Capital Allowances Act 2001

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

Hire-purchase and similar contracts U.K.

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

(1) This section applies if—

(a) a person carrying on a qualifying activity [F1 or corresponding overseas activity] incurs capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity [F1 or corresponding overseas activity], and

(b) the expenditure is incurred under a contract providing that the person shall or may become the owner of the plant or machinery on the performance of the contract.

(2) The plant or machinery is to be treated for the purposes of this Part as owned by the person (and not by any other person) at any time when he is entitled to the benefit of the contract so far as it relates to the plant or machinery.

[F2 This subsection has effect subject to, and in accordance with, subsections (2A) to (2C).]

[F3 (2A) If the contract is one which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease, subsection (2B) applies.

(2B) Where that is the case, the plant or machinery is to be treated under subsection (2) as owned by the person at any time only if the contract falls (or would fall) to be treated by that person in accordance with generally accepted accounting practice as a finance lease.

(2C) Where at any time the plant or machinery—

(a) is not treated under subsection (2) as owned by the person, but

(b) would be treated under that subsection as owned by the person, but for subsection (2B),

the plant or machinery is nevertheless to be treated under subsection (2) as not owned by any other person at that time.]

(3) At the time when the plant or machinery is brought into use for the purposes of the qualifying activity [F1 or corresponding overseas activity], the person is to be treated for the purposes of this Part as having incurred all capital expenditure in respect of the plant or machinery to be incurred by him under the contract after that time.

(4) If a person—

(a) is treated under subsection (2) as owning plant or machinery,

(b) ceases to be entitled to the benefit of the contract in question so far as it relates to that plant or machinery, and

(c) does not then in fact become the owner of the plant or machinery,

the person is to be treated as ceasing to own the plant or machinery at the time when he ceases to be entitled to the benefit of the contract.

[F4 (6) If—

(a) a person enters into two or more agreements, and

(b) those agreements are such that, if they together constituted a single contract, the condition in subsection (1)(b) would be met in relation to that person and that contract,

the agreements are to be treated for the purposes of this section as parts of a single contract.

In this subsection, any reference to an agreement includes a reference to an undertaking, whether or not legally enforceable.]

[F5 (7)] This section is subject to section 69 (hire-purchase and fixtures) and subsection (3) is subject to section 229 (anti-avoidance).

[F6 (8) In this section “corresponding overseas activity” means an activity that would be a qualifying activity if the person carrying it on were resident in the United Kingdom.]

Textual Amendments

F1 Words in s. 67 inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(2)

F2 Words in s. 67(2) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(3)

F3 S. 67(2A)-(2C) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(4)

F4 S. 67(6) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(6)

F5 S. 67(7) renumbered (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(5)

F6 S. 67(8) inserted (with effect in accordance with Sch. 9 para. 12(8) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 12(7)

68 Disposal value on cessation of notional ownership U.K.

(1) This section applies if a person—

(a) is treated under section 67(4) as ceasing to own plant or machinery, and

(b) is required to bring a disposal value into account as a result.

(2) If the plant or machinery has been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of—

(a) any relevant capital sums, and

(b) any capital expenditure treated under section 67(3) as having been incurred when the plant or machinery was brought into use but which has not in fact been incurred.

(3) If the plant or machinery has not been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of any relevant capital sums.

(4) “Relevant capital sums” means capital sums that the person receives or is entitled to receive by way of consideration, compensation, damages or insurance money in respect of—

(a) his rights under the contract, or

(b) the plant or machinery.

(5) This section is subject to section 229 (anti-avoidance).

69 Hire-purchase etc. and fixtures U.K.

(1) Section 67 does not—

(a) apply to expenditure incurred on plant or machinery which is a fixture, or

(b) prevent Chapter 14 (fixtures) applying in relation to expenditure on plant or machinery incurred under such a contract as is mentioned in section 67(1)(b).

(2) If—

(a) a person is treated under section 67(2) as owning plant or machinery,

(b) the plant or machinery becomes a fixture, and

(c) the person is not treated under Chapter 14 as being the owner of the plant or machinery,

the person is to be treated for the purposes of this Part as ceasing to own the plant or machinery at the time when it becomes a fixture.

(3) In this section “fixture” has the meaning given by section 173(1).

Plant or machinery provided by lessee U.K.

70 Plant or machinery provided by lessee U.K.

(1) This section applies if—

(a) under the terms of a lease, a lessee is required to provide plant or machinery,

(b) the lessee incurs capital expenditure on the provision of that plant or machinery for the purposes of a qualifying activity which the lessee carries on,

(c) the plant or machinery is not so installed or otherwise fixed in or to a building or any other description of land as to become, in law, part of that building or other land, and

(d) the lessee does not own the plant or machinery.

(2) The lessee—

(a) is to be treated as being the owner of the plant or machinery, as a result of incurring the capital expenditure, for so long as it continues to be used for the purposes of the qualifying activity, but

(b) is not required to bring a disposal value into account because the lease ends.

(3) Subsection (4) applies if—

(a) the plant or machinery continues to be used for the purposes of the lessee’s qualifying activity until the lease ends,

(b) the lessor holds the lease in the course of a qualifying activity, and

(c) on or after the ending of the lease, a disposal event occurs in respect of the plant or machinery at a time when the lessor owns the plant or machinery as a result of the requirement under the terms of the lease.

(4) The lessor is required to bring a disposal value into account in the appropriate pool for the chargeable period in which the disposal event occurs.

(5) “The appropriate pool” means the pool which would be applicable under this Part in relation to the lessor’s qualifying activity if—

(a) the expenditure incurred by the lessee had been qualifying expenditure incurred by the lessor, and

(b) that qualifying expenditure were being allocated to a pool for the chargeable period in which the disposal event occurs.

(6) In this section “lease” includes—

(a) an agreement for a lease if the term to be covered by the lease has begun, and

(b) any tenancy,

but does not include a mortgage (and “lessee” and “lessor” are to be read accordingly).

[F7 Lessees under long funding leases U.K.

Textual Amendments

F7 Ss. 70A-70E and cross-heading inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 6

70A Entitlement to capital allowances U.K.

(1) This section applies if a person carrying on a qualifying activity incurs expenditure (whether or not of a capital nature) on the provision of plant or machinery for the purposes of the qualifying activity under a long funding lease.

(2) In the application of this Part in the case of that person, the plant or machinery is to be treated as owned by him at any time when he is the lessee under the long funding lease.

That is so whether or not the lease also falls to be regarded as a long funding lease in the application of this Part in the case of the lessor.

(3) The person is to be treated for the purposes of this Part as having incurred capital expenditure on the provision of the plant or machinery as follows.

(4) The capital expenditure is to be treated as incurred at the commencement of the term of the long funding lease.

(5) The amount of the capital expenditure varies, according to whether the long funding lease is—

(a) a long funding operating lease (subsection (6)), or

(b) a long funding finance lease (subsection (7)).

(6) If the long funding lease is a long funding operating lease, the amount of the capital expenditure is to be found in accordance with section 70B.

(7) If the long funding lease is a long funding finance lease, the amount of the capital expenditure is to be found in accordance with section 70C.

(8) See Chapter 6A for interpretation of this section.

70B Long funding operating lease: amount of capital expenditure U.K.

(1) This section applies by virtue of section 70A(6).

(2) If the long funding lease is a long funding operating lease, the amount of the capital expenditure is the market value of the plant or machinery at the later of—

(a) the commencement of the term of the lease;

(b) the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(3) This section is to be construed as one with section 70A.

70C Long funding finance lease: amount of capital expenditure U.K.

(1) This section has effect by virtue of section 70A(7) for the purpose of determining the amount of the capital expenditure in the case of a long funding finance lease.

(2) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3) The amount of the capital expenditure is the total of—

(a) commencement PVMLP (see subsection (4)), and

(b) if subsection (6) applies, the unrelievable pre-commencement rentals (“UPR”),

but subject, in a case falling within subsection (7), to the restriction imposed by subsection (8).

(4) Commencement PVMLP is the amount that would fall to be recognised as the present value, at the appropriate date, of the minimum lease payments (see section 70YE) if appropriate accounts were prepared by the person.

[F8 (4A) But where the minimum lease payments include a relievable amount, the present value of that amount must be excluded in determining the commencement PVMLP.

(4B) An amount (“amount X”) is a relievable amount if—

(a) an arrangement is in place under which all or part of any residual amount (as defined in section 70YE) is guaranteed by the lessee or a person connected with the lessee,

(b) amount X is within the minimum lease payments because of that arrangement (see subsection (1)(a) of that section), and

(c) it is reasonable to assume that, were amount X to be incurred under the arrangement, relief would be available as a result (beyond relief, by virtue of this section and section 70E, because amount X is within those minimum lease payments).

(4C) In deciding for the purposes of subsection (4B)(c) whether relief would be available as a result, no account is to be taken of—

(a) any part of the arrangement other than the part by virtue of which all or part of the residual amount is guaranteed, or

(b) any other arrangement connected with the arrangement or forming part of a set of arrangements that includes the arrangement.]

(5) For the purposes of subsection (4)—

• “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date on which that amount is first recognised in the books or other financial records of the person;

• “the appropriate date” is the later of—

  (a)

  the commencement of the term of the lease;

  (b)

  the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(6) This subsection applies if—

(a) the person has paid rentals under the lease before the commencement of the term of the lease, and

(b) in the case of some or all of those rentals, relief otherwise than by virtue of this subsection—

(i) is not available, and

(ii) if the case is one where the plant or machinery was not used for the purposes of a qualifying activity in the period before the commencement of the term of the lease, would not have been available had the plant or machinery been used in that period for the purposes of a qualifying activity,

and in any such case UPR is the amount of the rentals for which relief is not, and (in a case falling within paragraph (b)(ii)) would not have been, so available.

(7) Subsection (8) applies if the main purpose, or one of the main purposes, of entering into—

(a) the lease,

(b) a series of transactions of which the lease is one, or

(c) any of the transactions in such a series,

is to obtain allowances under this Part in respect of an amount of capital expenditure that materially exceeds the market value of the leased asset at the commencement of the term of the lease.

(8) In any such case, the amount of the capital expenditure described in subsection (3) is to be restricted to an amount equal to the market value of the asset at the commencement of the term of the lease.

(9) In this section “relief” means relief by way of—

(a) an allowance under this Act,

(b) a deduction in computing profits for the purposes of income tax or corporation tax,

(c) a deduction from total profits or total income for the purposes of either of those taxes.

(10) This section is to be construed as one with section 70A.

Textual Amendments

F8 S. 70C(4A)-(4C) inserted (with effect in accordance with s. 33(6) of the amending Act) by Finance Act 2011 (c. 11), s. 33(2)

70D Long funding finance lease: additional expenditure: allowances for lessee U.K.

(1) This section applies where the following conditions are met—

(a) a person is the lessee of plant or machinery under a long funding finance lease,

(b) as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

(c) the lessor incurs expenditure in relation to the plant or machinery,

(d) as a result of the lessor incurring the expenditure, there is in the case of the lessee an increase (the “relevant increase”) in the present value of the minimum lease payments.

[F9 (1A) Any increase attributable to a relievable amount is to be ignored for the purposes of subsection (1)(d).

(1B) Subsections (4B) and (4C) of section 70C apply (with any necessary modifications) for the purposes of this section as for the purposes of that section.]

(2) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3) The person is to be treated for the purposes of this Part as having incurred further capital expenditure on the provision of the plant or machinery as follows.

(4) The person is to be treated as having incurred the expenditure on the date of first recognition.

(5) The amount of the expenditure is the amount that would fall to be recognised as the amount of the relevant increase if appropriate accounts were prepared by the person.

(6) For that purpose, “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date of first recognition.

(7) For the purposes of this section, the “date of first recognition” is the date on which the relevant increase is first recognised in the books or other financial records of the person.

(8) This section is to be construed as one with section 70A.

Textual Amendments

F9 S. 70D(1A)(1B) inserted (with effect in accordance with s. 33(6) of the amending Act) by Finance Act 2011 (c. 11), s. 33(3)

[F10 70DA Transfer and long funding leaseback: restrictions on lessee's allowances U.K.

(1) This section applies where—

(a) a person (“S”) transfers plant or machinery to another person (“B”),

(b) at any time after the date of the transfer, the plant or machinery is available to be used by S, or a person (other than B) who is connected with S (“CS”), under a plant or machinery lease, and

(c) that lease is a long funding lease.

(2) No annual investment allowance or first-year allowance is to be made in respect of the expenditure of S or CS under the lease.

(3) The amount, if any, by which E exceeds D is to be left out of account in determining the available qualifying expenditure of S or CS.

(4) E is the capital expenditure of S or CS on the provision of the plant or machinery under the long funding lease.

(5) If S is required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), D is that disposal value.

[F11 (5A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the transfer referred to in subsection (1)(a), and

(b) at any time before that transfer S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(6) Otherwise, D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery before the transfer referred to in subsection (1)(a), the amount of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery before that transfer, the amount of that expenditure.

(7) Section 70Y(3) applies to references in this section to a transfer of plant or machinery by a person.

(8) For the purposes of this section a transfer involving the grant of a lease takes place on the commencement of the term of the lease.

[F12 (9) “Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the transfer referred to in subsection (1)(a), and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the transfer referred to in subsection (1)(a).

(10) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]]

Textual Amendments

F10 S. 70DA inserted (with effect in accordance with Sch. 32 para. 17 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 15

F11 S. 70DA(5A) inserted (with effect in accordance with Sch. 10 para. 2(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 2(2)

F12 S. 70DA(9)(10) inserted (with effect in accordance with Sch. 10 para. 2(4) of the amending Act) by Finance Act 2015 (c. 11), Sch. 10 para. 2(3)

70E Disposal events and disposal values U.K.

(1) This section applies where—

(a) a person is the lessee of plant or machinery under a long funding lease,

(b) as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

[F13 (c) a relevant event occurs.]

[F14 (1A) A relevant event occurs if—

(a) the lease terminates,

(b) the plant or machinery begins to be used wholly or partly for purposes other than those of the qualifying activity, or

(c) the qualifying activity is permanently discontinued.]

(2) In the case of that person—

(a) the [F15 relevant event] is a disposal event, and

(b) the person is required to bring into account a disposal value for the chargeable period in which that disposal event occurs.

[F16 (2A) The amount of the disposal value is—

where—

• QE is the person's qualifying expenditure on the provision of the plant or machinery,

• QA is the qualifying amount (see subsections (2B) to (2E)), and

• [F17 R is the sum of—

  [a]

  any relevant rebate (see subsections (2F) and (2G)), and

  [b]

  any other relevant lease-related payment (see subsections (2FA) and (2G)).]

(2B) In the case of a long funding operating lease, “the qualifying amount” means the aggregate amount of the reductions made under F18 ... section 148I of ITTOIA 2005 [F19 or section 379 of CTA 2010] for periods of account in which the person was the lessee.

(2C) In the case of a long funding finance lease, “the qualifying amount” means the aggregate of—

(a) the payments made to the lessor by the person under the lease (including any initial payment), and

(b) the payments made to the lessor by the person under a guarantee of any residual amount (as defined in section 70YE) [F20 other than any relievable payment],

subject to subsection (2D).

(2D) The following are excluded from the “qualifying amount” under subsection (2C)—

(a) so much of any payment as, in accordance with generally accepted accounting practice, falls (or would fall) to be shown in the person's accounts as finance charges in respect of the lease,

(b) so much of any payment as represents charges for services, and

(c) so much of any payment as represents qualifying UK or foreign tax (within the meaning of section 70YE) to be paid by the lessor.

[F21 (2DA) A payment (“payment X”) is a relievable payment if—

(a) an arrangement is in place under which all or part of any residual amount (as defined in section 70YE) is guaranteed by the lessee or a person connected with the lessee,

(b) payment X is within the minimum lease payments because of that arrangement (see subsection (1)(a) of that section), and

(c) it is reasonable to assume that relief would be available as a result of making payment X (beyond relief, by virtue of section 70C or 70D and this section, because payment X is within those minimum lease payments).

(2DB) For the purposes of subsection (2DA)(c)—

(a) “relief” has the meaning given in section 70C, and

(b) subsection (4C) of that section applies as it applies for the purposes of subsection (4B)(c) of that section.]

(2E) In the case of a long funding finance lease that is not a transaction at arm's length, “the qualifying amount” includes only so much of the amounts described in subsection (2C) as would reasonably be expected to have been paid if the lease had been such a transaction.

(2F) “Relevant rebate” means—

(a) in a case falling within subsection (1A)(a), any amount calculated by reference to the termination value that is payable for the benefit (directly or indirectly) of the person or another person connected with that person, or

(b) in a case falling within subsection (1A)(b) or (c), any such amount that would have been so payable if, when the relevant event occurred, the lease had terminated and the plant or machinery had been sold for its market value at that time.

[F22 (2FA) Relevant lease-related payment” means any payment which—

(a) is payable at any time for the benefit (directly or indirectly) of the lessee or a person connected with the lessee,

(b) is connected with the long funding lease, or with any arrangement connected with that lease, and

(c) is not—

(i) an initial payment or any other payment made to the lessor by the lessee under the lease,

(ii) a payment made to the lessor by the lessee under a guarantee of any residual amount (as defined in section 70YE),

(iii) an initial payment or any other payment made under a relevant superior lease to the person who is the lessor under that lease by the person who is the lessee under that lease, or

(iv) a payment to the seller of the proceeds of a sale of the plant or machinery to which subsection (2FC) applies,

if, and to the extent that, the payment is not otherwise brought into account for tax purposes as income or a disposal receipt by the person for whom the benefit is payable (or would not be if that person were within the charge to tax).

(2FB) For the purposes of subsection (2FA)—

• “payment” includes the provision of any benefit, the assumption of any liability and any other transfer of money's worth (and “payable” is to be construed accordingly);

• “relevant superior lease” means any lease of the plant or machinery to which the long funding lease mentioned in subsection (1)(a) is inferior.

(2FC) This subsection applies to a sale of the plant or machinery if—

(a) a person has entered into a relevant transaction with another person in respect of the plant or machinery for the purposes of Chapter 17 of this Part (see section 213) and the sale is within section 213(1)(a),

(b) the plant or machinery is within section 216(1)(b) (sale and lease back), and

(c) the conditions in section 227(2) are met.]

[F23 (2G) In the case of a lease that is not a transaction at arm's length, “relevant rebate” and “relevant lease-related payment” include any amount that would reasonably be expected to have fallen within subsection (2F) or, as the case may be, (2FA) if the lease had been such a transaction.]

(2H) The amount of the disposal value brought into account under this section cannot be less than nil.]

(9) If the [F24 relevant event] gives rise to a disposal event in the case of the person apart from this section, that disposal event is to be ignored.

(10) This section is to be construed as one with section 70A.]

Textual Amendments

F13 S. 70E(1)(c) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(2)

F14 S. 70E(1A) inserted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(3)

F15 Words in s. 70E(2)(a) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(4)

F16 S. 70E(2A)-(2H) substituted for s. 70E(3)-(8) (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(5)

F17 Words in s. 70E(2A) substituted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(2)

F18 Words in s. 70E(2B) repealed (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 329(a), Sch. 3 Pt. 1 (with Sch. 2)

F19 Words in s. 70E(2B) inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 329(b) (with Sch. 2)

F20 Words in s. 70E(2C)(b) inserted (with effect in accordance with s. 33(7) of the amending Act) by Finance Act 2011 (c. 11), s. 33(4)

F21 S. 70E(2DA)(2DB) inserted (with effect in accordance with s. 33(7) of the amending Act) by Finance Act 2011 (c. 11), s. 33(5)

F22 Ss. 70E(2FA)-(2FC) inserted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(3)

F23 S. 70E(2G) substituted (with effect in accordance with s. 46(5) of the amending Act) by Finance Act 2012 (c. 14), s. 46(4)

F24 Words in s. 70E(9) substituted (with effect in accordance with Sch. 32 para. 8 to the amending Act) by Finance Act 2009 (c. 10), Sch. 32 para. 7(6)