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

114 Prohibited allowances: standard recovery mechanism

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

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

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

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

118 Certificate relating to protected leasing

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

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 the Inland Revenue.

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.

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.

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;

c

a person who acquired the plant or machinery from X as a result of—

i

a disposal on the occasion of which, or

ii

two or more disposals on the occasion of each of which,

the qualifying activity carried on by the person making the disposal was treated as continuing under one of the relevant provisions of ICTA;

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.

3

“The relevant provisions of ICTA” means section 113(2) or 114(1) (effect of change in persons carrying on a trade etc.).

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

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

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;

c

a person who acquired the plant or machinery from X as a result of—

i

a disposal on the occasion of which, or

ii

two or more disposals on the occasion of each of which,

the qualifying activity carried on by the person making the disposal was treated as continuing under one of the relevant provisions of ICTA.

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.

5

“The relevant provisions of ICTA” means section 113(2) or 114(1) (effect of change in persons carrying on a trade etc.).

Minor definitions

126 Minor definitions

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).

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

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 the Inland Revenue—

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.

130 Notice postponing first-year or writing-down allowance

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 the Inland Revenue—

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.

131 Effect of postponement

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 section 403ZB(2) of ICTA (group relief) to an allowance or amount carried forward from an earlier period.

132 Disposal events and single ship pool

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

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

134 Deferment of balancing charges: introduction

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

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.

136 Further conditions for deferment

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

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

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 section 385 or 393 of ICTA (losses) are to be disregarded.

139 Amount taken into account in respect of old ship

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—

DV - (QE - WDA - FYA)

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

140 Notice attributing deferred amounts to new expenditure

1

The shipowner may, by notice to the Inland Revenue, 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

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

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 the Inland Revenue 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

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.

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.

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

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.

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

151 Basic meaning of qualifying ship

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

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

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.

F1262

A ship is not a qualifying ship at any time when it is an offshore installation.

F1253

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

154 Further registration requirement

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,

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 section 839 of ICTA) 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 section 839 of ICTA) with a person who is carrying on a qualifying activity previously carried on by A and the condition in subsection (2) is met.

2

The condition is that the only changes in the persons carrying on the qualifying activity since A carried it on are changes in respect of which, under section 113(2) or 343(2) of ICTA, the qualifying activity is not treated as having been discontinued.

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).

Further provisions

157 Adjustment of assessments etc.

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

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 Chapter IV of Part X of ICTA (group relief).

Chapter 13 Provisions affecting mining and oil industries

Expenditure connected with mineral extraction trades

159 Meaning of “mineral extraction trade” etc.

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

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.

161 Pre-trading expenditure on mineral exploration and access

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

Amendments (Textual)

F45

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”

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”

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

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 and 164(4).

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.

constitute a separate trade (whether as a result of section 492(1) of ICTA or otherwise).

“abandonment programme”, “offshore installation” and “submarine pipeline” have the same meaning as in Part IV of the Petroleum Act 1998 (c. 17).

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).

165 Abandonment expenditure within 3 years of ceasing ring fence trade

1

This section applies if—

a

a person (“the former trader”) has ceased to carry on a ring fence trade,

b

the former trader incurs abandonment expenditure F42... within the post-cessation period, and

c

the abandonment expenditure is not otherwise deductible in calculating the income of the former trader for any tax purpose.

2

“The post-cessation period” means the period of 3 years immediately following the last day on which the former trader carried on the ring fence trade.

3

If this section applies—

a

an amount equal to the relevant abandonment cost 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

F43where any of the abandonment 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.

4

In subsection (3)—

“the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been allocated, and
“the relevant abandonment cost” means the amount by which the abandonment expenditure exceeds any amounts received within the post-cessation period for the remains of F44any plant or machinery on whose demolition any of the abandonment expenditure was incurred.

5

Nothing in this section affects the operation of Chapter 17 (anti-avoidance).

Chapter 14 Fixtures

Introduction

172 Scope of Chapter etc.

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.

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 F46195B) 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 F47192A).

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).

173 Meaning of “fixture” and “relevant land”

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”

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.

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.

175AF48 Meaning of “energy services agreement”

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.

Persons who are treated as owners of fixtures

176 Person with interest in relevant land having fixture for purposes of qualifying activity

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 F49sections 177(4) and 180A(4) .

177 Equipment lessors

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 Inland Revenue—

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.

178 Equipment lessee has qualifying activity etc.

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

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 F50generally 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

F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

180 Equipment lease is part of affordable warmth programme

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.

180AF58 Energy services providers

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 the Inland Revenue—

is treated as the owner of the fixture immediately before the time referred to in F54subsection (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 F55sections 182 and 182A .

182 Purchaser of land discharging obligations of equipment lessee

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.

F562

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).

182AF62 Purchaser of land discharging obligations of client under energy services agreement

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,

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).

183 Incoming lessee where lessor entitled to allowances

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 the Inland Revenue within 2 years after the date on which the lease takes effect.

184 Incoming lessee where lessor not entitled to allowances

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—

D + I

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

1

This section applies if—

a

a person (“the past owner”) has at any time claimed an allowance to which he is 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 is 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

The maximum allowable amount is—

\frac{F}{T} xR

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 attributable to the relevant interest immediately after that transfer, calculated on the assumption that the transfer was a sale of the relevant interest.

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 in Part 3.

187 Fixture on which a research and development allowance has been made

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—

\frac{F}{T} xA

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

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

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

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

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.

192AF59 Cessation of ownership of energy services provider

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.

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).

Disposal values

196 Disposal values in relation to fixtures: general

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.
F648A. 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.

F654A

Section 192A(3)(assignee of client) applies in relation to item 8B of the Table.

5

Nothing in sections 188 to F66192A 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.

197 Disposal values in avoidance cases

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

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—

QE - A

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

198 Election to apportion sale price on sale of qualifying interest

1

This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 1 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 of the Table, and

b

b

section 197 (disposal values in avoidance cases), and

c

sections 200 and 201 (further provisions about elections).

199 Election to apportion capital sum given by lessee on grant of lease

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

b

section 197 (disposal values in avoidance cases), and

c

sections 200 and 201 (further provisions about elections).

200 Elections under sections 198 and 199: supplementary

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.

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).

Further provisions

202 Interpretation

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.

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 the Inland Revenue 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) F67, 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.

to make representations to them in writing;

and the Commissioners’ determination has effect as if made in an appeal to which each of those persons was a party.

Chapter 15 Asset provided or used only partly for qualifying activity

205 Reduction of first-year allowances

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 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.

206 Single asset pool etc.

1

Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

2

b

claims less than the full amount of the allowance,

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 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.

211 Single asset pool etc.

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—

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.

Chapter 17 Anti-avoidance

ii

transactions of which the relevant transaction is one,

was obtaining an allowance under this Part.

216 Sale and leaseback, etc.

1

Allowances under this Part are restricted under sections 217 and 218 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, 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.

217 No first-year allowance for B’s expenditure

1

If this section applies as a result of section 214, 215 or 216, a first-year allowance is not to be made in respect of B’s expenditure under the relevant transaction.

2

Any first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.

3

If plant or machinery is the subject of a sale and finance leaseback (as defined in section 221) section 223 applies instead of this section.

218 Restriction on B’s qualifying expenditure

1

If this section applies as a result of section 214, 215 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.

relate to two or more companies of which that company is one, and

b

are drawn up in accordance with—

i

section 227 of the Companies Act 1985 (c. 6), or

ii

Article 235 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)).

220 Allocation of expenditure to a chargeable period

1

Subject to subsection (2), if a person incurs at any time in a chargeable period capital expenditure on the provision of plant or machinery for leasing under a finance lease—

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 person’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 person’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.

Sale and finance leasebacks

221 Meaning of “sale and finance leaseback”

1

For the purposes of this section and sections 222 to 228, 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 a qualifying activity carried on by 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 F70S 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.

222 Disposal value restricted

1

If—

a

plant or machinery is the subject of a sale and finance leaseback, and

b

S is required to bring a disposal value into account under this Part because of the relevant transaction,

the disposal value is whichever of the amounts in subsection (2) is the smallest.

2

The amounts are—

a

the disposal value that S would be required to bring into account apart from subsection (1);

b

the market value of the plant or machinery;

c

if S incurred capital expenditure on the provision of the plant or machinery, the notional written-down value of that capital expenditure;

d

if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the notional written-down value of that capital expenditure.

3

The notional written-down value is—

QE - A

where—

QE is the expenditure incurred by S, or the person connected with S, on the plant or machinery,

A is the total of all allowances which could have been made to S, or the person connected with S, in respect of that expenditure if—

(a) that expenditure had been qualifying expenditure,

(b) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure,

(d) all allowances had been made in full.

4

This section does not apply if the finance lease or any transaction or series of transactions of which it forms a part makes provision such as is described in section 225(1) (sale and finance leasebacks: B’s qualifying expenditure if lessor not bearing non-compliance risk).

223 No first-year allowance for B’s expenditure

1

If plant or machinery is the subject of a sale and finance leaseback, a first-year allowance is not to be made in respect of B’s expenditure under the relevant transaction.

2

Any first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.

224 Restriction on B’s qualifying expenditure

1

If plant or machinery is the subject of a sale and finance leaseback 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 (2) 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 (determined in accordance with section 222).

3

If S is not required to bring a disposal value into account under this Part because of the relevant transaction, 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 notional written-down value of that capital expenditure;

c

if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the notional written-down value of that capital expenditure.

4

In this section “the notional written-down value”, in relation to expenditure incurred by a person on the provision of plant or machinery, has the meaning given by section 222(3).

5

This section does not apply if the finance lease or any transaction or series of transactions of which it forms a part makes provision such as is described in section 225(1).

225 B’s qualifying expenditure if lessor not bearing non-compliance risk

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.

226 Qualifying expenditure limited in subsequent transactions

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).

228 Effect of election: relaxation of restriction on B’s qualifying expenditure, etc.

1

The effect of an election under section 227 in relation to B is that subsections (2) and (3) apply instead of section 218 or 224 (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.

4

Nothing in subsections (1) to (3) prevents section 225 from applying.

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.

F124Finance leaseback: parties' income and profits

Annotations:

Amendments (Textual)

F124

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

228AApplication of sections 228B to 228E

1

Sections 228B to 228E apply where—

a

plant or machinery is the subject of a sale and finance leaseback for the purposes of section 221, and

b

section 222 (restriction of disposal value) applies.

2

Sections 228B to 228D also apply, with the modifications set out in section 228F, where plant or machinery is the subject of a lease and finance leaseback (as defined in section 228F).

228BLessee’s income or profits: deductions

1

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 leaseback may not exceed the permitted maximum.

2

The permitted maximum is the total of—

a

finance charges shown in the accounts, and

b

depreciation, taking the value of the plant or machinery at the beginning of the leaseback to be the restricted disposal value.

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 entering into the relevant transaction, and

“ Original Book Value ” means the net book value of the leased plant or machinery at the beginning of the leaseback.

228CLessee’s income or profits: termination of leaseback

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 the lessee 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—

“ Net Consideration ” means—

(a) the consideration payable to S for entering into the relevant transaction, minus
(b) the restricted disposal value,

“ 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 the lessee’s interest under the leaseback if any amounts due to the lessor under the leaseback were disregarded.

228DLessor’s income or profits

1

This section applies 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.

2

Where—

a

an amount receivable in respect of the lessor’s interest under the leaseback falls to be taken into account in that calculation, and

b

that amount is reduced by an amount due to the lessee under the leaseback,

that reduction shall be disregarded when taking the amount receivable into account.

3

The amounts receivable in respect of the lessor’s interest under the leaseback that fall to be taken into account in that calculation may be disregarded to the extent that they exceed the permitted threshold (whether or not subsection (2) applies).

4

The permitted threshold is the total of—

a

gross earnings, and

b

the allowable proportion of the capital repayment.

5

In subsection (4)(a) “ gross earnings ” means the amount shown in the lessor’s accounts in respect of the lessor’s gross earnings under the leaseback.

6

In subsection (4)(b) “ allowable proportion of the capital repayment ” means the amount obtained by this calculation—

where—

“ Investment Reduction For Period ” means the amount shown in the lessor’s accounts in respect of the reduction in net investment in the leaseback, and

“ Net Investment ” means the amount shown in the lessor’s accounts as the lessor’s net investment in the leaseback at the beginning of its term.

7

This section does not apply to a leaseback if the lessee is a lessee by way of an assignment made before 17 March 2004.

228ELessor’s income or profits: termination of leaseback

1

Subsection (2) applies where—

a

the leaseback terminates,

b

the lessor disposes of the plant or machinery, and

c

the amount of the disposal value required to be brought into account because of that disposal is limited by section 62.

2

For the purpose of income tax or corporation tax, in calculating the lessor’s income or profits for the period in which the termination occurs the amount deducted in respect of any amount refunded to the lessee may not exceed the amount to which the disposal value is limited by section 62.

references to the lessee are references to the person referred to as S in this section, and

b

references to the lessor are references to the person referred to as B in this section or, where appropriate, to an assignee of that person.

228GLeaseback not accounted for as finance lease in accounts of lessee

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 the lessee.

2

Subsection (3) applies where the leaseback is accounted for as a finance lease in the accounts of a person connected with the lessee; 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 the lessee 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 the lessee’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 the lessee.

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 the lessee from the relevant qualifying activity for the period of account during which the term of the leaseback begins shall be increased by—

a

the net consideration for the purposes of section 228C(3) (in the case of a sale and finance leaseback), or

b

the consideration referred to in section 228F(6)(b) (in the case of a lease and finance leaseback).

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.

228HSections 228A to 228G: supplementary

1

In sections 228A to 228G—

“ lessee ” does not include a person who is lessee by way of an assignment;
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 the lessee’s accounts, but—
1. a
  also having regard to depreciation up to the time in question, and
2. b
  disregarding any revaluation gains or losses and any impairments;
“ restricted disposal value ” means the disposal value under section 222;
“ termination ” in relation to a leaseback includes (except in section 228E)—
1. a
  the assignment of the lessee’s interest,
2. b
  the making of any arrangements (apart from an assignment of the lessee’s interest) under which a person other than the lessee becomes liable to make some or all payments under the leaseback, and
3. c
  a variation as a result of which the leaseback ceases to be a finance lease.

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.

228JPlant or machinery subject to further operating lease

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—

a

the lease 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 lease is comprised in other arrangements, those arrangements fall, under generally accepted accounting practice, to be so treated.

8

In this section—

“ lease and finance leaseback ” has the meaning given in section 228F;
“ 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.

Miscellaneous and supplementary

229 Hire-purchase etc.

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

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.

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 section 839 of ICTA, 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”).

233 Additional VAT liabilities and rebates

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 Additional VAT liabilities and rebates

Introduction

234 Introduction

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

235 Additional VAT liability treated as qualifying expenditure

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

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.

4

This section is subject to sections 237 and 241.

237 Exceptions to section 236

1

An additional VAT liability is not 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.

2

An additional VAT liability is not first-year qualifying expenditure if, at the time when the liability is incurred, the original expenditure is treated under section 43 (plant or machinery subsequently primarily for use outside Northern Ireland) as expenditure which was never first-year qualifying expenditure.

Additional VAT rebate

238 Additional VAT rebate generates disposal value

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

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

240 Additional VAT liability

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

241 No first-year allowance in respect of additional VAT liability

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

the smallest amount under subsection (5) is the market value of the plant or machinery, and

c

that value is determined inclusive of value added tax,

the charge as a receipt of that business.

2

Section 503 of ICTA (letting of furnished holiday accommodation treated as trade for purposes of loss relief rules, etc.) applies to profits calculated in accordance with subsection (1).

250 Overseas property businesses

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an 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.

Activities analogous to trades

251 Professions and vocations

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.

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 section 55(2) of ICTA (mines, transport undertakings etc.) the allowance or charge is to be given effect in calculating the profits of the concern 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.

F131Companies with investment business

Annotations:

Amendments (Textual)

F131

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)

253F131Companies with investment business

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 F134managing 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 section 75(4) of ICTA (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 Case I of Schedule D.

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 section 75(4) of ICTA.

7

This section is subject to sections 768B(8) and 768C(11) of ICTA.

Life assurance business

254 Introductory

1

Sections 255 and 256 apply if a company which is carrying on any life assurance 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).

255 Apportionment of allowances and charges

1

Except where subsection (3) applies, the allowances or charges must be apportioned between the different categories of life assurance business carried on by the company, using the formula—

Ax \frac{B}{C}

where—

A is the amount of the allowance or charge,

B is the mean of the opening and closing liabilities of the category of life assurance concerned, and

C is the mean of the opening and closing liabilities of all the categories of life assurance business carried on by the company.

2

In its application to an overseas life insurance company, subsection (1) has effect as if the references to liabilities were only to such liabilities as are attributable to the F130permanent establishment in the United Kingdom through which the company carries on the business concerned.

3

If—

a

the company is charged to tax under section 441 of ICTA in respect of its overseas life assurance business, and

b

the management asset in respect of which it is entitled to an allowance or liable to a charge for a chargeable period is provided outside the United Kingdom for use for the management of that business,

the allowance or charge must be allocated (without any apportionment) to that business.

any allowances (or parts of allowances) to which the company is entitled in respect of any particular category of business are to be given effect by treating them as an expense of that category of business, and

b

any charges (or parts of charges) to which the company is liable in respect of any particular category of business are to be given effect by treating them as receipts of that category of business.

257 Supplementary

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—

a

section 89 of FA 1989 (calculation of “policy holders’ share of profits”), or

F136b

finding, in accordance with subsection (10) of section 76 of ICTA , the amount D1 in Step 9 in subsection (7) of that section (calculation for purposes of complying with restriction on amount of expenses deduction).

3

Expressions that are used—

a

in sections 255 and 256, and

b

in Chapter I of Part XII of ICTA (insurance companies and capital redemption business),

have the same meaning in those sections as in that Chapter.

Special leasing of plant or machinery

258 Special leasing: income tax

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.

4

Any charge is to be given effect by treating the charge as income to be taxed under Case VI of Schedule D.

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.

259 Special leasing: corporation tax (general)

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)

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—

section 403 of ICTA (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).

Employments and offices

262 Employments and offices

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 F106a deduction from the taxable earnings from the employment or office, and

b

the charge as F107earnings of the employment or office.

Chapter 20 Supplementary provisions

Partnerships and successions

263 Qualifying activities carried on in partnership

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

F71c

the change does not result in the qualifying activity being treated as permanently discontinued under section 113(1) or 337(1) of ICTA (changes in persons carrying on a trade etc. and effect of company ceasing to trade etc.).

F712

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”—
1. a
  in relation to the present partners, means their predecessors in carrying on the qualifying activity, and
2. b
  in relation to the partners at the time of the event, means their predecessors in carrying on the qualifying activity, and
“qualifying activity”—
1. a
  does not include an employment or office, but
2. 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 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.

b

includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

266 Election where predecessor and successor are connected persons

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 Inland Revenue 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 section 839 of ICTA;

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 104, 108 and 265 (disposal value of long-life assets, 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.

8

This section does not apply if section 561 applies (transfer of UK trade to a company in another member State).

267 Effect of election

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.

268 Successions by beneficiaries

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,

b

the qualifying activity is treated as discontinued under section 113(1) of ICTA (changes in persons carrying on a trade etc.), and

c

the beneficiary elects by notice to the Inland Revenue 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.

Miscellaneous

269 Use of plant or machinery for business entertainment

1

If—

a

a person carrying on a qualifying activity, or

b

b

persons engaged in the management of a company,

are to be regarded as employed by the company.

270 Shares in plant or machinery

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.

C15Part 3 Industrial buildings allowances

Annotations:

Modifications etc. (not altering text)

C15

Pt. 3 modified (24.2.2003) by Proceeds of Crime Act 2002 (c. 29), s. 458(1), Sch. 10 para. 18 (with Sch. 10 para. 21); S.I. 2003/120, art. 2, Sch. (with arts. 34) (as amended (20.2.2003) by S.I. 2003/333, art. 14)

Chapter 1 Introduction

271 Industrial buildings allowances

1

Allowances are available under this Part if—

a

expenditure has been incurred on the construction of a building or structure,

b

the building or structure is (or, in the case of an initial allowance, is to be)—

i

in use for the purposes of a qualifying trade,

ii

a qualifying hotel,

iii

a qualifying sports pavilion, or

iv

in relation to qualifying enterprise zone expenditure, a commercial building or structure, and

c

the expenditure incurred on the construction of the building or structure, or other expenditure, is qualifying expenditure.

2

In the rest of this Part—

a

“building” is short for “building or structure”, and

b

“industrial building” means, subject to Chapter 2 (which defines terms used in subsection (1)(b) etc.), a building or structure which is within subsection (1)(b).

3

Allowances under this Part are made to the person who for the time being has the relevant interest in the building (see Chapter 3) in relation to the qualifying expenditure (see Chapter 4).

272 Expenditure on the construction of a building

1

For the purposes of this Part, expenditure on the construction of a building does not include expenditure on the acquisition of land or rights in or over land.

2

This Part has effect in relation to capital expenditure incurred by a person on repairs to a part of a building as if it were capital expenditure on the construction of that part of the building for the first time.

3

For the purposes of subsection (2), expenditure incurred for the purposes of a trade on repairs to a building is to be treated as capital expenditure if it is not expenditure that would be allowed to be deducted in calculating the profits of the trade for tax purposes.

273 Preparation of sites for plant or machinery

1

Subsection (2) applies if—

a

capital expenditure is or has been incurred in preparing, cutting, tunnelling or levelling land for the purposes of preparing the land as a site for the installation of plant or machinery, and

b

no allowance could (apart from this section) be made in respect of that expenditure under this Part or Part 2 (plant and machinery allowances).

2

This Part has effect in relation to the expenditure as if—

a

the purpose of incurring the expenditure were to prepare the land as a site for the construction of a building, and

b

the installed plant or machinery were a building.

Chapter 2 Industrial buildings

Buildings in use for the purposes of a qualifying trade

274 Trades and undertakings which are “qualifying trades”

1

“Qualifying trade” means—

a

a trade of a kind described in Table A, or

b

an undertaking of a kind described in Table B, if the undertaking is carried on by way of trade.

Table A

Trades which are “qualifying trades”

1.	Manufacturing	A trade consisting of manufacturing goods or materials.
2.	Processing	A trade consisting of subjecting goods or materials to a process. This includes (subject to section 276(3)) maintaining or repairing goods or materials.
3.	Storage	A trade consisting of storing goods or materials— (a) which are to be used in the manufacture of other goods or materials, (b) which are to be subjected, in the course of a trade, to a process, (c) which, having been manufactured or produced or subjected, in the course of a trade, to a process, have not yet been delivered to any purchaser, or (d) on their arrival in the United Kingdom from a place outside the United Kingdom.
4.	Agricultural contracting	A trade consisting of— (a) ploughing or cultivating land occupied by another, (b) carrying out any other agricultural operation on land occupied by another, or (c) threshing another’s crops. For this purpose “crops” includes vegetable produce.
5.	Working foreign plantations	A trade consisting of working land outside the United Kingdom used for— (a) growing and harvesting crops, (b) husbandry, or (c) forestry. For this purpose “crops” includes vegetable produce and “harvesting crops” includes the collection of vegetable produce (however effected).
6.	Fishing	A trade consisting of catching or taking fish or shellfish.
7.	Mineral extraction	A trade consisting of working a source of mineral deposits. “Mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth, and for this purpose geothermal energy is to be treated as a natural deposit. “Source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

Table B

Undertakings which are “qualifying trades” if carried on by way of trade

1.	Electricity	An undertaking for the generation, transformation, conversion, transmission or distribution of electrical energy.
2.	Water	An undertaking for the supply of water for public consumption.
3.	Hydraulic power	An undertaking for the supply of hydraulic power.
4.	Sewerage	An undertaking for the provision of sewerage services within the meaning of the Water Industry Act 1991 (c. 56).
5.	Transport	A transport undertaking.
6.	Highway undertakings	A highway undertaking, that is, so much of any undertaking relating to the design, building, financing and operation of roads as is carried on— (a) for the purposes of, or (b) in connection with, the exploitation of highway concessions.
7.	Tunnels	A tunnel undertaking.
8.	Bridges	A bridge undertaking.
9.	Inland navigation	An inland navigation undertaking.
10.	Docks	A dock undertaking. A dock includes— (a) any harbour, and (b) any wharf, pier, jetty or other works in or at which vessels can ship or unship merchandise or passengers, other than a pier or jetty primarily used for recreation.

2

Item 6 of Table B needs to be read with Chapter 9 (application of this Part to highway undertakings).

275 Building used for welfare of workers

A building is in use for the purposes of a qualifying trade if it is—

a

provided by the person carrying on the qualifying trade for the welfare of workers employed in that qualifying trade, and

b

in use for the welfare of such workers.

276 Parts of trades and undertakings

1

Sections 274 and 275 apply in relation to part of a trade or undertaking as they apply in relation to a trade or undertaking.

But this is subject to subsections (2) and (3).

2

If—

a

a building is in use for the purpose of a trade or undertaking, and

b

part only of the trade or undertaking is a qualifying trade,

the building is in use for the purposes of the qualifying trade only if it is in use for the purposes of that part of the trade or undertaking.

3

Maintaining or repairing goods or materials is not a qualifying trade if—

a

the goods or materials are employed in a trade or undertaking,

b

the maintenance or repair is carried out by the person employing the goods or materials, and

c

the trade or undertaking is not itself a qualifying trade.

277 Exclusion of dwelling-houses, retail shops, showrooms, hotels and offices etc.

a

the person claiming the allowance, or

b

a lessee occupying the hotel under a lease to which the relevant interest is reversionary,

throughout the 12 month period ending with the last day of the chargeable period, the reference period is that 12 month period.

4

If the hotel was first used for the purposes of a trade carried on as described in subsection (3) after the beginning of the 12 month period referred to there, the reference period is the 12 month period beginning with the date on which it was first so used.

5

If a hotel does not qualify under subsection (3) because it had fewer than 10 letting bedrooms until too late a date, the reference period is the 12 month period beginning with the date when it had 10 or more letting bedrooms.

6

A hotel is not to be treated as meeting the conditions in subsection (1)(b) and (c) at any time in a chargeable period after it has ceased altogether to be used.

7

A building (whether or not on the same site as any other part of the hotel) which is—

a

provided by the person carrying on the trade for the welfare of workers employed in the hotel, and

b

in use for the welfare of such workers,

is to be treated for the purposes of this section as part of the hotel.

8

If a qualifying hotel is carried on by an individual (alone or in partnership), accommodation which, when the hotel is open during April to October, is normally used as a dwelling by—

a

that individual, or

b

a member of his family or household,

is to be treated for the purposes of this section as not being part of the hotel.

9

In this section—

“building” does not include a structure, and
“letting bedroom” means a private bedroom available for letting to the public generally and not normally in the same occupation for more than one month.

280 Qualifying sports pavilions

A building is a qualifying sports pavilion if it is—

a

occupied by a person carrying on a trade, and

b

used as a sports pavilion for the welfare of all or any of the workers employed in that trade.

Commercial buildings (enterprise zones)

281 Commercial buildings (enterprise zones)

For the purposes of this Part as it applies in relation to qualifying enterprise zone expenditure, “commercial building” means a building which is used—

a

for the purposes of a trade, profession or vocation, or

b

as an office or offices (whether or not for the purposes of a trade, profession or vocation),

and which is not in use as, or as part of, a dwelling-house.

Supplementary provisions

282 Buildings outside the United Kingdom

A building outside the United Kingdom which is in use for the purposes of a trade is not an industrial building at any time when the profits of the trade are not assessable in accordance with the rules applicable to Case I of Schedule D.

283 Non-industrial part of building disregarded

1

This section applies if, apart from this section, but taking into account section 571 (parts of buildings etc.)—

a

part of a building would be an industrial building, and

b

part (“the non-industrial part”) would not.

2

If the qualifying expenditure relating to the non-industrial part is no more than 25% of the qualifying expenditure relating to the whole of the building, the whole of the building is an industrial building.

284 Roads on industrial estates etc.

1

A road on an industrial estate is an industrial building if the estate consists wholly or mainly of buildings that are treated under this Part as industrial buildings.

2

For the purposes of this Part as it applies in relation to qualifying enterprise zone expenditure, “industrial estate” includes an area (such as a business park) which consists wholly or mainly of commercial buildings.

285 Cessation of use and temporary disuse of building

For the purposes of this Part—

a

a building is not to be regarded as ceasing altogether to be used merely because it falls temporarily out of use, and

b

if a building is an industrial building immediately before a period of temporary disuse, it is to be treated as being an industrial building during the period of temporary disuse.

Chapter 3 The relevant interest in the building

286 General rule as to what is the relevant interest

1

The relevant interest in relation to any qualifying expenditure is the interest in the building to which the person who incurred the expenditure on the construction of the building was entitled when the expenditure was incurred.

2

Subsection (1) is subject to the following provisions of this Chapter and to sections 342 (highway undertakings) and 359 (provisions applying on termination of lease).

3

If—

a

the person who incurred the expenditure on the construction of the building was entitled to more than one interest in the building when the expenditure was incurred, and

b

one of those interests was reversionary on all the others,

the reversionary interest is the relevant interest.

287 Interest acquired on completion of construction

For the purposes of determining the relevant interest, a person who—

a

incurs expenditure on the construction of a building, and

b

is entitled to an interest in the building on or as a result of the completion of the construction,

is treated as having had that interest when the expenditure was incurred.

288 Effect of creation of subordinate interest

1

An interest does not cease to be the relevant interest merely because of the creation of a lease or other interest to which that interest is subject.

2

This is subject to any election under section 290.

289 Merger of leasehold interest

If the relevant interest is a leasehold interest which is extinguished on—

a

being surrendered, or

b

the person entitled to the interest acquiring the interest which is reversionary on it,

the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished.

which relates to the building (or buildings) that is (or are) the subject of the lease.

291 Supplementary provisions with respect to elections

1

No election may be made under section 290 by a lessor and lessee who are connected persons unless—

a

the lessor is a body discharging statutory functions, and

b

the lessee is a company of which it has control.

2

No election may be made under section 290 if it appears that the sole or main benefit which may be expected to accrue to the lessor from the grant of the lease and the making of an election is obtaining a balancing allowance.

3

Whether the duration of a lease exceeds 50 years is to be determined—

a

in accordance with section 38(1) to (4) and (6) of ICTA, and

b

without regard to section 359(3) (new lease granted as a result of the exercise of an option treated as continuation of old lease).

4

An election under section 290 must be made by notice to the Inland Revenue within 2 years after the date on which the lease takes effect.

5

All such adjustments, by discharge or repayment of tax or otherwise, are to be made as are necessary to give effect to the election.

Chapter 4 Qualifying expenditure

Introduction

292 Meaning of “qualifying expenditure”

In this Part “qualifying expenditure” means expenditure which is qualifying expenditure under—

section 294	capital expenditure on construction of a building
section 295	purchase of unused building where developer not involved
section 296	purchase of building which has been sold unused by developer
section 301	qualifying expenditure on sale within 2 years of first use where all of expenditure is qualifying enterprise zone expenditure
section 303	qualifying expenditure on sale within 2 years of first use where part of expenditure is qualifying enterprise zone expenditure.

293 Meaning of references to carrying on a trade as a developer

For the purposes of this Chapter—

a

a developer is a person who carries on a trade which consists in whole or in part in the construction of buildings with a view to their sale, and

b

an interest in a building is sold by the developer in the course of the development trade if the developer sells it in the course of the trade or (as the case may be) that part of the trade that consists in the construction of buildings with a view to their sale.

Qualifying expenditure

294 Capital expenditure on construction of a building

If—

a

capital expenditure is incurred on the construction of a building, and

b

the relevant interest in the building has not been sold or, if it has been sold, it has been sold only after the first use of the building,

the capital expenditure is qualifying expenditure.

295 Purchase of unused building where developer not involved

1

This section applies if—

a

expenditure is incurred on the construction of a building,

b

the relevant interest in the building is sold before the building is first used,

c

a capital sum is paid by the purchaser for the relevant interest, and

d

section 296 (purchase of building which has been sold unused by developer) does not apply.

2

The lesser of—

a

the capital sum paid by the purchaser for the relevant interest, and

b

the expenditure incurred on the construction of the building,

is qualifying expenditure.

3

The qualifying expenditure is to be treated as incurred by the purchaser when the capital sum became payable.

4

If the relevant interest is sold more than once before the building is first used, subsection (2) has effect only in relation to the last of those sales.

296 Purchase of building which has been sold unused by developer

1

This section applies if—

a

expenditure is incurred by a developer on the construction of a building, and

b

the relevant interest in the building is sold by the developer in the course of the development trade before the building is first used.

2

If—

a

the sale of the relevant interest by the developer was the only sale of that interest before the building is used, and

b

a capital sum is paid by the purchaser for the relevant interest,

the capital sum is qualifying expenditure.

3

If—

a

the sale by the developer was not the only sale before the building is used, and

b

a capital sum is paid by the purchaser for the relevant interest on the last sale,

the lesser of that capital sum and the price paid for the relevant interest on its sale by the developer is qualifying expenditure.

4

The qualifying expenditure is to be treated as incurred by the purchaser when the capital sum referred to in subsection (2)(b) or (3)(b) became payable.

297 Purchase of used building from developer

299 Application of section 294

If—

a

capital expenditure is incurred on the construction of an EZ building, and

b

ii

section 296(1) (purchase of building which has been sold unused by developer).

2

Only a part of the qualifying expenditure given by section 295(2) or 296(2) or (3) (as the case may be) is qualifying enterprise zone expenditure.

3

The part of the qualifying expenditure that is qualifying enterprise zone expenditure is—

QEx \frac{E}{T}

where—

QE is the qualifying expenditure,

E is the part of the expenditure on the construction of the EZ building that is incurred within the time limit, and

T is the total expenditure on the construction of the building.

in relation to that qualifying expenditure, this Part applies as if the building had not been used before the date of the relevant sale.

4

Unless section 304 (cases where developer involved) applies—

Z = Lx \frac{E}{T}

and

N = L - Z

L is the lesser of—

(a) the capital sum paid for the relevant interest on the relevant sale, and

(b) the expenditure incurred on the construction of the building,

E is the part of the expenditure on the construction of the EZ building that is incurred within the time limit, and

T is the total expenditure on the construction of the building.

5

Any qualifying expenditure arising under this section or section 304 is to be treated as incurred when the capital sum on the relevant sale became payable.

304 Application of section 303 where developer involved

1

This section applies if section 303 applies but—

a

the expenditure on the construction of the building was incurred by a developer, and

b

the relevant interest in the building has been sold by the developer in the course of the development trade;

and in this section Z, N, E and T have the same meaning as in section 303.

2

If the sale by the developer is the relevant sale—

Z = Cx \frac{E}{T}

and

N = L - Lx \frac{E}{T}

where—

C is the capital sum paid for the relevant interest by the purchaser, and

L is the lesser of—

(a) the capital sum paid for the relevant interest on the relevant sale, and

(b) the expenditure incurred on the construction of the building.

3

If the sale by the developer is not the relevant sale—

Z = Dx \frac{E}{T}

and

N = D - Z

where D is the lesser of—

(a) the price paid for the relevant interest on its sale by the developer, and

(b) the capital sum paid for the relevant interest on the relevant sale.

Chapter 5 Initial allowances

305 Initial allowances for qualifying enterprise zone expenditure

1

A person who has incurred qualifying enterprise zone expenditure is entitled to an initial allowance in respect of the expenditure if the building on which the expenditure is incurred is to be an industrial building—

a

occupied by that person or a qualifying lessee, or

b

used by a qualifying licensee.

2

In this section—

“qualifying lessee” means a lessee under a lease to which the relevant interest is reversionary, and
“qualifying licensee” means a licensee of—
1. a
  the person incurring the qualifying expenditure, or
2. b
  a lessee of the person incurring the qualifying expenditure.

306 Amount of initial allowance and period for which allowance made

1

The amount of the initial allowance is 100% of the qualifying enterprise zone expenditure.

2

A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount.

3

The initial allowance is made for the chargeable period in which the qualifying expenditure is incurred.

4

For the purposes of subsection (3), expenditure incurred for the purposes of a trade, profession or vocation by a person about to carry it on is to be treated as if it had been incurred on the first day on which the person carries on the trade, profession or vocation.

307 Building not industrial building when first used etc.

1

No initial allowance is to be made under section 305 if, when the building is first used, it is not an industrial building.

2

An initial allowance which has been made in respect of a building which is to be an industrial building is to be withdrawn if, when the building is first used, it is not an industrial building.

3

An initial allowance which has been made in respect of a building which has not been used is to be withdrawn if the person to whom the allowance was made sells the relevant interest before the building is first used.

4

All such assessments and adjustments of assessments are to be made as are necessary to give effect to this section.

308 Grants affecting entitlement to initial allowances

1

No initial allowance is to be made in respect of expenditure to the extent that it is taken into account for the purposes of a relevant grant or relevant payment made towards that expenditure.

2

A grant or payment is relevant if it is—

a

a grant made under section 32, 34 or 56(1) of the Transport Act 1968 (c. 73),

b

a payment made under section 56(2) of the Transport Act 1968, or

c

a grant made under section 101 of the Greater London Authority Act 1999 (c. 29),

which is declared by the Treasury by order to be relevant for the purposes of the withholding of initial allowances.

3

If a relevant grant or relevant payment towards the expenditure is made after the making of an initial allowance, the allowance is to be withdrawn to that extent.

4

If the amount of the grant or payment is repaid by the grantee to the grantor, in whole or in part, the grant or payment is treated, to that extent, as never having been made.

5

All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (3) or (4).

6

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, payment or repayment was made.

Chapter 6 Writing-down allowances

309 Entitlement to writing-down allowance

1

A person is entitled to a writing-down allowance for a chargeable period if—

a

qualifying expenditure has been incurred on a building,

b

at the end of that chargeable period, the person is entitled to the relevant interest in the building in relation to that expenditure, and

c

at the end of that chargeable period, the building is an industrial building.

2

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

310 Basic rule for calculating amount of allowance

1

The basic rule is that the writing-down allowance for a chargeable period is—

a

in the case of qualifying enterprise zone expenditure, 25% of the expenditure, and

b

in the case of other qualifying expenditure, 4% of the expenditure.

2

The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

3

This basic rule does not apply if section 311 applies.

311 Calculation of allowance after sale of relevant interest

1

If a relevant event occurs, the writing-down allowance for any chargeable period ending after the event is—

RQEx \frac{A}{B}

where—

RQE is the amount of the residue of qualifying expenditure immediately after the event,

A is the length of the chargeable period, and

B is the length of the period from the date of the event to the end of the period of 25 years beginning with the day on which the building was first used.

A balancing allowance or balancing charge is made to or on the person entitled to the relevant interest in the building immediately before the balancing event.

4

No balancing adjustment is made if the balancing event occurs more than 25 years after the building was first used.

5

If more than one balancing event within section 315(1) occurs during a period when the building is not an industrial building, a balancing adjustment is made only on the first of them.

315 Main balancing events

1

The following are balancing events for the purposes of this Part—

a

the relevant interest in the building is sold;

b

if the relevant interest is a lease, the lease ends otherwise than on the person entitled to it acquiring the interest reversionary on it;

c

the building is demolished or destroyed;

d

the building ceases altogether to be used (without being demolished or destroyed);

e

if the relevant interest depends on the duration of a foreign concession, the concession ends.

2

“Foreign concession” means a right or privilege granted by the government of, or any municipality or other authority in, a territory outside the United Kingdom.

3

Other balancing events are provided for by—

section 328 (realisation of capital value where site of building is in enterprise zone);
section 343 (ending of highway concession);
section 350 (additional VAT rebates and balancing adjustments);

and a balancing event under this section may also occur as a result of section 317 (hotel not qualifying hotel for 2 years).

316 Proceeds from main balancing events

1

References in this Part to the proceeds from a balancing event within section 315(1) are to the amounts received or receivable in connection with the event, as shown in the Table—

Table

Balancing events and proceeds

1. Balancing event	2. Proceeds from event
1. The sale of the relevant interest.	The net proceeds of the sale.
2. The demolition or destruction of the building.	The net amount received for the remains of the building, 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.
3. The building ceases altogether to be used.	Any compensation of any description received in respect of the event, so far as it consists of capital sums.
4. A foreign concession ends.	Any compensation payable in respect of the relevant interest.

2

The amounts referred to in column 2 of the Table are those received or receivable by the person whose entitlement to a balancing allowance or liability to a balancing charge is in question.

317 Balancing event where hotel not qualifying hotel for 2 years

for the whole of the relevant period of ownership.

2

A balancing allowance is made if—

a

there are no proceeds from the balancing event, or

b

the proceeds from the balancing event are less than the residue of qualifying expenditure immediately before the event.

3

The amount of the balancing allowance is the amount of—

a

the residue (if there are no proceeds);

b

the difference (if the proceeds are less than the residue).

4

A balancing charge is made if the proceeds from the balancing event are more than the residue, if any, of qualifying expenditure immediately before the event.

5

The amount of the balancing charge is the amount of—

there are no proceeds from the balancing event or the proceeds are less than the starting expenditure, and

b

the net allowances made are less than the adjusted net cost of the building.

3

The amount of the balancing allowance is the amount of the difference between the adjusted net cost of the building and the net allowances made.

4

A balancing charge is made if the proceeds from the balancing event are equal to or more than the starting expenditure.

5

The amount of the balancing charge is an amount equal to the net allowances made.

6

A balancing charge is also made if—

a

there are no proceeds from the balancing event or the proceeds are less than the starting expenditure, and

b

the net allowances made are more than the adjusted net cost of the building.

7

The amount of the balancing charge is the amount of the difference between the net allowances made and the adjusted net cost of the building.

320 Overall limit on balancing charge

The amount of a balancing charge made on a person must not exceed the amount of the net allowances made.

Meaning of “the relevant period of ownership” etc.

321 The relevant period of ownership

The relevant period of ownership is the period beginning—

a

with the day on which the building was first used for any purpose, or

b

if the relevant interest has been sold after that day, with the day following that on which the sale (or the last such sale) occurred,

and ending with the day on which the balancing event occurs.

322 Starting expenditure

1

This section gives the starting expenditure for the purposes of this Chapter.

2

If the person to or on whom the balancing allowance or balancing charge falls to be made is the person who incurred the qualifying expenditure, that expenditure is the starting expenditure.

3

Otherwise, the starting expenditure is the residue of qualifying expenditure at the beginning of the relevant period of ownership.

4

If section 340 (treatment of demolition costs) applies, the starting expenditure is increased by an amount equal to the net cost of the demolition.

323 Adjusted net cost

The amount of the adjusted net cost is—

(S - P) x \frac{I}{R}

where—

S is the starting expenditure,

P is the amount of any proceeds from the balancing event,

I is the number of days in the relevant period of ownership on which the building was an industrial building or used for research and development, and

R is the number of days in the whole of the relevant period of ownership.

324 Net allowances

For the purposes of this Chapter, the amount of the net allowances made, in relation to any qualifying expenditure, is—

(I + WDA + RDA) - B

where—

I is the amount of any initial allowances made to the person in relation to that qualifying expenditure,

WDA is the amount of any writing-down allowances made to the person for chargeable periods ending on or before the date of the balancing event giving rise to the balancing adjustment,

RDA is the amount of any allowances under Part 6 (research and development allowances) made to the person for such chargeable periods, and

B is the amount of any balancing charges made on the person for such chargeable periods.

Balancing allowances restricted where sale subject to subordinate interest

325 Balancing allowances restricted where sale subject to subordinate interest

1

This section applies if—

a

the relevant interest in a building is sold subject to a subordinate interest,

b

the person entitled to the relevant interest immediately before the sale (“the former owner”) would, apart from this section, be entitled to a balancing allowance under this Chapter as a result of the sale, and

c

condition A or B is met.

2

Condition A is that—

a

the former owner,

b

the person who acquires the relevant interest, and

c

the person to whom the subordinate interest was granted,

or any two of them, are connected persons.

3

Condition B is that it appears that the sole or main benefit which might have been expected to accrue to the parties or any of them from the sale or the grant, or transactions including the sale or grant, was the obtaining of an allowance under this Part.

4

For the purpose of deciding what balancing adjustment is to be made in a case to which this section applies, the net proceeds to the former owner of the sale are to be increased—

a

by an amount equal to any premium receivable by him for the grant of the subordinate interest, and

b

if no rent, or no commercial rent, is payable in respect of the subordinate interest, by the amount by which the proceeds would have been greater if a commercial rent had been payable and the relevant interest had been sold in the open market.

5

But the net proceeds of the sale are not to be treated as being greater than the amount which secures that no balancing allowance is made.

6

If the terms on which a subordinate interest is granted are varied before the sale of the relevant interest—

a

any capital consideration for the variation is to be treated for the purposes of this section as a premium for the grant of the interest, and

b

the question whether any, and if so what, rent is payable in respect of the interest is to be determined by reference to the terms in force immediately before the sale.

7

If this section applies in relation to a sale to deny or reduce a balancing allowance, the residue of qualifying expenditure immediately after the sale is nevertheless calculated as if the balancing allowance had been made or not reduced.

326 Interpretation of section 325

1

In section 325—

“commercial rent” means such rent as may reasonably be expected to have been required in respect of the subordinate interest (having regard to any premium payable for the grant of the interest) if the transaction had been at arm’s length;
“premium” includes any capital consideration, except so much of any sum as corresponds to an amount of rent or profits falling to be calculated by reference to that sum under section 34 of ICTA;
“subordinate interest” means an interest in or right over the building, whether granted by the former owner or anyone else.

2

In section 325 and this section—

“capital consideration” means consideration which consists of a capital sum or would be a capital sum if it had consisted of a money payment, and
“rent” includes any consideration which is not capital consideration.

Qualifying enterprise zone expenditure: effect of realising capital value

327 Capital value provisions: application of provisions

Sections 328 to 331 apply only if expenditure on the construction of a building has been incurred—

a

at a time—

i

when the site of the building was wholly or mainly in an enterprise zone, and

ii

which was not more than 10 years after the site was first included in the zone, or

b

under a contract entered into at such a time.

328 Balancing adjustment on realisation of capital value

1

There is a balancing event if, while the building is an industrial building or after it has ceased to be one, any capital value is realised.

2

No balancing allowance is to be made because of a balancing event under this section.

3

The amount of capital value realised is to be treated as the proceeds from the balancing event.

4

If a balancing event under this section occurs—

a

section 319 (balancing adjustment where building not an industrial building etc. throughout) has effect as if, immediately after the balancing event, the starting expenditure were reduced by the amount of capital value realised, and

b

if the net proceeds of a sale of the relevant interest fall to be increased under section 325(4) (balancing allowances restricted where sale subject to subordinate interest), those proceeds as so increased are reduced by the amount of any capital value realised before the sale.

5

Capital value is realised if an amount of capital value is paid which is attributable to an interest in land (“the subordinate interest”) to which the relevant interest in the building is or will be subject.

6

The capital value is realised on the making of the payment.

7

The amount of capital value realised is the amount of capital value that is attributable to the subordinate interest under section 329.

329 Capital value that is attributable to subordinate interest

1

Capital value is attributable to the subordinate interest if it is paid—

a

in consideration of the grant of the subordinate interest,

b

instead of any rent payable by the person entitled to the subordinate interest,

c

in consideration of the assignment of such rent, or

d

in consideration of—

i

the surrender of the subordinate interest, or

ii

the variation or waiver of any of the terms on which it was granted.

2

If—

a

no premium is given in consideration of the grant of the subordinate interest or any premium so given is less than the commercial premium, and

b

no commercial rent is payable in respect of the subordinate interest,

capital value is attributable under subsection (1)(a) as if the commercial premium had been paid on and in consideration of the grant of the subordinate interest.

3

If any value given instead of any rent payable by the person entitled to the subordinate interest is less than the commercial amount, capital value is attributable under subsection (1)(b) as if the commercial amount had been paid.

4

If—

a

any rent payable in respect of the subordinate interest is assigned, but

b

no value is given in consideration of the assignment or any value so given is less than the commercial amount,

capital value is attributable under subsection (1)(c) as if the commercial amount had been given on and in consideration of the assignment.

5

If—

a

the subordinate interest is surrendered, or any of the terms on which the subordinate interest was granted are varied or waived, but

b

no value is given in consideration of the surrender, variation or waiver or any value so given is less than the commercial amount,

capital value is attributable under subsection (1)(d) as if the commercial amount had been given on and in consideration of the surrender, variation or waiver.

6

Capital value is not attributable to the subordinate interest if it is paid in consideration of the grant of a lease to which an election under section 290 (treating grant of lease exceeding 50 years as sale) applies.

330 Exception for payments more than 7 years after agreement

1

Capital value is not realised for the purposes of section 328 if the payment is made more than 7 years after—

a

the agreement under which the qualifying expenditure was incurred was entered into, or

the subsequent grant of an interest in land out of the relevant interest;

c

any other event on which capital value attributable to the subordinate interest would be paid or treated as paid.

331 Capital value provisions: interpretation

1

“Capital value” means any capital sum—

a

including what would have been a capital sum if it had been a money payment (and references to payment are to be read accordingly), but

b

excluding so much of any sum as corresponds to an amount of rent or profits calculated by reference to that sum under section 34 of ICTA (premiums etc. treated as rent).

2

“Interest in land” means—

a

a leasehold estate in the land, whether in the nature of a head lease, sub-lease or under-lease;

b

an easement or servitude;

c

a licence to occupy land.

3

References to granting an interest in land include agreeing to grant any such interest.

4

In section 329—

“commercial amount” means the amount that would have been given if the transaction had been at arm’s length,
“commercial premium” means the premium that would have been given if the transaction had been at arm’s length, and
“commercial rent” means such rent as may reasonably be expected to have been required in respect of the subordinate interest (having regard to any premium paid in consideration of the grant of the interest) if the transaction had been at arm’s length.

5

In the application of section 329 to Scotland, references to assignment are to be read as references to assignation.

Chapter 8 Writing off qualifying expenditure

332 Introduction

For the purposes of this Part qualifying expenditure is written off to the extent and at the times specified in this Chapter.

333 Writing off initial allowances

If an initial allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the time when the building is first used.

334 Writing off writing-down allowances

1

If a writing-down allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made.

2

If a balancing event occurs at the end of the chargeable period referred to in subsection (1), the amount written off under that subsection is to be taken into account in calculating the residue of qualifying expenditure immediately before the event to determine what balancing adjustment (if any) is to be made.

335 Writing off research and development allowances

2

If a balancing allowance is made, the amount by which the residue of qualifying expenditure before the sale exceeds the net proceeds of the sale is written off at the time of the sale.

3

If a balancing charge is made, the amount of the residue of qualifying expenditure is increased at the time of the sale by the amount of the charge.

4

But if the balancing charge is made under section 319(6) (difference between net allowances made and adjusted net cost), the residue of qualifying expenditure immediately after the sale is limited to the net proceeds of the sale.

338 Writing off capital value which has been realised

If a balancing event within section 328 occurs (realisation of capital value), an amount equal to any capital value realised is written off at the time of the event.

B’s periods of account for that trade had, in the case of each tax year, ended immediately before the beginning of the next tax year.

340 Treatment of demolition costs

b

the Scottish Ministers,

c

the National Assembly for Wales, or

d

the Department for Regional Development in Northern Ireland.

342 The relevant interest

1

For the purposes of Chapter 3 (the relevant interest in the building) as it applies to expenditure incurred on the construction of a road, a highway concession is not to be treated as an interest in the road.

2

But if the person who incurred the expenditure on the construction of the road—

a

was not entitled to an interest in the road when he incurred the expenditure, but

b

was at that time entitled to a highway concession in respect of the road,

Chapter 10 Additional VAT liabilities and rebates

Introduction

345 Introduction

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, and the time when, an additional VAT liability or an additional VAT rebate accrues are given by section 549.

Additional VAT liabilities

346 Additional VAT liabilities and initial allowances

1

This section applies if—

a

a person was entitled to an initial allowance in respect of qualifying enterprise zone expenditure,

b

the person entitled to the relevant interest in relation to that expenditure incurs an additional VAT liability in respect of that expenditure,

c

the additional VAT liability is incurred at a time when the building is, or is to be, an industrial building—

i

occupied by the person entitled to the relevant interest or a qualifying lessee, or

ii

used by a qualifying licensee, and

d

the additional VAT liability is incurred not more than 10 years after the site of the building was first included in the enterprise zone.

2

If this section applies, the person entitled to the relevant interest is entitled to an initial allowance on the amount of the additional VAT liability.

3

The amount of the initial allowance is 100% of the amount of the additional VAT liability.

4

A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount.

5

The allowance is made for the chargeable period in which the additional VAT liability accrues.

6

The persons mentioned in subsection (1)(a) and (b) need not be the same.

347 Additional VAT liabilities and writing-down allowances

In the case of a person who—

a

is entitled to an allowance or liable to a charge in respect of a commercial building, and

b

occupies the building in the course of a profession or vocation,

the references in subsection (1) to a trade are to be read as references to the profession or vocation.

3

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

in relation to a writing-down allowance, the end of the relevant period;

c

in relation to a balancing allowance or balancing charge, the time immediately before the event giving rise to the allowance or charge.

354 Buildings temporarily out of use

1

This section applies if a person is entitled to an allowance or liable to a charge for a chargeable period during which the building is treated as an industrial building under section 285 (building still industrial building despite temporary disuse).

2

If, when the building was last in use as an industrial building—

a

it was in use for the purposes of a trade which has since been permanently discontinued, or

b

the relevant interest in the building was subject to a lease or a licence which has since come to an end,

section 353(4) applies to the person as if the relevant interest were subject to a lease or licence at the relevant time.

3

If—

a

the person is liable to a balancing charge, and

b

when the building was last in use as an industrial building, it was in use as an industrial building for the purposes of a trade which was carried on by the person but which has since been permanently discontinued,

the same deductions may be made from the amount of the balancing charge as may be made under section 105 of ICTA (deductions allowed in case of post-cessation receipts) from an amount chargeable to tax under section 103 or 104(1) of ICTA.

4

Subsection (3) does not affect the making of any deduction allowed under any other provision of the Tax Acts.

5

For the purposes of this section the permanent discontinuance of a trade does not include an event treated as a permanent discontinuance under section 113(1) or 337(1) of ICTA (change in persons carrying on a trade etc. and effect of company ceasing to trade etc.).

6

In this section “trade”, in relation to a commercial building, includes a profession or vocation.

355 Buildings for miners etc.: carry-back of balancing allowances

b

partly to assets representing other expenditure,

to an interest in or right over the building, or

b

to other arrangements made with respect to such an interest or right;

and for this purpose it is immaterial whether the interest or right in question is granted by the person entitled to the relevant interest or another person.

4

Arrangements contain a provision having an artificial effect on pricing to the extent that they go beyond what could reasonably have been regarded as required in comparable commercial transactions by the market conditions prevailing when the arrangements were entered into.

5

“Comparable commercial transactions” means transactions—

a

involving interests in or rights over buildings of the same kind as (or of a similar kind to) the building to which the arrangements relate, and

b

made by persons dealing with each other at arm’s length in the open market.

358 Requisitioned land

1

This section applies in relation to any period (“period of requisition”) for which compensation—

a

is payable, or

b

but for any agreement would be payable,

under section 2(1)(a) of the Compensation (Defence) Act 1939 (c. 75).

2

This Part has effect in relation to the period of requisition as if the Crown had been in possession of the land for that period under a lease.

3

If a person carrying on a trade is authorised by the Crown to occupy the land (or part of it) during the whole or a part of the period of requisition, this Part has effect as if the Crown had granted a sub-lease of the land (or that part of it) to the occupier.

4

If subsection (2) or (3) applies, references in this Part to—

a

the surrender of a leasehold interest,

b

a leasehold interest being extinguished on the person entitled to it acquiring the interest which is reversionary on it, or

c

the merger of a leasehold interest,

apply (with the necessary modifications) in relation to the lease under subsection (2) or the sub-lease under subsection (3).

5

If the person who (subject to the rights of the Crown) is entitled to possession of the land pays any sum to—

a

the Crown, or

b

if subsection (3) applies, the occupier,

in respect of a building constructed on the land during the period of requisition, the sum is to be treated for the purposes of this Part as paid in consideration of the surrender of the lease or sub-lease (as the case may be).

359 Provisions applying on termination of lease

1

This section applies for the purposes of this Part if a lease is terminated.

2

If, with the consent of the lessor, the lessee of a building remains in possession of the building after the termination without a new lease being granted to him the lease is treated as continuing so long as the lessee remains in possession.

3

If on the termination a new lease is granted to the lessee as a result of the exercise of an option available to him under the terms of the first lease, the second lease is treated as a continuation of the first.

4

If on the termination the lessor pays a sum to the lessee in respect of a building comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment.

5

If on the termination—

a

another lease is granted to a different lessee, and

b

in connection with the transaction that lessee pays a sum to the person who was the lessee under the first lease,

capital expenditure has been incurred on the construction of a building (such as a farmhouse, farm building or cottage) or on the construction of fences or other works,

b

the expenditure was incurred—

i

by a person having a freehold or leasehold interest in land in the United Kingdom occupied wholly or mainly for the purposes of husbandry, and

ii

for the purposes of husbandry on that land, and

c

the expenditure, or other expenditure, is qualifying expenditure.

2

In this Part—

a

“agricultural building” means a building, fence or other works referred to in subsection (1)(a), and

b

“the related agricultural land” means the land referred to in subsection (1)(b).

3

Allowances under this Part are made to the person who for the time being has the relevant interest (see Chapter 2) in relation to the qualifying expenditure (see Chapter 3).

362 Meaning of “husbandry”

1

In this Part “husbandry” includes—

a

any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption, and

b

the cultivation of short rotation coppice.

2

“Short rotation coppice” has the meaning given by section 154(3) of FA 1995 (meaning for general tax purposes: tree species planted at high density where stems harvested at intervals of less than 10 years).

363 Expenditure on the construction of a building

For the purposes of this Part, expenditure on the construction of a building does not include expenditure incurred on the acquisition of land or rights in or over land.

Chapter 2 The relevant interest

364 General rule as to what is the relevant interest

1

The relevant interest in relation to any qualifying expenditure is the freehold or leasehold interest in the related agricultural land to which the person who incurred the expenditure on the construction of the agricultural building was entitled when the expenditure was incurred.

2

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

3

If, when the expenditure was incurred—

a

the person was entitled to freehold and leasehold interests or to more than one leasehold interest in the related agricultural land, and

b

one of those interests was reversionary on all the others,

the reversionary interest is the relevant interest.

365 Effect of creation of subordinate lease

An interest does not cease to be the relevant interest merely because of the creation of a lease or other interest to which that interest is subject.

366 Interest conveyed or assigned by way of security

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 Part as having that interest, and not the creditor.

367 Merger of leasehold interest

1

If the relevant interest is a leasehold interest which is extinguished on—

a

being surrendered, or

b

the person entitled to it acquiring the interest which is reversionary on it,

the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished.

2

If the person who owns the interest into which the leasehold interest is merged is not the same as the person who owned the leasehold interest, the relevant interest is to be treated for the purposes of this Part as acquired by the owner of the interest into which the leasehold interest is merged.

3

Subsection (1) does not apply if a new lease of the whole or a part of the related agricultural land is granted to take effect on the extinguishment of the former leasehold interest.

368 Provisions applying on ending of lease

1

only such part of the expenditure as, on a just and reasonable apportionment, is referable to use for the purposes of husbandry is to be taken into account under subsection (1).

370 Purchase of relevant interest before first use of agricultural building

1

This section applies if—

a

capital expenditure has been incurred on the construction of an agricultural building,

b

the expenditure was incurred for the purposes of husbandry as mentioned in section 361,

c

the relevant interest is sold before the building is first used, and

d

a capital sum is paid by the purchaser for the relevant interest.

2

The lesser of—

a

the capital expenditure incurred on the construction of the agricultural building, and

b

the capital sum paid by the purchaser,

a

when the building is first used, it is not used for the purposes of husbandry, or

b

the person to whom the allowance was made sells the relevant interest before the building is first used.

3

All such assessments and adjustments of assessments are to be made as are necessary to give effect to this section.

1

This section applies if—

a

section 375 applies, and

b

the acquisition is a balancing event under section 381 (as a result of an election made in accordance with section 382).

2

The writing-down allowance for a chargeable period ending after the event is—

RQEx \frac{A}{B}

where—

RQE is the residue of qualifying expenditure immediately after the event,

A is the length of the chargeable period, and

B is the length of the period from the date of the event to the end of the writing-down period.

3

On any later acquisition that is a balancing event under section 381, the writing-down allowance is further adjusted in accordance with this section.

4

The residue of qualifying expenditure immediately after a balancing event is calculated as mentioned in section 386, taking into account any balancing adjustment falling to be made on the event.

5

For this purpose, any balancing allowance on that or any previous balancing event which is reduced or denied under section 389 (sale subject to subordinate interest) is to be treated as having been made in full.

6

The allowance is proportionately reduced if the person entitled to the allowance is not entitled to the relevant interest in relation to the expenditure in question during part of the chargeable period.

377 Chargeable period when balancing adjustment made

A person is not entitled to a writing-down allowance for a chargeable period in which a balancing allowance or balancing charge is made to or on him in respect of the qualifying expenditure.

378 Allowance limited to residue of qualifying expenditure

1

The amount of a writing-down allowance for a chargeable period is limited to the residue of qualifying expenditure immediately before it is made or would, apart from this section, be made.

2

The residue of qualifying expenditure is calculated in accordance with section 386.

379 Final writing-down allowance

1

In this section “the final writing-down allowance” means the writing-down allowance which is made—

a

to the person who is entitled to the relevant interest when the writing-down period ends, and

b

for the chargeable period in which it ends.

1

An election relating to an event within section 381(2)(a) must be made jointly by the former owner and the new owner.

2

No election relating to such an event may be made if it appears that the sole or main benefit which might have been expected to accrue to the parties, or any of them, from—

a

the acquisition, or

b

transactions of which the acquisition is one,

is the obtaining of an allowance, or a greater allowance, under this Part.

3

In determining for the purposes of subsection (2) what benefit might have been expected to accrue, sections 568 and 573 (sales treated as being for alternative amount) are to be disregarded.

4

An election relating to an event within section 381(2)(b) or (c) must be made by the person entitled to the relevant interest immediately before the event.

5

No election relating to any event may be made if any person by whom the election is to be made is not within the charge to tax.

6

The election must be made by notice given to the Inland Revenue—

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.

7

“The relevant chargeable period” means the chargeable period in which the event in question occurs.

383 Proceeds from balancing events

1

References in this Part to the proceeds from a balancing event are to the amounts received or receivable in connection with the event, as shown in the Table—

Table

Balancing events and proceeds

1. Balancing event	2. Proceeds from event
1. The sale of the relevant interest.	The net proceeds of the sale.
2. The acquisition of the relevant interest under section 368(3) (ending of lease where incoming lessee makes payment to outgoing lessee).	The net amount of the payment to the outgoing lessee.
3. The demolition or destruction of the agricultural building.	The net amount received for the remains of the building, 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. The agricultural building ceases altogether to be used.	Any compensation of any description received in respect of the event, so far as it consists of capital sums.

2

The amounts referred to in column 2 of the Table are those received or receivable by the person whose entitlement to a balancing allowance or liability to a balancing charge is in question.

384 Exclusion of proportion of proceeds

1

The amounts referred to in column 2 of the Table in section 383 do not include any amount which, on a just and reasonable apportionment, is attributable to assets representing expenditure in respect of which an allowance cannot be made under this Part.

2

If the qualifying expenditure in respect of which the balancing adjustment is made was restricted as a result of—

a

subsection (3) or (4) of section 369 (restrictions on expenditure on farmhouse), or

b

subsection (5) of that section (restriction on expenditure on buildings to be used partly for purposes other than husbandry),

a corresponding proportion only of the amounts referred to in the Table in section 383 is to be treated as proceeds from the balancing event.

3

Subsection (1) does not affect sections 562, 563 and 564(1) (apportionment and procedure for determining apportionment).

Calculation of balancing adjustments

385 Calculation of balancing adjustment

1

A balancing allowance is made if—

a

there are no proceeds from the balancing event, or

b

the proceeds from the balancing event are less than the residue of qualifying expenditure immediately before the event.

2

The amount of the balancing allowance is the amount of—

a

the residue (if there are no proceeds);

b

the difference (if the proceeds are less than the residue).

3

A balancing charge is made if the proceeds from the balancing event are more than the residue of qualifying expenditure immediately before the event.

4

The amount of the balancing charge is the amount of the difference.

386 The residue of qualifying expenditure

The residue of qualifying expenditure at any time is—

QE + B - A

where—

QE is the amount of qualifying expenditure,

B is the total amount of balancing charges previously made under this Part in respect of the expenditure, and

A is the total amount of any allowances (including balancing allowances) previously made under this Part in respect of that expenditure (whether to the same or to different persons).

387 Overall limit on balancing charge

The amount of a balancing charge made on a person in respect of any qualifying expenditure must not exceed the total allowances made under this Part to the person in respect of the expenditure for chargeable periods ending before that in which the balancing event occurs.

388 Acquisition of relevant interest in part of land, etc.

1

This section applies if a balancing event relates to—

a

the acquisition of the relevant interest in part only of the related agricultural land in which the interest subsisted when the qualifying expenditure was incurred, or

b

only part of the agricultural building.

2

Entitlement or liability to, and the amount of, the balancing adjustment, are determined by reference to the part of the qualifying expenditure that is properly attributable to the part of the related agricultural land or (as the case may be) the part of the agricultural building.

3

Section 377 (no writing-down allowance for qualifying expenditure for the chargeable period in which a balancing adjustment is made) applies to the part of the qualifying expenditure referred to in subsection (2).

389 Balancing allowances restricted where sale subject to subordinate interest etc.

1

This section applies if—

a

the relevant interest is sold subject to a subordinate interest,

b

c

condition A or B is met.

2

Condition A is that—

a

the former owner,

b

the person who acquires the relevant interest, and

c

the person to whom the subordinate interest was granted,

or any two of them, are connected persons.

3

4

For the purpose of deciding what balancing adjustment is to be made in a case to which this section applies, the net proceeds to the former owner of the sale are to be increased—

a

by an amount equal to any premium receivable by him for the grant of the subordinate interest, and

b

5

But the net proceeds of the sale are not to be treated as being greater than the amount which secures that no balancing allowance is made.

6

If the terms on which a subordinate interest is granted are varied before the sale of the relevant interest—

a

any capital consideration for the variation is to be treated for the purposes of this section as a premium for the grant of the interest, and

b

the question whether any, and if so what, rent is payable in respect of the interest is to be determined by reference to the terms in force immediately before the sale.

7 390 Interpretation of section 389

1

In section 389—

“commercial rent” means such rent as may reasonably be expected to have been required in respect of the subordinate interest (having regard to any premium payable for the grant of the interest) if the transaction had been at arm’s length;
“premium” includes any capital consideration, except so much of any sum as corresponds to an amount of rent or profits falling to be calculated by reference to that sum under section 34 of ICTA;
“subordinate interest” means an interest in or right over the related agricultural land, whether granted by the former owner or anyone else.

2

In section 389 and this section—

“capital consideration” means consideration which consists of a capital sum or would be a capital sum if it had consisted of a money payment, and
“rent” includes any consideration which is not capital consideration.

Chapter 6 Supplementary provisions

Giving effect to allowances and charges

391 Trades

An allowance or charge to which a person is entitled or liable under this Part 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.

392 Schedule A businesses

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”, “lessor” and “leasehold interest” are to be read accordingly).

4

In the application of this Part to Scotland—

a

“leasehold interest” means the interest of a tenant in property subject to a lease, and

b

C16F94Part 4A FLAT CONVERSION ALLOWANCES

Annotations:

Amendments (Textual)

F94

Pt. 4A (ss. 393A-393W) inserted (with effect as mentioned in s. 67 of the amending Act) by Finance Act 2001 (c. 9), s. 67, Sch. 19 Pt. 1

Modifications etc. (not altering text)

C16

Pt. 4A modified (24.2.2003) by Proceeds of Crime Act 2002 (c. 29), s. 458(1), Sch. 10 para. 22 (with Sch. 10 para. 25); S.I. 2003/120, art. 2, Sch. (with arts. 34) (as amended (20.2.2003) by S.I. 2003/333, art. 14)

Chapter 1 INTRODUCTION

393A Flat conversion allowances

b

was used only for storage,

authorised for use within class 1, 2, 3, 4 or 15(a) specified in the Schedule to the Planning (Use Classes) Order (Northern Ireland) 1989, or

ii

authorised for a use specified in Article 3(5)(b), (c) or (h) of that Order.

3

The attic storey does not count for the purposes of subsection (1)(c) unless it is or has been in use as a dwelling or part of a dwelling.

4

The requirement in subsection (1)(d) is met even if the building has been extended on or after 1st January 1980, provided any extension was completed on or before 31st December 2000.

5

Treasury regulations may make further provision as to the circumstances in which a building is, or is not, a qualifying building.

393D Meaning of “qualifying flat”

1

In this Part “ qualifying flat ” means a flat in respect of which the following requirements are met—

a

the flat must be in a qualifying building,

b

the flat must be suitable for letting as a dwelling,

c

the flat must be held for the purpose of short-term letting,

d

it must be possible to gain access to the flat without using the part of the ground floor of the building that is authorised for business use (as defined in section 393C(2)),

e

the flat must not have more than 4 rooms,

f

the flat must not be a high value flat,

g

the flat must not be (or have been) created or renovated as part of a scheme involving the creation or renovation of one or more high value flats, and

h

the flat must not be let to a person connected with the person who incurred the expenditure on its conversion or renovation.

2

In subsection (1)(c) “ short-term letting ” means letting as a dwelling on a lease for a term (or, in Scotland, period) of not more than 5 years.

3

For the purposes of subsection (1)(e), the following are ignored in determining the number of rooms in a flat—

a

any kitchen or bathroom, and

b

any closet, cloakroom or hallway not exceeding 5 square metres in area.

4

For the purposes of this Part, if a flat is a qualifying flat immediately before a period when it is temporarily unsuitable for letting as a dwelling, it is to be treated as being a qualifying flat during that period.

5

Treasury regulations may make further provision as to the circumstances in which a flat is, or is not, a qualifying flat.

393E High value flats

1

For the purposes of section 393D(1) a flat is a high value flat if the notional rent exceeds the relevant limit set out in the Table in subsection (5).

2

The “ notional rent ” means the rent that could reasonably be expected for the flat on the relevant date, on the assumption that, on that date—

a

the conversion or renovation has been completed,

b

the flat is let furnished,

c

the lease does not require the tenant to pay a premium or make any other payments to the landlord or a person connected with the landlord,

d

the tenant is not connected with the person incurring the expenditure on the conversion or renovation of the flat, and

e

in the case of a flat in England or Wales or Scotland, the flat is let on a shorthold tenancy.

3

The “ relevant date ” means the date on which expenditure on—

a

the conversion of part of the building into the flat, or

b

(as the case may be) the renovation of the flat,

is first incurred.

4

“ Shorthold tenancy ” means—

a

in the case of a flat in England or Wales, an assured shorthold tenancy;

b

in the case of a flat in Scotland, a short assured tenancy.

5

The limit for the notional rent is as shown in the Table—

TABLE: NOTIONAL RENT LIMITS

Number of rooms in flat	Flats in Greater London	Flats elsewhere
1 or 2 rooms	£350 per week	£150 per week
3 rooms	£425 per week	£225 per week
4 rooms	£480 per week	£300 per week

6

Treasury regulations may make provision amending the notional rent limits in the Table in subsection (5).

7

Section 393D(3) (determination of number of rooms in flat) applies for the purposes of this section.

Chapter 4 THE RELEVANT INTEREST IN THE FLAT

is treated as having had that interest when the expenditure was incurred.

Chapter 5 INITIAL ALLOWANCES

393H Initial allowances

1

A person who has incurred qualifying expenditure in respect of a flat is entitled to an initial allowance in respect of the expenditure.

2

The amount of the initial allowance is 100% of the qualifying expenditure.

3

A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount.

4

The initial allowance is made for the chargeable period in which the qualifying expenditure is incurred.

393I Flat not qualifying flat or relevant interest sold before flat first let

4

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

393K Amount of allowance

1

The writing-down allowance for a chargeable period is 25% of the qualifying expenditure.

2

The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

3

The amount of the writing-down allowance for a chargeable period is limited to the residue of qualifying expenditure.

4

For this purpose the residue is ascertained immediately before writing off the writing-down allowance at the end of the chargeable period.

393L Meaning of “the residue of qualifying expenditure”

The residue of qualifying expenditure is the qualifying expenditure that has not yet been written off in accordance with Chapter 8.

Chapter 7 BALANCING ADJUSTMENTS

393M When balancing adjustments are made

1

A balancing adjustment is made if—

a

qualifying expenditure has been incurred in respect of a flat, and

b

a balancing event occurs.

2

A balancing adjustment is either a balancing allowance or a balancing charge and is made for the chargeable period in which the balancing event occurs.

3

A balancing allowance or balancing charge is made to or on the person who incurred the qualifying expenditure.

4

No balancing adjustment is made if the balancing event occurs more than 7 years after the time when the flat was first suitable for letting as a dwelling.

5

If more than one balancing event occurs, a balancing adjustment is made only on the first of them.

393N Balancing events

1

The following are balancing events for the purposes of this Part—

a

the relevant interest in the flat is sold;

b

a long lease of the flat is granted out of the relevant interest in consideration of the payment of a capital sum;

c

if the relevant interest is a lease, the lease ends otherwise than on the person entitled to it acquiring the interest reversionary on it;

d

the person who incurred the qualifying expenditure dies;

e

the flat is demolished or destroyed;

f

the flat ceases to be a qualifying flat (without being demolished or destroyed).

2

Section 393J(2) and (3) (meaning of “ long lease ”) apply for the purposes of subsection (1)(b).

393O Proceeds from balancing events

1

References in this Part to the proceeds from a balancing event are to the amounts received or receivable in connection with the event, as shown in the Table—

TABLE: BALANCING EVENTS AND PROCEEDS

1. Balancing event	2. Proceeds from event
1. The sale of the relevant interest.	The net proceeds of the sale.
2. The grant of a long lease out of the relevant interest.	If the capital sum paid in consideration of the grant is less than the commercial premium, the commercial premium.
	In any other case, the capital sum paid in consideration of the grant.
3. The coming to an end of a lease, where a person entitled to the lease and a person entitled to any superior interest are connected persons.	The market value of the relevant interest in the flat at the time of the event.
4. The death of the person who incurred the qualifying expenditure.	The residue of qualifying expenditure immediately before the death.
5. The demolition or destruction of the flat.	The net amount received for the remains of the flat, 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.
6. The flat ceases to be a qualifying flat.	The market value of the relevant interest in the flat at the time of the event.

2

The amounts referred to in column 2 of the Table are those received or receivable by the person who incurred the qualifying expenditure.

3

In Item 2 of the Table “ the commercial premium ” means the premium that would have been given if the transaction had been at arm’s length.

any initial allowances made to the person in respect of the expenditure, and

b

any writing-down allowances made to the person in respect of the expenditure for chargeable periods ending on or before the date of the balancing event giving rise to the balancing adjustment.

Chapter 8 WRITING OFF QUALIFYING EXPENDITURE

393Q Introduction

For the purposes of this Part qualifying expenditure is written off to the extent and at the times specified in this Chapter.

393R Writing off initial allowances and writing-down allowances

1

If an initial allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the time when the flat is first suitable for letting as a dwelling.

2

If a writing-down allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made.

3

If a balancing event occurs at the end of the chargeable period referred to in subsection (2), the amount written off under that subsection is to be taken into account in calculating the residue of qualifying expenditure immediately before the event to determine what balancing adjustment (if any) is to be made.

393S Treatment of demolition costs

If the sum paid for the sale of the relevant interest in a flat is attributable—

a

partly to assets representing expenditure for which an allowance can be made under this Part, and

b

partly to assets representing other expenditure,

only so much of the sum as on a just and reasonable apportionment is attributable to the assets referred to in paragraph (a) is to be taken into account for the purposes of this Part.

2

Subsection (1) applies to other proceeds from a balancing event in respect of a flat as it applies to a sum given for the sale of the relevant interest in the flat.

3

Subsection (1) does not affect any other provision of this Act requiring an apportionment of the proceeds of a balancing event.

393V Provisions applying on termination of lease

1

This section applies for the purposes of this Part if a lease is terminated.

2

If, with the consent of the lessor, the lessee of a flat remains in possession of the flat after the termination without a new lease being granted to him the lease is treated as continuing so long as the lessee remains in possession.

3

4

If on the termination the lessor pays a sum to the lessee in respect of a flat comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment.

5

If on the termination—

a

another lease is granted to a different lessee, and

b

in connection with the transaction that lessee pays a sum to the person who was the lessee under the first lease,

the two leases are to be treated as if they were the same lease which had been assigned by the lessee under the first lease to the lessee under the second lease in consideration of the payment.

393W Meaning of “lease” etc.

1

In this Part “ 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 ”, “ lessor ” and “ leasehold interest ” are to be read accordingly).

2

In the application of this Part to Scotland—

a

“ leasehold interest ” (or “ leasehold estate ”) means the interest of a tenant in property subject to a lease, and

b

Part 5 Mineral extraction allowances

Chapter 1 Introduction

394 Mineral extraction allowances

1

Allowances are available under this Part if a person carries on a mineral extraction trade and incurs qualifying expenditure.

2

In this Part “mineral extraction trade” means a trade which consists of, or includes, the working of a source of mineral deposits.

3

In this Part “mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth, and for this purpose geothermal energy is to be treated as a natural deposit.

4

Any reference in this Part to mineral deposits is to mineral deposits of a wasting nature.

5

In this Part “source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

395 Qualifying expenditure

1

In this Part “qualifying expenditure” means—

a

expenditure on mineral exploration and access which is qualifying expenditure under Chapter 2,

b

expenditure on acquiring a mineral asset which is qualifying expenditure under Chapter 3,

c

expenditure which is treated as qualifying expenditure on mineral exploration and access under section 407(5) or 408(2), and

d

expenditure which is qualifying expenditure under Chapter 5 (expenditure on works likely to become valueless and post-trading restoration expenditure).

But this is subject to subsections (2) and (3).

2

Expenditure is not qualifying expenditure if it is excluded from being qualifying expenditure by section 399.

3

Chapter 4 contains provisions limiting in certain cases the amount of expenditure which is qualifying expenditure.

396 Meaning of “mineral exploration and access”

1

In this Part “mineral exploration and access” means—

a

searching for or discovering and testing the mineral deposits of a source, or

b

winning access to such deposits.

2

Expenditure on seeking planning permission necessary to enable—

a

mineral exploration and access to be undertaken at any place, or

b

any mineral deposits to be worked,

is treated as expenditure on mineral exploration and access if planning permission is not granted.

3

“Seeking planning permission” includes pursuing an appeal against a refusal to grant planning permission.

397 Meaning of “mineral asset”

In this Part “mineral asset” means—

a

any mineral deposits or land comprising mineral deposits, or

b

any interest in or right over such deposits or land.

398 Relationship between main types of qualifying expenditure

Subject to Chapter 4, expenditure on—

a

the acquisition of, or of rights over, the site of a source of mineral deposits, or

b

the acquisition of, or of rights over, mineral deposits,

is to be treated as expenditure on acquiring a mineral asset and not as expenditure on mineral exploration and access.

399 Expenditure excluded from being qualifying expenditure

1

Expenditure on the provision of plant or machinery is not qualifying expenditure except as provided by section 402 (pre-trading expenditure on plant or machinery).

2

Expenditure on works constructed wholly or mainly for subjecting the raw product of a source to any process is not qualifying expenditure, unless the process is designed for preparing the raw product for use as such.

3

Expenditure on buildings or structures provided for occupation by, or for the welfare of, workers is not qualifying expenditure except as provided by section 415.

4

Expenditure on a building is not qualifying expenditure if the whole of the building was constructed for use as an office.

5

Subsection (6) applies if part of a building or structure has been constructed for use as an office.

6

The expenditure on the office part is not qualifying expenditure if it was more than 10% of the capital expenditure incurred on the construction of the whole.

Chapter 2 Qualifying expenditure on mineral exploration and access

400 Qualifying expenditure on mineral exploration and access

1

3

If it is, so much of the pre-trading exploration expenditure as exceeds any relevant receipts is qualifying expenditure.

4

If it is not, only so much of the pre-trading exploration expenditure as—

a

was incurred within 6 years ending on the first day of trading, and

b

exceeds any relevant receipts,

is qualifying expenditure.

5

“Relevant receipts” means capital sums received—

a

by the person incurring the pre-trading exploration expenditure referred to in subsection (3) or (4), and

b

before the first day of trading,

so far as they are reasonably attributable to that expenditure.

402 Pre-trading expenditure on plant or machinery

1

This section applies if—

a

a person incurs pre-trading expenditure on the provision of plant or machinery for mineral exploration and access,

b

the plant or machinery was used in connection with mineral exploration and access at a source, and

c

before the first day of trading, the plant or machinery is sold, demolished, destroyed or abandoned.

2

The amount of the expenditure (“pre-trading expenditure on plant or machinery”) that is qualifying expenditure depends on whether mineral exploration and access is continuing at the source on the first day of trading.

3

If it is, so much of the pre-trading expenditure on plant or machinery as exceeds any relevant receipts is qualifying expenditure.

4

If it is not, only so much of the pre-trading expenditure on plant or machinery as—

a

was incurred within 6 years ending on the first day of trading, and

b

exceeds any relevant receipts,

is qualifying expenditure.

5

“Relevant receipts” means—

a

if the plant or machinery is sold, the net proceeds to the person of the sale;

b

if the plant or machinery is demolished or destroyed, the net amount received by the person for the remains of the plant or machinery, together with—

i

any insurance money received by him in respect of the demolition or destruction, and

ii

any other compensation of any description so received, so far as it consists of capital sums;

c

if the plant or machinery is abandoned—

i

any insurance money received by the person in respect of the abandonment, and

ii

any other compensation of any description so received, so far as it consists of capital sums.

Chapter 3 Qualifying expenditure on acquiring a mineral asset

403 Qualifying expenditure on acquiring a mineral asset

1

Expenditure on acquiring a mineral asset is qualifying expenditure if—

a

it is capital expenditure, and

b

it is incurred for the purposes of a mineral extraction trade.

2

Subsection (1) is subject to—

section 404 (exclusion of undeveloped market value of land), and
section 406 (reduction where premium relief previously allowed).

3

In this Chapter “the buyer”, in relation to the acquisition of a mineral asset, means the person acquiring it.

References in this section to the time of acquisition are not affected by section 434 (expenditure incurred before trade carried on).

7

This section does not apply to the buyer’s expenditure if an election under section 569 (election to treat sale as being for alternative amount) is made in relation to the acquisition.

405 Qualifying expenditure where buildings or structures cease to be used

1

This section applies if—

a

section 404 (exclusion of undeveloped market value of land) applies to limit the buyer’s qualifying expenditure on acquiring the mineral asset,

b

the undeveloped market value of the interest in land includes the value of any buildings or structures on the land, and

c

at the time of the acquisition, or at any later time, the buildings or structures permanently cease to be used for any purpose.

2

The buyer is to be treated—

a

as having incurred qualifying expenditure, on acquiring a mineral asset, of an amount equal to the unrelieved value of the buildings or structures, and

b

as having incurred it when the buildings or structures permanently cease to be used for any purpose.

3

The unrelieved value of the buildings or structures is—

V - (A - B)

where—

V is the value of the buildings or structures at the date of the acquisition (disregarding any value properly attributable to the land on which they stand),

A is the amount of any allowances made to the buyer under the provisions of this Act other than Part 10 (assured tenancy allowances) in respect of—

(a) the buildings or structures, or

(b) assets in the buildings or structures, and

B is the amount of any balancing charges made on the buyer under those provisions in respect of those buildings or structures or assets in them.

4

References in this section to the time of acquisition are not affected by section 434 (time when expenditure incurred).

406 Reduction where premium relief previously allowed

1

This section applies if—

a

the mineral asset is or includes an interest in land, and

b

for chargeable periods previous to the chargeable period for which the buyer first becomes entitled to an allowance under this Part in respect of the expenditure on acquiring the mineral asset, deductions are made under section 87 of ICTA (deductions in calculating trading profits where premiums etc. taxable).

2

The amount of the expenditure on the acquisition of the mineral asset that is qualifying expenditure is reduced by—

Dx \frac{E}{T}

where—

D is the total of the deductions made under section 87 of ICTA in the earlier chargeable periods mentioned in subsection (1)(b),

E is the amount of the capital expenditure on the acquisition of the interest in land that would have been qualifying expenditure if the buyer had been entitled to allowances under this Part in those earlier periods, and

T is the total amount of the capital expenditure on the acquisition of the interest in land.

Chapter 4 Qualifying expenditure: second-hand assets

Assets reflecting expenditure on mineral exploration and access

407 Acquisition of mineral asset owned by previous trader

1

This section applies if—

a

a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring a mineral asset (“asset X”) for the purposes of that trade, and

b

the conditions in subsection (3) are met.

2

In this section “the buyer’s expenditure” means the expenditure referred to in subsection (1)(a), less any amount which, under section 404 (exclusion of undeveloped market value of land), is not qualifying expenditure on the acquisition of the mineral asset.

3

The conditions are that—

a

expenditure was previously incurred on acquiring asset X or bringing it into existence by—

i

the person from whom the buyer acquired asset X, or

ii

an earlier owner of asset X,

one asset from which, or two or more assets from the combination of which, asset X is derived.

408 Acquisition of oil licence from non-trader

1

This section applies if—

a

a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring an interest in an oil licence for the purposes of that trade,

b

the person from whom the interest was acquired (“the seller”) disposed of the interest without having carried on a mineral extraction trade,

c

part of the value of the interest is attributable to expenditure (“E1”) on mineral exploration and access by the seller, and

d

it is just and reasonable to attribute part of the buyer’s expenditure (“E2”) to that part of the value of the interest.

2

If this section applies—

a

so much of the buyer’s expenditure as is equal to the lesser of E1 and E2 is to be treated as qualifying expenditure on mineral exploration and access, and

b

the buyer’s expenditure on acquiring the interest in the oil licence is reduced by an amount equal to E2.

3

In this section “oil licence” and “interest in an oil licence” have the same meaning as in Chapter 3 of Part 12.

409 Acquisition of other assets from non-traders

1

This section applies if—

a

a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring any assets for the purposes of that trade,

b

the person from whom the assets were acquired (“the seller”) disposed of the assets without having carried on a mineral extraction trade,

c

the assets represent expenditure on mineral exploration and access incurred by the seller, and

d

section 408 (acquisition of oil licence from non-trader) does not apply in relation to the acquisition.

2

If this section applies, the buyer’s expenditure is qualifying expenditure only to the extent that it does not exceed the amount of the seller’s expenditure on mineral exploration and access that is represented by the assets.

3

The references in this section to assets representing expenditure on mineral exploration and access include any results obtained from any search, exploration or inquiry on which the expenditure was incurred.

Qualifying expenditure on assets limited by reference to historic costs

410UK oil licence: limit is original licence payment

1

This section applies if a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring a mineral asset which is a UK oil licence, or an interest in such a licence, for the purposes of that trade.

2

If this section applies, the buyer’s expenditure is qualifying expenditure only to the extent that it does not exceed—

a

the original licence payment, or

b

if the mineral asset is an interest in a UK oil licence, such part of the original licence payment as it is just and reasonable to attribute to the interest.

3

In this section “the original licence payment” means the amount paid to the relevant authority for the purpose of obtaining the licence by the person to whom the licence was granted.

4

This section does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under—

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

5

In this section “UK oil licence” and “the relevant authority” have the same meaning as in Chapter 3 of Part 12.

411 Assets generally: limit is residue of previous trader’s qualifying expenditure

1

This section applies if—

a

a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring an asset (“asset X”) for the purposes of that trade, and

b

expenditure was previously incurred on acquiring asset X or bringing it into existence by—

i

the person from whom the buyer acquired asset X, or

ii

an earlier owner of asset X,

in connection with a mineral extraction trade carried on by the person incurring that expenditure.

2

In this section “the buyer’s expenditure” means the expenditure referred to in subsection (1)(a) less any amount which, under section 404 (exclusion of undeveloped market value of land), is not qualifying expenditure on the acquisition of the mineral asset.

3

If this section applies, the buyer’s expenditure is qualifying expenditure only to the extent that it does not exceed the residue of the previous trader’s qualifying expenditure.

4

The residue of the previous trader’s qualifying expenditure is—

QE - (A - B)

where—

was qualifying expenditure for the purposes of this Part, and

b

is just and reasonable to attribute to asset X;

and a similar apportionment is to be made to arrive at A and B.

8

This section does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under—

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

1

For the purposes of section 412, a company is a group company in relation to another company if—

a

it controls, or is controlled by, the other company, or

b

both companies are under the control of another person.

2

Section 412 does not apply if—

a

section 410 (UK oil licences: limit is original licence payment) applies to the acquisition, or

b

the acquisition is a sale in respect of which an election is made under section 569 (election to treat sale as being for an alternative amount).

3

Section 412 applies regardless of section 568 (sales between connected persons etc., or to obtain tax advantage, treated as at market value).

4

Section 412 does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under—

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

Chapter 5 Other kinds of qualifying expenditure

414 Expenditure on works likely to become valueless

1

Expenditure is qualifying expenditure if—

a

it is capital expenditure on constructing works in connection with the working of a source of mineral deposits,

b

it is incurred for the purposes of a mineral extraction trade, and

c

the works—

i

are likely to be of little or no value, when the source is no longer worked, to the last person working the source, or

ii

if the source is worked under a foreign concession, are likely to become valueless, when the concession ends, to the last person working the source under the concession.

2

For the purposes of subsection (1), expenditure on constructing works does not include expenditure on acquiring the site of the works or any right in or over the site.

3

In subsection (1)(c) “foreign concession” means a right or privilege granted by the government of, or any municipality or other authority in, a territory outside the United Kingdom.

415 Contribution to buildings or works for benefit of employees abroad

1

Subject to subsection (3), expenditure is qualifying expenditure if—

a

it is incurred by a person carrying on a mineral extraction trade outside the United Kingdom and for the purposes of that trade,

b

it is a contribution consisting of a capital sum to the cost of buildings or works to which this section applies, and

c

the buildings or works are likely to be of little or no value, when the source is no longer worked, to the last person working the source.

2

The buildings or works to which this section applies are—

a

buildings to be occupied by persons employed at or in connection with the working of a source outside the United Kingdom;

b

works for the supply of water, gas or electricity wholly or mainly to buildings occupied or to be occupied by persons so employed;

c

b

would have been—

i

deductible in calculating the profits of the trade, or

ii

F80Chapter 5AFirst-year qualifying expenditure

Annotations:

Amendments (Textual)

F80

Pt. 5 Ch. 5A inserted (with effect as mentioned in s. 63 of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 9

General

416A First-year allowances available for certain types of qualifying expenditure

A first-year allowance is not available unless the qualifying expenditure is first-year qualifying expenditure under section 416B (expenditure incurred wholly for purposes of a ring fence trade).

Types of expenditure which may qualify for first year allowances

416B Expenditure incurred by company for purposes of a ring fence trade

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 wholly for the purposes of a ring fence trade, and

d

it is not excluded by—

i

subsection (2) (acquisition of mineral asset), or

ii

subsection (3) (acquisition of asset representing expenditure of connected company).

2

Expenditure is not first-year qualifying expenditure under this section if it is expenditure on acquiring a mineral asset.

3

Expenditure is not first-year qualifying expenditure under this section if it is expenditure incurred by a company on the acquisition of an asset representing expenditure incurred by a company connected with that company.

4

To the extent that references in this section to an asset representing expenditure incurred by a company include a reference to an asset representing expenditure on mineral exploration and access, they also include a reference to any results obtained from any search, exploration or inquiry on which any such expenditure was incurred.

5 Supplementary

416C Time when expenditure is incurred

1

In determining whether expenditure is first-year qualifying expenditure under this Chapter, any effect of the provisions specified in subsection (2) on the time at which the expenditure is to be treated as incurred is to be disregarded.

2

The provisions are—

a

section 400(4) (which treats certain pre-trading expenditure as incurred on the first day of trading), and

b

section 434 (which treats certain other expenditure incurred for the purposes of a trade about to be carried on as incurred on that day).

Chapter 6 Allowances and charges

F79First-year allowances

Annotations:

Amendments (Textual)

F79

S. 416D and preceding crossheading inserted (with effect as mentioned in s. 63(3) of the amending Act) by Finance Act 2002 (c. 23), s. 63, Sch. 21 para. 10

416D First-year allowances

1

A person is entitled to a first-year allowance in respect of first-year qualifying expenditure if the expenditure is incurred in a chargeable period to which this Act applies.

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
Expenditure qualifying under section 416B (expenditure incurred wholly for the purposes of a ring fence trade)	100%

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

This section is subject to section 416E (artificially inflated claims for first-year allowances).

416EF75 Artificially inflated claims for first-year allowances

1

To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it shall be disregarded in determining for a chargeable period the amount of any first-year allowance to which a person is entitled.

2

For the purposes of this section, arrangements are entered into wholly or mainly for a “ disqualifying purpose ” if their main object, or one of their main objects, is to enable a person to obtain—

a

a first-year allowance to which he would not otherwise be entitled, or

b

a first-year allowance of a greater amount than that to which he would otherwise be entitled.

3

In this section “ arrangements ” includes any scheme, agreement or understanding, whether or not legally enforceable.

Writing-down and balancing allowances and balancing charges

417 Determination of entitlement or liability

1

Whether a person who has incurred qualifying expenditure is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period depends on—

a

how much of the expenditure is unrelieved qualifying expenditure for that period (“UQE”), and

b

the total of any disposal receipts to be brought into account for that period (“TDR”) by reference to the expenditure.

2

If UQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period.

3

If TDR exceeds UQE, the person is liable to a balancing charge for the period.

4

The entitlement under subsection (2) is to a writing-down allowance except in cases for which sections 426 to 431 provide for the entitlement to be to a balancing allowance.

418 Amount of allowances and charges

1

The amount of the writing-down allowance to which a person is entitled for any chargeable period in respect of qualifying expenditure is—

a

a

any question whether the person who incurred the expenditure—

i

i

is disposed of, or

ii

permanently ceases to be used by him for the purposes of a mineral extraction trade (whether because of the discontinuance of the trade or for any other reason).

2

The person is required to bring the disposal value of the asset into account for the chargeable period in which the disposal or cessation occurs.

whether, at the time of the acquisition, development has been, or had begun to be, lawfully carried out is to be determined according to the law of the territory in which the land is situated, and

b

whether, at that time, development could be lawfully carried out under planning permission granted by a general development order is to be determined as if the land were in England.

423 Sections 421 and 422: amount of disposal value to be brought into account

1

The disposal value to be brought into account under section 421 or 422 depends on the event requiring it to be brought into account, as shown in the Table—

Table

Disposal value for sections 421 and 422

1. Event	2. Disposal value
1. Sale of the asset, except in a case where item 2 applies.	The net proceeds of the sale, together with— (a) any insurance money received in respect of the asset 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 asset where— (a) the sale is at less than market value, (b) there is no charge to tax under F108ITEPA 2003, and (c) the condition in subsection (3) is met by the buyer.	The market value of the asset at the time of the sale.
3. Demolition or destruction of the asset.	The net amount received for the remains of the asset, 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 asset 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. Permanent discontinuance of the trade followed by the occurrence of an event within any of items 1 to 4.	The disposal value for the item in question.
6. Any event not falling within any of items 1 to 5.	The market value of the asset at the time of the event.

2

The amounts referred to in column 2 of the Table are those received by the person required to bring the disposal value into account.

3

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 asset cannot be qualifying expenditure under Part 2 or 6 (plant and machinery and research and development allowances), or

b

the buyer is a dual resident investing company which is connected with the seller.

1

This section applies if a person—

a

has incurred qualifying expenditure, and

b

receives a capital sum which, in whole or in part, it is reasonable to attribute to that expenditure.

2

The person is required to bring into account as a disposal value for the chargeable period in which the capital sum is received so much of the capital sum as is reasonably attributable to the qualifying expenditure.

3

This section does not apply if the capital sum falls to be brought into account under section 421 or 422.

Cases in which a person is entitled to a balancing allowance

426 Pre-trading expenditure

A person’s entitlement to an allowance for a chargeable period is to a balancing allowance if—

a

the expenditure is qualifying expenditure under—

i

section 401(4) (pre-trading exploration expenditure where exploration etc. has ceased before first day of trading), or

ii

section 402 (pre-trading expenditure on plant or machinery), and

b

the first day of trading occurs in that chargeable period.

427 Giving up exploration, search or inquiry

A person’s entitlement to an allowance for a chargeable period is to a balancing allowance if—

a

the qualifying expenditure is expenditure on mineral exploration and access,

b

he gives up the exploration, search or inquiry to which the expenditure related in that chargeable period, and

c

he does not then or later carry on a mineral extraction trade which consists of or includes the working of mineral deposits to which the expenditure related.

428 Ceasing to work mineral deposits

1

A person’s entitlement to an allowance for a chargeable period is to a balancing allowance if—

a

in that chargeable period he permanently ceases to work particular mineral deposits, and

b

the qualifying expenditure is expenditure incurred—

i

ii

otherwise permanently ceases to be used by him for the purposes of the mineral extraction trade.

2

A person’s entitlement to an allowance for a chargeable period is to a balancing allowance if any of the following events occurs in that chargeable period in relation to assets representing the qualifying expenditure—

a

the person loses possession of the assets in circumstances where it is reasonable to assume that the loss is permanent;

b

the assets cease to exist as such (as a result of destruction, dismantling or otherwise);

c

the assets begin to be used wholly or partly for purposes other than those of the mineral extraction trade carried on by the person.

431 Discontinuance of trade

A person’s entitlement to an allowance for a chargeable period is to a balancing allowance if in that chargeable period the mineral extraction trade is permanently discontinued.

Chapter 7 Supplementary provisions

432 Giving effect to allowances and charges

An allowance or charge to which a person is entitled or liable under this Part is to be given effect in calculating the profits of that person’s mineral extraction trade, by treating—

a

the allowance as an expense of the trade, and

b

the charge as a receipt of the trade.

433 Treatment of demolition costs

1

436 Meaning of “development” etc.

1

In this Part—

“development”
“development order”,
“general development order”, and
“planning permission”,

have the meaning given by the relevant planning enactment.

2

“The relevant planning enactment” means—

a

in relation to land in England or Wales, section 336(1) of the Town and Country Planning Act 1990 (c. 8);

b

in relation to land in Scotland, section 277(1) of the Town and Country Planning (Scotland) Act 1997 (c. 8);

c

in relation to land in Northern Ireland, Article 2(2) of the Planning (Northern Ireland) Order 1991 (S.I.1991/1220 (N.I.11)).

Part 6 Research and development allowances

Chapter 1 Introduction

437 Research and development allowances

1

Allowances are available under this Part if a person incurs qualifying expenditure on research and development.

2

In this Part “research and development”—

a

has the meaning given by section 837A of ICTA (activities falling to be treated as research and development under F81generally accepted accounting practice , subject to regulations), and

b

includes oil and gas exploration and appraisal.

part of a building consists of a dwelling and the rest of the building is used for research and development, and

b

no more than 25% of the capital expenditure referable to the construction or acquisition of the whole building is referable to the construction or acquisition of the dwelling,

the whole of the building is to be treated as used for research and development.

5

For the purposes of subsection (4)(b), the expenditure referable to the construction or acquisition of the building is to be apportioned in a just and reasonable manner.

6

Any additional VAT liability or rebate (as to which see Chapter 4) is to be disregarded in applying subsection (4)(b).

Chapter 2 Qualifying expenditure

439 Qualifying expenditure

1

In this Part “qualifying expenditure” means capital expenditure incurred by a person on research and development directly undertaken by him or on his behalf if—

a

he is carrying on a trade when the expenditure is incurred and the research and development relates to that trade, or

b

after incurring the expenditure he sets up and commences a trade connected with the research and development.

2

The same expenditure may not be taken into account as qualifying expenditure in relation to more than one trade.

3

The trade by reference to which expenditure is qualifying expenditure is referred to in this Part as “the relevant trade” in relation to that expenditure.

4

If capital expenditure is partly within subsection (1) and partly not, the expenditure is to be apportioned in a just and reasonable manner.

5

References in this Chapter to research and development related to a trade include—

a

research and development which may lead to or facilitate an extension of that trade, and

b

research and development of a medical nature which has a special relation to the welfare of workers employed in that trade.

440 Excluded expenditure: land

b

if the expenditure was incurred before the chargeable period in which the relevant trade is set up and commenced, that chargeable period.

3

A person claiming an allowance under this section may require the allowance to be reduced to a specified amount.

442 Balancing charges

1

This section applies if—

a

an allowance is made to a person for a chargeable period in respect of qualifying expenditure, and

b

the person is required to bring a disposal value into account for a later chargeable period in respect of that expenditure.

2

The person is liable to a balancing charge for the later chargeable period in respect of the qualifying expenditure.

3

The amount of the balancing charge is—

a

the amount (if any) by which the disposal value to be brought into account for the period exceeds any unclaimed allowance, or

b

if less, the allowance made in respect of the qualifying expenditure.

4

“Unclaimed allowance” means any part of the allowance to which the person was entitled in respect of the qualifying expenditure but which has not been claimed.

5

This section is to be read with section 449 (effect on balancing charges of additional VAT rebates in earlier chargeable periods).

443 Disposal values and disposal events

1

A person is required to bring a disposal value into account in respect of qualifying expenditure incurred by him if—

a

he ceases to own an asset representing the expenditure, or

b

an asset representing the expenditure is demolished or destroyed at a time when he owns the asset.

2

Subsection (1) is to be read with section 555 (disposal of oil licence with exploitation value).

3

But a person is not required to bring a disposal value into account under subsection (1) if the disposal event gives rise to a balancing charge under Part 2 or 3 (plant and machinery allowances and industrial buildings allowances).

C174

The disposal value to be brought into account under subsection (1) depends on the disposal event, as shown in the Table—

Table

Disposal values

1. Disposal event	2. Disposal value
1. Sale of the asset at not less than market value.	The net proceeds of the sale.
2. Demolition or destruction of the asset.	The net amount received for the remains of the asset, 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.
3. Any event not falling within item 1 or 2.	The market value of the asset at the time of the event.

5

Subsection (4) is subject to—

section 445 (costs of demolition),
section 553 (nil value in case of disposal of oil licence relating to undeveloped area), and
section 555 (disposal of oil licence with exploitation value).

6

A person is also required to bring a disposal value into account by section 448 (additional VAT rebate generates disposal value).

7

In this Chapter “disposal event” means an event of a kind that requires a disposal value to be brought into account under subsection (1).

444 Disposal events: chargeable period for which disposal value is to be brought into account

1

The chargeable period for which a disposal value is to be brought into account under section 443(1) in respect of qualifying expenditure is given by this section.

2

Subsection (3) applies if the disposal event occurs in or after the chargeable period for which the allowance in respect of the expenditure is made.

3

The disposal value is to be brought into account for—

a

the chargeable period in which the event occurs, or

b

if the event occurs after the chargeable period in which the relevant trade is permanently discontinued, that chargeable period.

4

If the disposal event occurs before the chargeable period for which the allowance in respect of the expenditure is made, the disposal value is to be brought into account for that chargeable period.

445 Costs of demolition

1

This section applies if—

a

an asset representing qualifying expenditure incurred by a person is demolished at a time when the person owns the asset, and

b

the person incurred costs of demolition.

2

ii

an additional VAT rebate is made to a person,

is given by section 548, and

c

the chargeable period in which, and the time when, an additional VAT liability or an additional VAT rebate accrues are given by section 549.

447 Additional VAT liability treated as additional expenditure etc.

1

If a person—

a

has incurred qualifying expenditure (“the original expenditure”), and

b

incurs an additional VAT liability in respect of that expenditure,

the liability is to be treated as capital expenditure incurred on the same research and development as the original expenditure.

2

the chargeable period in which the rebate accrues, or

b

if the rebate accrued before the chargeable period in which the relevant trade is set up and commenced, that chargeable period.

449 Effect on balancing charges of additional VAT rebates in earlier chargeable periods

1

Section 442 (balancing charges) has effect subject to this section if—

a

an allowance is made to a person for a chargeable period (“the original period”) in respect of qualifying expenditure,

b

the person is required to bring a disposal value into account for a later chargeable period in respect of that expenditure, and

c

the person has been required by section 448(4)(a) to bring one or more disposal values (“VAT disposal values”) into account in respect of that expenditure for one or more chargeable periods after the original period but before the later chargeable period.

2

In relation to the later chargeable period, subsection (3)(a) of section 442 applies as if the unclaimed allowance were reduced by—

DV - BC

where—

DV is the total amount of the VAT disposal values, and

BC is the total amount of any balancing charges to which the person is liable under that section as a result of bringing into account the VAT disposal values.

3

In relation to the later chargeable period, subsection (3)(b) of section 442 applies as if the allowance made in respect of the qualifying expenditure were reduced by BC.

Chapter 5 Supplementary provisions

450 Giving effect to allowances and charges

An allowance or charge to which a person is entitled or liable under this Part for a chargeable period is to be given effect in calculating the profits of the relevant trade, by treating—

a

the allowance as an expense of the trade, and

b

the charge as a receipt of the trade.

451 Sales: time of cessation of ownership

Any reference in this Part to the time when a person ceases to own an asset is to be read, in the case of a sale, as a reference to whichever is the earlier of—

a

the time of completion, and

b

the time when possession is given.

Part 7 Know-how allowances

Chapter 1 Introduction

452 Know-how allowances

1

Allowances are available under this Part if a person incurs qualifying expenditure on the acquisition of know-how.

2

In this Part “know-how” means any industrial information or techniques likely to assist in—

a

manufacturing or processing goods or materials,

b

working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or

c

carrying out any agricultural, forestry or fishing operations.

3

In subsection (2)(b)—

a

“mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is to be treated as a natural deposit, and

b

“source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

453 Know-how as property

1

Know-how is to be treated as property for the purposes of this Act.

2

References in this Act to the purchase or sale of property include the acquisition or disposal of know-how.

Chapter 2 Qualifying expenditure

454 Qualifying expenditure

1

In this Part “qualifying expenditure” means, subject to section 455, capital expenditure incurred on the acquisition of know-how by a person if—

a

the person is carrying on a trade at the time of the acquisition and the know-how is acquired for use in that trade,

b

the person acquires the know-how and subsequently sets up and commences a trade in which it is used,

c

the person acquires the know-how together with the trade or part of a trade in which it was used and the parties to the acquisition make an election under section 531(3)(a) of ICTA (consideration for know-how on disposal of trade to be treated as payment for goodwill unless parties otherwise elect), or

d

the person acquires the know-how together with the trade or part of a trade in which it was used and the trade in question was, before the acquisition, carried on wholly outside the United Kingdom.

2

The same expenditure may not be taken into account as qualifying expenditure in relation to more than one trade.

3

Qualifying expenditure incurred before the setting up and commencement of the relevant trade is to be treated for the purposes of this Part as incurred when the trade is set up and commenced.

4

“Relevant trade” means the trade by reference to which expenditure is qualifying expenditure.

455 Excluded expenditure

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 the chargeable period in which the trade is permanently discontinued.

458 Amount of allowances and charges

1

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 TDV.

2

If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

3

If the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.

4

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

5

The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDV exceeds AQE.

6

The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDV.

459 Available qualifying expenditure

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 460, and

b

any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 461.

460 Allocation of qualifying expenditure to pools

1

The following rules apply to the allocation of a person’s qualifying expenditure to a pool.

2

An amount of qualifying expenditure is not to be allocated to the 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 the pool for a chargeable period before that in which the expenditure is incurred.

461 Unrelieved qualifying expenditure

1

A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDV.

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.

462 Disposal values

1

A person is required to bring a disposal value into account for the chargeable period in which he sells know-how on which he has incurred qualifying expenditure.

2

The disposal value to be brought into account is the net proceeds of the sale, so far as they consist of capital sums.

3

But no disposal value need be brought into account if the consideration received for the sale is treated as a payment for goodwill under section 531(2) of ICTA (consideration for know-how on disposal of trade to be treated as payment for goodwill, unless parties otherwise elect).

463 Giving effect to allowances and charges

An allowance or charge to which a person is entitled or liable under this Part for a chargeable period is to be given effect in calculating the profits of the trade, by treating—

a

the allowance as an expense of the trade, and

b

the charge as a receipt of the trade.

Part 8 Patent allowances

Chapter 1 Introduction

464 Patent allowances

1

Allowances are available under this Part if a person incurs qualifying expenditure on the purchase of patent rights.

2

In this Part “patent rights” means the right to do or authorise the doing of anything which would, but for that right, be an infringement of a patent.

465 Future patent rights

1

References in this Part to expenditure incurred on the purchase of patent rights include expenditure incurred on obtaining a right to acquire future patent rights.

2

If a person—

a

incurs expenditure on obtaining a right to acquire future patent rights, and

b

subsequently acquires those rights,

the expenditure is to be treated as having been expenditure on the purchase of those rights.

3

“A right to acquire future patent rights” means a right to acquire in the future patent rights relating to an invention in respect of which the patent has not yet been granted.

4

References in this Part to the proceeds of a sale of patent rights include a sum received from a person which is treated under this section as expenditure incurred by him on the purchase of patent rights.

466 Grant of licences

1

The acquisition of a licence in respect of a patent is to be treated as the purchase of patent rights.

2

The grant of a licence in respect of a patent is to be treated as a sale of part of patent rights.

3

But the grant by a person entitled to patent rights of an exclusive licence is to be treated as a sale of the whole of those rights.

4

“Exclusive licence” means a licence to exercise those rights to the exclusion of the grantor and all other persons for the period remaining until the rights come to an end.

Chapter 2 Qualifying expenditure

467 Qualifying expenditure

Expenditure is qualifying expenditure only if it is—

a

qualifying trade expenditure, or

b

qualifying non-trade expenditure.

468 Qualifying trade expenditure

5

The final chargeable period for a pool to which qualifying trade expenditure has been allocated is the chargeable period in which the trade is permanently discontinued.

6

The final chargeable period for a pool to which qualifying non-trade expenditure has been allocated is the chargeable period in which the last of the patent rights on which the person has incurred qualifying non-trade expenditure—

a

comes to an end without any of those rights being revived, or

b

is wholly disposed of.

472 Amount of allowances and charges

1

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

If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

3

If in the case of qualifying trade expenditure the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.

4

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

5

The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDR exceeds AQE.

6

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.

473 Available qualifying expenditure

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 474, and

b

any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 475.

474 Allocation of qualifying expenditure to pools

1

The following rules apply to the allocation of a person’s qualifying expenditure to a pool.

3

That amount, or total amount, is limited to the capital expenditure on purchasing the rights incurred by whichever party to the transaction, or to any of the transactions, incurred the greatest such expenditure.

Chapter 4 Giving effect to allowances and charges

478 Persons having qualifying trade expenditure

An allowance or charge to which a person is entitled or liable under this Part for a chargeable period in respect of qualifying trade expenditure is to be given effect in calculating the profits of the trade, by treating—

a

the allowance as an expense of the trade, and

b

the charge as a receipt of the trade.

479 Persons having qualifying non-trade expenditure: income tax

1

This section applies for income tax purposes if a person is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current tax year”) in respect of qualifying non-trade expenditure.

2

An allowance is to be given effect by deducting it from or setting it off against the person’s income from patents for the current tax year.

3

If the amount to be deducted from or set off against the person’s income from patents for that tax year exceeds the amount of that income, the excess must be deducted from or set off against the person’s income from patents for the next tax year, and so on for subsequent tax years.

4

A charge is to be given effect by treating the charge as income to be taxed under Case VI of Schedule D.

480 Persons having qualifying non-trade expenditure: corporation tax

1

This section applies for corporation tax purposes if a company is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current accounting period”) in respect of qualifying non-trade expenditure.

2

An allowance is to be given effect by deducting it from the company’s income from patents for the current accounting period.

3

If the amount to be deducted from the company’s income from patents for that period exceeds the amount of that income, the excess must (if the company remains within the charge to tax) be deducted from its income from patents for the next accounting period, and so on for subsequent accounting periods.

4

A charge is to be given effect by treating the charge as income of the company from patents.

Chapter 5 Supplementary provisions

481 Anti-avoidance: limit on qualifying expenditure

if a person connected with the seller incurred capital expenditure on acquiring the rights, the amount of that expenditure.

482 Sums paid for Crown use etc. treated as paid under licence

1

This section applies if an invention which is the subject of a patent is used by or for the services of—

a

the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or

b

the government of a country outside the United Kingdom under corresponding provisions of the law of that country.

2

The use is to be treated as having taken place under a licence.

3

Sums paid in respect of the use are to be treated as having been paid under a licence.

483 Meaning of “income from patents”

For the purposes of this Part a person’s “income from patents” means—

a

royalties or other sums paid in respect of the use of a patent,

b

balancing charges to which the person is liable under this Part, and

c

amounts on which tax is payable under section 524 or 525 of ICTA (taxation of receipts from sale of patent rights).

Part 9 Dredging allowances

Qualifying expenditure on dredging, etc.

484 Dredging allowances

1

Allowances are available under this Part if a person carries on a qualifying trade and qualifying expenditure has been incurred on dredging.

2

In this Part “qualifying trade” means a trade or undertaking the whole or part of which—

a

consists of the maintenance or improvement of the navigation of a harbour, estuary or waterway, or

b

is of a kind listed in Table A or B in section 274 (meaning of qualifying trade for purposes of industrial buildings allowances).

3

“Dredging” does not include anything done otherwise than in the interests of navigation.

4

Subject to subsection (3), “dredging” includes—

a

the removal of anything forming part of, or projecting from the bed of, the sea or any inland water—

i

by whatever means it is removed, and

ii

even if, at the time of removal, it is wholly or partly above water, and

b

the widening of an inland waterway.

485 Qualifying expenditure

1

Expenditure on dredging is qualifying expenditure if—

a

it is capital expenditure,

b

it is incurred for the purposes of a qualifying trade by the person carrying on the trade, and

c

if the person does not carry on a qualifying trade within section 484(2)(a), the dredging is for the benefit of vessels coming to, leaving or using a dock or other premises occupied by the person for the purposes of the qualifying trade.

2

If capital expenditure is incurred—

a

partly for the purposes of a qualifying trade, and

b

partly for other purposes,

the qualifying expenditure is the part of the capital expenditure that, on a just and reasonable apportionment, is referable to the purposes of the qualifying trade.

3

If part only of a trade or undertaking is within section 484(2), subsection (2) of this section applies as if—

a

the part which is within section 484(2), and

b

the part which is not,

were separate trades.

486 Pre-trading expenditure of qualifying trades, etc.

1

If a person incurs capital expenditure with a view to carrying on a trade or a part of a trade, this Part applies as if the expenditure were incurred by the person on the first day on which the trade or part of the trade is carried on.

2

If a person incurs capital expenditure—

a

in connection with a dock or other premises, and

b

with a view to occupying the dock or premises for the purposes of a qualifying trade which is not a qualifying trade within section 484(2)(a),

this Part applies as if the expenditure were incurred by the person when he first occupies the dock or premises for the purposes of the qualifying trade.

Writing-down and balancing allowances

487 Writing-down allowances

1

A person is entitled to a writing-down allowance for a chargeable period if—

a

qualifying expenditure has been incurred on dredging,

b

at any time during the chargeable period, the person is carrying on the qualifying trade for the purposes of which the qualifying expenditure was incurred, and

c

that time falls within the writing-down period.

2

3

The amount of the writing-down allowance is 4% of the qualifying expenditure.

4

The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

5

The total amount of any writing-down allowances made in respect of any qualifying expenditure, whether to the same or different persons, must not exceed the amount of the expenditure.

6

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

7

A person is not entitled to a writing-down allowance for the chargeable period in which a balancing allowance is made to him in respect of the qualifying expenditure.

both the seller and the buyer are bodies of persons and another person has control over both of them;

d

the seller and the buyer are connected persons.

In this subsection “body of persons” includes a partnership.

5

A sale is within this subsection if it appears that the sole or main benefit which might be expected to accrue to the parties, or any of them, from—

a

the sale, or

b

transactions of which the sale is one,

is the obtaining of a tax advantage under any of the provisions of this Act apart from Part 2 (plant and machinery allowances).

Giving effect to allowances

489 Giving effect to allowances

An allowance to which a person is entitled under this Part is to be given effect in calculating the profits of that person’s trade, by treating the allowance as an expense of the trade.

Part 10 Assured tenancy allowances

b

the relevant interest in a dwelling-house comprised in the building.

The relevant interest in the building

495 General rule as to what is the relevant interest in the building

1

The relevant interest in the building is the interest in the building to which the person who incurred the expenditure on the construction of the building was entitled when the expenditure was incurred.

being surrendered, or

b

the person entitled to it acquiring the interest which is reversionary on it,

the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished.

499 Provisions applying on termination of lease

1

This section applies if the relevant interest in relation to expenditure on the construction of a building is a lease.

2

If, with the consent of the lessor, the lessee of a building remains in possession after the termination of the lease without a new lease being granted to him, the lease is treated as continuing as long as the lessee remains in possession.

3

If on the termination of the lease a new lease is granted to the lessee as a result of the exercise of an option available to him under the terms of the first lease, the second lease is treated as a continuation of the first.

4

If on the termination of the lease the lessor pays a sum to the lessee in respect of a building comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment.

5

If on the termination of the lease—

a

a new lease is granted to a different lessee, and

b

in connection with the transaction that lessee makes a payment to the former lessee,

the two leases are treated as if they were the same lease which had been assigned by the former lessee to the new lessee in consideration of the payment.

The relevant interest in the dwelling-house

500 The relevant interest in the dwelling-house

The relevant interest in a dwelling-house comprised in a building is the relevant interest in the building, to the extent that it subsists in the dwelling-house.

Chapter 3 Qualifying expenditure

501 Capital expenditure on construction

If—

a

capital expenditure has been incurred on the construction of a building which was to be or include a qualifying dwelling-house, and

b

the relevant interest in the building has not been sold or, if it has been sold, it has been sold only after the first use of the building,

the capital expenditure is qualifying expenditure.

502 Purchase of unused dwelling-house where developer not involved

1

This section applies if—

a

expenditure has been incurred on the construction of a building which was to be or include a qualifying dwelling-house,

b

the relevant interest was sold before the first use of any dwelling-house comprised in the building,

c

a capital sum was paid by the purchaser for the relevant interest, and

d

section 503 (purchase of dwelling-house sold unused by developer) does not apply.

2

The lesser of—

a

the capital sum paid by the purchaser for the relevant interest, and

b

the expenditure incurred on the construction of the building,

is qualifying expenditure.

3

The qualifying expenditure is to be treated as having been incurred when the capital sum became payable.

4

If the relevant interest was sold more than once before the first use of any dwelling-house comprised in the building, subsection (2) has effect only in relation to the last of those sales.

503 Purchase of dwelling-house sold unused by developer

1

This section applies if—

a

expenditure has been incurred by a developer on the construction of a building which was to be or include a qualifying dwelling-house, and

b

the relevant interest was sold by the developer in the course of the development trade before the first use of any dwelling-house comprised in the building.

2

504 Requirements relating to the landlord

1

A dwelling-house is a qualifying dwelling-house only if the landlord is—

a

a company, and

b

the person who—

i

incurred the qualifying expenditure on the building in which the dwelling-house is comprised, or

ii

is for the time being entitled to the relevant interest in the dwelling-house.

2

The requirement that the landlord must be a company does not apply in relation to expenditure incurred—

a

before 5th May 1983, or

b

on or after that date pursuant to a contract entered into before that date,

unless a person other than a company became entitled to the relevant interest on or after that date.

505 Qualifying dwelling-houses: exclusions

1

A dwelling-house is not a qualifying dwelling-house if any of the exclusions given below apply.

Exclusion 1

The landlord under the tenancy is—

a

a housing association which is approved for the purposes of section 488 of ICTA, or

b

a self-build society within the meaning of the Housing Associations Act 1985 (c. 69).

Exclusion 2

The landlord and the tenant are connected persons.

Exclusion 3

The tenant is a director of a company which is or is connected with the landlord.

Exclusion 4

The landlord is a close company and the tenant is, for the purposes of Part XI of ICTA—

a

a participator in that company, or

b

an associate of such a participator.

Exclusion 5

The tenancy is entered into as part of a mutual arrangement for avoidance.

2

In exclusion 5, a “mutual arrangement for avoidance” means an arrangement—

a

between the landlords (or owners) of different dwelling-houses, and

b

under which one landlord takes a person as a tenant in circumstances in which, if that person was the tenant of a dwelling-house let by the other landlord, that dwelling-house would not be a qualifying dwelling-house because of exclusion 2, 3 or 4.

506 Dwelling-house ceasing to be qualifying dwelling-house

1

If a dwelling-house ceases to be a qualifying dwelling-house otherwise than on a sale of the relevant interest in the dwelling-house, this Part has effect as if—

a

the relevant interest in the dwelling-house had been sold at that time, and

b

the net proceeds of the sale were equal to the market value of that interest at that time.

2

For the purposes of this Part—

a

a dwelling-house is not to be regarded as ceasing altogether to be used merely because it falls temporarily out of use, and

b

if, immediately before any period of temporary disuse, a dwelling-house is a qualifying dwelling-house, it is to be regarded as continuing to be a qualifying dwelling-house during the period of temporary disuse.

Chapter 5 Writing-down allowances

Entitlement to and calculation of writing-down allowances

507 Entitlement to writing-down allowance

1

A person is entitled to a writing-down allowance for a chargeable period if—

a

qualifying expenditure has been incurred on a building,

b

that person is or has been an approved body,

c

at the end of that chargeable period the person is entitled to the relevant interest in the building, and

d

at the end of that chargeable period, the building is or includes a qualifying dwelling-house or two or more qualifying dwelling-houses.

2

A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

508 Basic rule for calculating amount of allowance

1

The basic rule is that the writing-down allowance for a chargeable period is 4% of the qualifying expenditure attributable to the dwelling-house or (as the case may be) each dwelling-house falling within section 507(1)(d).

2

The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

3

The basic rule does not apply if section 509 applies.

509 Calculation of allowance after sale of relevant interest

1

This section applies if—

a

the relevant interest in a qualifying dwelling-house is sold, and

b

a balancing adjustment falls to be made under section 513 as a result of the sale.

2

If this section applies, the writing-down allowance for any chargeable period ending after the sale is—

RQEx \frac{A}{B}

where—

RQE is the amount of the residue of qualifying expenditure attributable to the dwelling-house immediately after the sale,

A is the length of the chargeable period, and

B is the length of the period from the date of the sale to the end of the period of 25 years beginning with the day on which the dwelling-house was first used.

3

On any later such sale, the writing-down allowance is further adjusted in accordance with this section.

510 Allowance limited to residue of qualifying expenditure attributable to dwelling-house

5

For the purposes of subsection (2), the qualifying expenditure on any common parts of a building is so much of the expenditure on the construction of the building as it is just and reasonable to attribute to those parts.

512 Residue of qualifying expenditure attributable to dwelling-house

1

The residue of qualifying expenditure attributable to a dwelling-house is the qualifying expenditure attributable to that dwelling-house that has not yet been written off in accordance with Chapter 7.

2

Subsection (1) is subject to section 528 (treatment of demolition costs).

Chapter 6 Balancing adjustments

General

513 When balancing adjustments are made

1

A balancing adjustment is made if—

a

qualifying expenditure has been incurred on a building, and

b

a balancing event occurs in relation to a dwelling-house comprised in the building while it is a qualifying dwelling-house.

2

A balancing adjustment is either a balancing allowance or a balancing charge and is made for the chargeable period in which the balancing event occurs.

3

A balancing allowance or balancing charge is made to or on the person entitled to the relevant interest in the dwelling-house immediately before the balancing event.

4

No balancing adjustment is made if the balancing event occurs more than 25 years after the dwelling-house was first used.

514 Balancing events

The following are balancing events in relation to a qualifying dwelling-house—

a

the relevant interest in the dwelling-house is sold;

b

if the relevant interest in the dwelling-house is a lease, the lease ends otherwise than on the person entitled to it acquiring the interest reversionary on it;

c

the dwelling-house is demolished or destroyed;

d

the dwelling-house ceases altogether to be used (without being demolished or destroyed).

515 Proceeds from balancing events

1

References in this Part to the proceeds from a balancing event are to the amounts received or receivable in connection with the event, as shown in the Table—

Table

Balancing events and proceeds

1. Balancing event	2. Proceeds from event
1. The sale of the relevant interest.	The net proceeds of the sale.
2. The demolition or destruction of the dwelling-house.	The net amount received for the remains of the dwelling-house, 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.
3. The dwelling-house ceases altogether to be used.	Any compensation of any description received in respect of the event, so far as it consists of capital sums.

2

The amounts referred to in column 2 of the Table are those received or receivable by the person whose entitlement to a balancing allowance or liability to a balancing charge is in question.

Calculation of balancing adjustments

516 Dwelling-house a qualifying dwelling-house throughout

1

This section provides for balancing adjustments in cases where the dwelling-house was a qualifying dwelling-house for the whole of the relevant period of ownership.

2

A balancing allowance is made if—

a

there are no proceeds from the balancing event, or

b

the proceeds from the balancing event are less than the residue of qualifying expenditure attributable to the dwelling-house immediately before the event.

3

The amount of the balancing allowance is the amount of—

a

the residue (if there are no proceeds);

b

the difference (if the proceeds are less than the residue).

4

A balancing charge is made if the proceeds from the balancing event are more than the residue of qualifying expenditure attributable to the dwelling-house immediately before the event.

5

The amount of the balancing charge is the amount of the difference.

1

The amount of a balancing charge made on a person in respect of any qualifying expenditure attributable to a dwelling-house must not exceed the total amount of the relevant allowances made to that person.

2

“The relevant allowances” has the meaning given by section 517(8).

519 Recovery of old initial allowances made on incorrect assumptions

1

This section applies if—

a

an initial allowance has been made under paragraph 1 of Schedule 12 to FA 1982 in respect of expenditure relating to a dwelling-house, and

b

when the dwelling-house comes to be used, it is not a qualifying dwelling-house.

2

All such assessments and adjustments of assessments are to be made as are necessary to secure that, despite the repeal of Schedule 12 to FA 1982, effect is given to the prohibition in paragraph 1(3) of that Schedule (on the making of initial allowances in respect of dwelling-houses which are not qualifying dwelling-houses).

Meaning of “the relevant period of ownership” etc.

520 The relevant period of ownership

The relevant period of ownership is the period beginning—

a

with the day on which the dwelling-house was first used for any purpose, or

b

if the relevant interest in the dwelling-house has been sold after that day, with the day following that on which the sale (or the last such sale) occurred,

and ending with the day on which the balancing event occurs.

521 Starting expenditure

1

This section gives the starting expenditure attributable to a dwelling-house for the purposes of section 517.

2

If the person to or on whom the balancing allowance or balancing charge falls to be made is the person who incurred the qualifying expenditure attributable to the dwelling-house, that expenditure is the starting expenditure.

3

Otherwise, the starting expenditure is the residue of qualifying expenditure attributable to the dwelling-house at the beginning of the relevant period of ownership.

4

If section 528 (treatment of demolition costs) applies, the starting expenditure is increased by an amount equal to the net cost of the demolition.

522 Adjusted net cost

The amount of the adjusted net cost in relation to a dwelling-house is—

(S - P) x \frac{I}{R}

where—

S is the starting expenditure attributable to the dwelling-house,

P is the amount of any proceeds from the balancing event,

I is the number of days in the relevant period of ownership on which the dwelling-house was a qualifying dwelling-house, and

R is the number of days in the whole of the relevant period of ownership.

Chapter 7 Writing off qualifying expenditure attributable to dwelling-house

523 Introduction

For the purposes of this Part qualifying expenditure attributable to a dwelling-house is written off to the extent and at the times specified in this Chapter.

524 Writing off initial allowances

If an initial allowance was made under paragraph 1 of Schedule 12 to FA 1982 in respect of a qualifying dwelling-house, the amount of the allowance is written off at the time of the first use of the dwelling-house.

525 Writing off writing-down allowances

2

If a balancing allowance is made, the amount by which the residue of qualifying expenditure attributable to the dwelling-house before the balancing event exceeds the net proceeds from the event is written off at the time of the event.

3

If a balancing charge is made, the amount of the residue of qualifying expenditure attributable to the dwelling-house is increased at the time of the balancing event by the amount of the charge.

4

But if the balancing charge is made under section 517(6) (difference between relevant allowances and adjusted net cost), the residue of qualifying expenditure attributable to the dwelling-house immediately after the balancing event is limited to the net proceeds from the event.

528 Treatment of demolition costs

Chapter 1 Exclusion of expenditure met by contributions

Rules excluding contributions

532 The general rule excluding contributions

1

For the purposes of this Act, the general rule is that a person (“R”) is to be regarded as not having incurred expenditure to the extent that it has been, or is to be, met (directly or indirectly) by—

a

a public body, or

b

a person other than R.

2

In this Chapter “public body” means the Crown or any government or public or local authority (whether in the United Kingdom or elsewhere).

3

The general rule does not apply for the purposes of Part 9 (dredging allowances).

4

The general rule is subject to the exceptions in sections 534 to 536.

533 Exclusion of contributions to dredging

b

other compensation money,

payable in respect of an asset which has been destroyed, demolished or put out of use.

536 Contributions not made by public bodies and not eligible for tax relief

1

A person (“R”) is to be regarded as having incurred expenditure (despite section 532(1)) to the extent that the requirements in subsections (2) and (3) are satisfied in relation to the expenditure.

2

The first requirement is that the person meeting R’s expenditure (“C”) is not a public body.

3

The second requirement is that—

a

no allowance can be made under Chapter 2 in respect of C’s expenditure, and

b

the expenditure is not allowed to be deducted in calculating the profits of a trade or relevant activity carried on by C.

4

When determining for the purposes of subsection (3)(a) whether an allowance can be made under Chapter 2, assume that C is within the charge to tax.

5

In subsection (3)(b) “relevant activity” means—

a

for the purposes of Part 2—

i

an ordinary Schedule A business;

ii

a furnished holiday lettings business;

iii

an overseas property business;

iv

a profession or vocation;

v

any concern listed in section 55(2) of ICTA (mines, transport undertakings etc.);

vi

the management of an investment company;

b

for other purposes, a profession or vocation.

Chapter 2 Contribution allowances

Contribution allowances under F84Parts 2 to 4 and 5

Annotations:

Amendments (Textual)

F84

Words in cross-heading substituted (with effect as mentioned in s. 67 of the amending Act) by Finance Act 2001(c. 9), s. 67, Sch. 19 Pt. 2 para. 3

537 Conditions for contribution allowances under F82Parts 2 to 4 and 5

1

This section gives general conditions for making contribution allowances under F83Parts 2 to 4 and 5 .

2

The general conditions are that—

a

a person (“C”) has contributed a capital sum to expenditure on the provision of an asset,

b

the expenditure would (ignoring section 532(1))—

i

have been regarded as wholly incurred by another person (“R”), and

ii

if R is not a public body, have entitled R to allowances under Part 2, 3, 4 or 5 or to allocate the expenditure to a pool under Part 2, and

c

C and R are not connected persons.

3

In this section “public body” means the Crown or any public or local authority in the United Kingdom.

4

In this Chapter “relevant activity” has the meaning given by section 536(5).

538 Plant and machinery

1

This section is about contribution allowances under Part 2 and applies if—

a

the general conditions for contribution allowances are met, and

b

C’s contribution is made for the purposes of a trade or relevant activity carried on, or to be carried on, by C.

2

C is to be treated for the purposes of allowances under Part 2 as if—

a

the contribution were expenditure incurred by C on the provision, for the purposes of C’s trade or relevant activity, of the asset provided by means of C’s contribution,

b

C owned the asset as a result of incurring that expenditure at any time when R owns it or is treated under Part 2 as owning it, and

c

the asset were at all material times in use for the purposes of C’s trade or relevant activity.

3

Expenditure treated as incurred under subsection (2)(a), if allocated to any pool, must be allocated to a single asset pool.

4

Subsections (5) and (6) apply for the purposes of contribution allowances under Part 2 if the whole or a part of the trade or relevant activity for the purposes of which C’s contribution was made is transferred.

5

If the whole of the trade or relevant activity is transferred, writing-down allowances for chargeable periods ending after the date of the transfer are to be made to the transferee instead of to the transferor.

6

If a part of the trade or relevant activity is transferred, writing-down allowances for chargeable periods ending after the date of the transfer are to be made to the transferee instead of to the transferor to the extent that they are properly referable to the part transferred.

539 Industrial buildings

5

For the purposes of subsection (4), the provisions of Part 3 relating to the relevant interest apply (with any necessary modifications) in relation to the contribution made for the purposes of the trade or relevant activity carried on, or to be carried on, by the tenant as they apply in relation to expenditure incurred on the construction of an industrial building.

6

Section 311 (calculation of writing-down allowance after sale of relevant interest) does not apply in relation to writing-down allowances to be made in respect of contributions.

A person is entitled to a writing-down allowance for a chargeable period if at the end of the period the person is entitled to the interest held by C when the contribution was made.

5

For the purposes of subsection (4), the provisions of Part 4 relating to the relevant interest apply (with any necessary modifications) in relation to the contribution made for the purposes of the trade or relevant activity carried on, or to be carried on, by the tenant as they apply in relation to expenditure incurred on the construction of an agricultural building.

541 Mineral extraction

Part 12 Supplementary provisions

Chapter 1 Life assurance business

544 Management assets

1

No allowances are to be given or charges imposed in respect of management assets of any life assurance business carried on by a company except under Part 2 (plant and machinery allowances).

2

An asset is a management asset of any life assurance business carried on by a company if it is provided for use, or used, for the management of that business of that company.

F1373

The management of any life assurance business consists of pursuing those purposes expenditure on which falls to be regarded as expenses payable for the purposes of section 76 of ICTA .

5

In this Act “life assurance business” has the meaning given by section 431(2) of ICTA.

545 Investment assets

1

This section applies if a company which is carrying on any life assurance business holds an asset for purposes other than the management of that business.

2

“Investment asset” means an asset that is within subsection (1).

F863

Any allowance under this Act in respect of an investment asset shall be treated as referable to the category or categories of business to which income arising from the asset is or would be referable.

If income so arising is or would be referable to more than one category of business, the allowance shall be apportioned in accordance with sections 432ZA to 432E, or section 438B, of ICTA in the same way as the income.

4

If the company is charged to tax in respect of its life assurance business under Case I of Schedule D, no allowance in respect of an investment asset is to be taken into account in calculating the company’s profits from that business.

5

If the company is charged to tax under—

a

section 436 of ICTA (pension business and ISA business),

b

section 439B of ICTA (life reinsurance business), or

c

section 441 of ICTA (overseas life assurance business),

no allowance in respect of an investment asset is to be taken into account in calculating the company’s profits from the category of life assurance business in question.

Chapter 2 Additional VAT liabilities and rebates: interpretation, etc.

546 Introduction

This Chapter has effect for the interpretation of, and for otherwise supplementing—

a

Chapter 18 of Part 2 (plant and machinery allowances: additional VAT liabilities and rebates),

b

Chapter 10 of Part 3 (industrial buildings allowances: additional VAT liabilities and rebates), and

c

Chapter 4 of Part 6 (research and development allowances: additional VAT liabilities and rebates).

547“Additional VAT liability” and “additional VAT rebate”

1

“Additional VAT liability” means an amount which a person becomes liable to pay by way of adjustment under the VAT capital items legislation in respect of input tax.

2

“Additional VAT rebate” means an amount which a person becomes entitled to deduct by way of adjustment under the VAT capital items legislation in respect of input tax.

548 Time when additional VAT liability or rebate is incurred or made

1

The time when a person incurs an additional VAT liability or an additional VAT rebate is made to a person is the last day of the period—

a

which is one of the periods making up the VAT period of adjustment applicable to the asset in question under the VAT capital items legislation, and

b

in which the increase or decrease in use giving rise to the liability or rebate occurs.

2

“VAT period of adjustment” means a period specified under the VAT capital items legislation by reference to which adjustments are made in respect of input tax.

549 Chargeable period in which, and time when, additional VAT liability or rebate accrues

1

The chargeable period in which, and the time when, an additional VAT liability or additional VAT rebate accrues is set out in the Table.

Table

Accrual of VAT liabilities and rebates

Circumstances	Chargeable period	Time of accrual
The liability or rebate is accounted for in a VAT return.	The chargeable period which includes the last day of the period to which the VAT return relates.	The last day of the period to which the VAT return relates.
The Commissioners of Customs and Excise assess the liability or rebate as due before a VAT return is made.	The chargeable period which includes the day on which the assessment is made.	The day on which the assessment is made.
The relevant activity is permanently discontinued before the liability or rebate is accounted for in a VAT return or assessed by the Commissioners.	The chargeable period in which the relevant activity is permanently discontinued.	The last day of the chargeable period in which the relevant activity is permanently discontinued.

2

In the Table—

a

“VAT return” means a return made to the Commissioners of Customs and Excise for the purposes of value added tax, and

b

“the relevant activity” means the trade or, in relation to Part 2, the qualifying activity to which the additional VAT liability or additional VAT rebate relates.

550 Apportionment of additional VAT liabilities and rebates

1

This section applies if—

a

any provision of this Act requires an allowance or charge to which a person is entitled or liable in respect of any qualifying expenditure to be determined by reference to—

i

a proportion only of that expenditure, or

ii

a proportion only of what that allowance or charge would have been apart from that provision, and

b

the person incurs an additional VAT liability or an additional VAT rebate is made to the person in respect of that expenditure.

2

The additional VAT liability or rebate is subject to the same apportionment as the original expenditure, allowance or charge.

551 Supplementary

1

In this Chapter, “the VAT capital items legislation” means any Act or instrument (whenever passed or made) providing for the proportion of input tax on an asset of a specified description which may be deducted by a person from his output tax to be adjusted from time to time as a result of—

a

an increase, or

b

a decrease,

in the extent to which the asset is used by him for making taxable supplies (or taxable supplies of a specified class or description) during a specified period.

2

In this Chapter “the VAT capital items legislation” also includes any other Act or instrument (whenever passed or made) which provides for Article 20(2) to (4) of the Sixth VAT Directive to be given effect.

3

“The Sixth VAT Directive” means the Sixth Directive (77/388/EEC) of the Council of the European Communities on Value Added Tax, dated 17th May 1977.

4

In this Chapter “input tax”, “output tax” and “taxable supply” have the same meaning as in VATA 1994.

Chapter 3 Disposals of oil licences: provisions relating to Parts 5 and 6

Introduction

552 Meaning of “oil licence” and “interest in an oil licence”

1

In this Chapter “oil licence” means a UK oil licence or a foreign oil concession.

2

In this Chapter “UK oil licence” means a licence under—

a

Part I of the Petroleum Act 1998 (c. 17) (“the 1998 Act”), or

b

the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)) (“the 1964 Act”),

authorising the winning of oil.

3

In this Chapter “foreign oil concession” means any right which—

a

is a right to search for or win oil that exists in its natural condition in a place to which neither the 1998 Act nor the 1964 Act applies, and

b

is conferred or exercisable (whether or not under a licence) in relation to a particular area.

4

In this Chapter “interest in an oil licence” includes, if there is an agreement which—

a

relates to oil from the whole or a part of the licensed area, and

b

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

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

Oil licences relating to undeveloped areas

553 Consideration to be treated as nil

1

This section applies if—

a

there is a material disposal of an oil licence which, at the time of the disposal, relates to an undeveloped area, and

b

any of the consideration for the disposal consists of—

i

another oil licence, or an interest in another oil licence, which at that time relates to an undeveloped area, or

ii

an obligation to undertake exploration work or appraisal work in an area which is or forms part of the licensed area in relation to the licence disposed of.

2

The value of the consideration within subsection (1)(b) is to be treated as nil for the purposes of—

a

Part 5 (mineral extraction allowances),

b

Part 6 (research and development allowances), and

c

section 555 (disposal of oil licence with exploitation value).

3

A “material disposal” of an oil licence means any disposal (including a part disposal and a disposal of an interest in an oil licence) other than a disposal in relation to which section 568 or 569 (sales treated as being for alternative amount) has effect.

4

If—

a

the material disposal is part of a larger transaction under which one party makes to another material disposals of two or more licences, and

b

at the time of disposal, each of those licences relates to an undeveloped area,

the licensed area for the purposes of subsection (1)(b) is the totality of the licensed areas in relation to those licences.

5

In relation to a material disposal of a licence under which the buyer acquires an interest in the licence only so far as it relates to part of the licensed area, any reference in this section and section 554 to the licensed area is to be read as a reference only to that part of the licensed area to which the buyer’s acquisition relates.

6

In subsection (1)(b)—

“exploration work”, in relation to an area, means work carried out for the purpose of searching for oil anywhere in that area, and
“appraisal work”, in relation to an area, means work carried out for the purpose of ascertaining—
1. a
  the extent or characteristics of any oil-bearing area the whole or part of which lies in that area, or
2. b
  what the reserves of oil of any such oil-bearing area are.

1

This section applies if—

a

assets are transferred as part of, or in connection with, the transfer of the whole or part of the business of an insurance company to another company,

b

the transfer is—

i

in accordance with F88an insurance business transfer scheme to transfer business which consists of the effecting or carrying out of contracts of long-term insurance, or

ii

ii

carries on in the United Kingdom through a F123permanent establishment a trade which consists of, or includes, the trade or the part of the trade transferred.

2

If this section applies—

a

the transfer itself does not give rise to any allowances or charges under this Act, and

b

in relation to assets included in the transfer, anything done to or by company A before the transfer is to be treated after the transfer as having been done to or by company B.

3

If, for the purposes of subsection (2)(b), expenditure falls to be apportioned between assets included in the transfer and other assets, the apportionment is to be made in a just and reasonable manner.

4

In this section “qualifying company” means a body incorporated under the law of a member State.

5

If this section applies, section 343(2) of ICTA does not apply (effect of company reconstruction without change of ownership).

Chapter 5 Miscellaneous

the determination is to be made by that body of General Commissioners.

4

If—

a

different bodies of General Commissioners have jurisdiction with respect to the persons concerned, and

b

those persons do not agree that the determination is to be made by the Special Commissioners,

the determination is to be made by such of those bodies of General Commissioners as the Board of Inland Revenue may direct.

5

In any other case, the determination is to be made by the Special Commissioners.

6

The Commissioners must determine the question in the same way as an appeal, but all the persons concerned are entitled—

a

to appear before and be heard by the Commissioners, or

b

to make representations to them in writing.

b

transactions of which the sale is one,

is the obtaining of a tax advantage by all or any of the parties under any provision of this Act except Part 2.

5

Sections 568 to 570 do not apply if section 561 applies (transfer of a UK trade to a company in another member State).

568 Sales treated as being at market value

1

A sale of property that is not at market value is treated as being at market value if—

a

the control test is met, or

b

the tax advantage test is met.

2

This section is subject to any election under section 569.

569 Election to treat sale as being for alternative amount

1

The parties to a sale of property that is not for the alternative amount may elect for the sale to be treated as being for the alternative amount if—

a

the control test is met or section 573 applies (transfers treated as sales), and

b

the tax advantage test is not met.

2

Subsection (1) is subject to section 570.

3

The alternative amount is the lower of market value and—

a

if the sale is relevant for the purposes of Part 3 or 10, the residue of the qualifying expenditure immediately before the sale;

b

if the sale is relevant for the purposes of Part 5, the unrelieved qualifying expenditure immediately before the sale;

c

if the sale is relevant for the purposes of Part 6—

i

in a case where an allowance under Part 6 is given for the expenditure represented by the asset sold, nil;

ii

in any other case, the qualifying expenditure represented by the asset sold.

4

In subsection (3) “residue of qualifying expenditure”, “unrelieved qualifying expenditure” and “qualifying expenditure” have the same meaning as in the Part for the purposes of which the sale is relevant.

5

If the sale—

a

is relevant for the purposes of Part 3 or 10, and

b

is treated as being for the residue of the qualifying expenditure immediately before the sale,

no balancing adjustment is to be made as a result of the sale under section 319 (building not an industrial building, etc. throughout) or 517 (building not a qualifying dwelling-house throughout).

6

If, after the date of the sale, an event occurs as a result of which a balancing charge would have fallen to be made on the seller if—

a

he had continued to own the property, and

b

he had done all such things, and been allowed all such allowances, as were done by or allowed to the buyer,

the balancing charge is to be made on the buyer.

7

All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

8

For the purposes of this section and section 570, a sale is relevant for the purposes of a Part if it is of property of a kind that is relevant for deciding whether an allowance or charge is made under that Part.

570 Elections: supplementary

1

Section 569(1) does not apply to a sale that is relevant for the purposes of Part 4 F92or 4A .

2

No election under section 569 may be made if—

a

the circumstances of the sale or the parties to it mean that a relevant allowance or charge will not be capable of falling to be made, or

b

the buyer is a dual resident investing company.

3

In subsection (2)(a) “relevant allowance or charge” means an allowance or charge under Part 3, 5, 6, 9 or 10 which (ignoring the circumstances mentioned in subsection (2)(a)) would or might fall to be made, as a result of the sale, to or on any of the parties to it.

4

If the sale is relevant for the purposes of Part 10, no election under section 569 may be made unless, at the time of the sale or any earlier time, both the seller and the buyer are or have been approved bodies (as defined in section 492).

5

An election under section 569 must be made by notice to the Inland Revenue not later than 2 years after the sale.

F110Anti-avoidance

Annotations:

Amendments (Textual)

F110

S. 570A and cross-heading inserted (10.7.2003) by Finance Act 2003 (c. 14) , s. 164(1) (with s. 164(2) )

570AAvoidance affecting proceeds of balancing event

1

This section applies where an event occurs in relation to an asset (a “ balancing event ”) as a result of which a balancing allowance would (but for this section) fall to be made to a person (“the taxpayer”) under Part 3, 4, 4A, 5 or 10.

2

The taxpayer is not entitled to any balancing allowance if, as a result of a tax avoidance scheme, the amount to be brought into account as the proceeds from the event is less than it would otherwise have been.

3

In subsection (2) a “ tax avoidance scheme ” means a scheme or arrangement the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage by the taxpayer.

4

Where this section applies to deny a balancing allowance, the residue of qualifying expenditure immediately after the balancing event is nevertheless calculated as if the balancing allowance had been made.

5

In this section as it applies for the purposes of Part 5 (mineral extraction allowances)—

a

the references to the proceeds from the balancing event that are to be brought into account shall be read as references to the disposal value to be brought into account, and

b

the reference to the residue of qualifying expenditure shall be read as a reference to the unrelieved qualifying expenditure.

Chapter 6 Final provisions

General interpretation

571 Application of Act to parts of assets

1

In this Act references to an asset of any kind (including a building or structure, plant or machinery or works) include a part of an asset.

2

But subsection (1) does not apply if the context otherwise requires.

the time of completion, and

b

the time when possession is given.

573 Transfers treated as sales

1

This section applies for the purposes of Parts 3, 4 F93, 4A and 10 and other provisions of this Act relevant to those Parts if—

a

there is a transfer of the interest which is the relevant interest for the purposes of the Part in question, and

b

the transfer is not a sale.

2

The transfer is treated as a sale of the relevant interest.

3

The sale is treated as being at market value, subject to any election under section 569 (election to treat sale as being for alternative amount).

4

This section does not apply if section 561 applies (transfer of a UK trade to a company resident in another member State).

574 Meaning of “control”

1

In this Act “control” is used in the sense given in this section.

2

In relation to a body corporate (“company A”), “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 that or any other body corporate, or

b

as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,

that the affairs of company A are conducted in accordance with P’s wishes.

3

In relation to a partnership, “control” means the right to a share of more than half of the assets, or of more than one half of the income, of the partnership.

575 Connected persons

1

Section 839 of ICTA (how to tell whether persons are connected) applies for the purposes of this Act.

2

Subsection (1) is subject to—

a

section 156 (connected persons for purposes of deferring balancing charges in respect of ships),

b

section 232 (connected persons for purposes of Chapter 17 of Part 2—anti-avoidance),

c

section 246(2) (connected persons where additional VAT liability is incurred in anti-avoidance case), and

d

section 266(5) (elections where predecessor and successor are connected persons),

(which give “connected person” an extended meaning).

576 Meaning of “the Inland Revenue” etc.

1

Subject to subsection (2), in this Act “the Inland Revenue” means any officer of the Board of Inland Revenue.

2

In section 51(1) and (3)(a) (disclosure by or to Inland Revenue of information relating to first-year allowances in Northern Ireland cases) “the Inland Revenue” means the Board of Inland Revenue or any officer of the Board.

3

In this Act “the Board of Inland Revenue” means the Commissioners of Inland Revenue (as to which, see in particular the Inland Revenue Regulation Act 1890 (c. 21)).

577 Other definitions

1

In this Act—

“dual resident investing company” has the same meaning as in section 404 of ICTA (limitation of group relief in relation to certain dual resident companies);
“market value”, in relation to any asset, means the price the asset would fetch in the open market;
“the normal time limit for amending a tax return”, in relation to a tax year, means the first anniversary of the 31st January following the tax year;
“notice” means a notice in writing;
“property business” means a Schedule A business or an overseas property business;
“tax return” has the meaning given by section 3(3);
“tax year” means, in relation to income tax, a year for which any Act provides for income tax to be charged;
“the tax year 2001—02” means the tax year beginning on 6th April 2001 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).

2

Any reference to the setting up, commencement or permanent discontinuance of—

a

a trade,

b

a property business,

c

a profession, or

d

a vocation,

includes, except where the contrary is expressly provided, the occurring of an event which, under any provision of the Income Tax Acts or Corporation Tax Acts, is to be treated as equivalent to the setting up, commencement or permanent discontinuance of a trade, property business, profession or vocation.

3

Any reference in this Act to an allowance made includes an allowance which would be made but for an insufficiency of profits, or other income, against which to make it.

4

For the purposes of this Act a person obtains a tax advantage if he—

a

obtains an allowance or a greater allowance, or

b

avoids a charge or secures the reduction of a charge.

5

In Schedule 1—

a

Part 1 gives the meaning of abbreviated references in this Act to Acts about tax, and

b

Part 2 lists where expressions used in this Act are defined or otherwise explained.

Amendments, repeals, citation etc.

578 Consequential amendments

Schedule 2 contains consequential amendments.

579 Commencement and transitional provisions and savings

1

This Act has effect—

a

for income tax purposes, as respects allowances and charges falling to be made for chargeable periods ending on or after 6th April 2001, and

b

for corporation tax purposes, as respects allowances and charges falling to be made for chargeable periods ending on or after 1st April 2001.

2

References in this Act to a chargeable period to which this Act applies are to the chargeable periods given in subsection (1).

3

Subsection (1) is subject to Schedule 3, which contains transitional provisions and savings.

580 Repeals

Schedule 4 contains repeals.

581 Citation

This Act may be cited as the Capital Allowances Act 2001.