The reference in sub-paragraph (1) to expenditure incurred in pursuance of a contract entered into before 26th November 1996 does not, in the case of a contract varied at any time on or after that date, include a reference to any expenditure incurred under the contract that exceeds the expenditure that would have been incurred if the contract had not been varied.

Expressions used in this paragraph and in Chapter 10 of Part 2 have the same meaning in this paragraph as in that Chapter; and in particular references in this paragraph to a “Part 2 claim” are to be read in accordance with section 103(3).

Section 117(1) applies as if the reference in paragraph (b) to expenditure qualifying for a normal writing-down allowance under section 116(3) included a reference to expenditure qualifying for the first-year allowance.

Subsections (3) to (5) of section 117 apply as if the reference in section 117(3)(b) to expenditure qualifying for a normal writing-down allowance under section 116(3) included a reference to expenditure qualifying for the first-year allowance.

Sub-paragraph (2) applies if paragraph 51 of Schedule 12 to the Abolition of Feudal Tenure etc. (Scotland) Act 2000 has not come into force before the commencement of section 175.

In sub-paragraph (2) “the appointed day” means such day as may be appointed by the Scottish Ministers under section 71 of the Abolition of Feudal Tenure etc. (Scotland) Act 2000 for the coming into force of the Act.

For the purposes of section 236(1)(a) (entitlement to first-year allowance in respect of additional VAT liability where original expenditure was first-year qualifying expenditure), first-year qualifying expenditure includes expenditure which is first-year qualifying expenditure under paragraph 47 or 48.

A first-year allowance under this paragraph is made for the chargeable period in which the additional VAT liability accrues.

The amount of such an allowance is a percentage of the additional VAT liability in respect of which the allowance is made, as shown in the Table—

In determining whether expenditure is first-year qualifying expenditure under this paragraph, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded.

Expenditure on the provision of plant or machinery for leasing is not first-year qualifying expenditure under this paragraph if it appears that the expenditure is of the kind described in section 109(2) or 110(2) (expenditure on plant or machinery which is used for overseas leasing etc.).

The categories referred to in sub-paragraph (5)(c) are as follows.

• Category 1. Expenditure on leasing qualifying by reference to Chapter 11 of Part 2 (overseas leasing)

  It appears that the plant or machinery—

  1. (a)

     will be used for a qualifying purpose (as defined by sections 122 to 125) in the designated period (as defined by section 106), and

  2. (b)

     will not be used for any other purpose at any time in that period.

• Category 2. Enterprise zones

  The circumstances of the incurring of the expenditure are that—

  1. (a)

     the expenditure is incurred on the provision of plant or machinery which is to be an integral part of a building or structure, and

  2. (b)

     expenditure incurred at that time on the construction of the building or structure would be qualifying enterprise zone expenditure to which Chapter 5 of Part 3 (initial allowances for qualifying enterprise zone expenditure) would apply.

• Category 3. Fixtures

  The circumstances of the incurring of the expenditure are that—

  1. (a)

     expenditure is incurred on the provision of plant or machinery which is fixed to land or a building,

  2. (b)

     the person who incurs it is the lessor of the land or building, and

  3. (c)

     a transfer of the person’s interest in the land or building would operate to transfer that person’s interest in the plant or machinery.

• Category 4. Cars hired out to the disabled etc.

  The expenditure is incurred on the provision of a car which is within section 82(4) (cars hired out to persons receiving disability allowances etc.).

Any first-year allowance under sub-paragraph (7) (when read with section 236) is to be made on the same basis and subject to the same apportionments (if any) as would be applicable in the case of a writing-down allowance under section 116(5).

In determining whether expenditure is first-year qualifying expenditure under this paragraph, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded.

Expenditure is not first-year qualifying expenditure under this paragraph if it is within any of the general exclusions given in section 46(2).

In this paragraph, “small or medium-sized enterprise” is to be read in accordance with sections 47 to 49, read with paragraph 50.

Section 49 applies with the substitution in subsection (2) of “parent company” for “parent undertaking” and the omission of the words in brackets in subsection (5).

Section 279 does not apply if the expenditure on the construction of the building was incurred before 12th April 1978.

Expenditure is not to be treated for the purposes of sub-paragraph (1) as having been incurred after the date on which it was in fact incurred by reason only of section 10(1) of CAA 1990.

Section 324 applies in relation to a mills, factories or exceptional depreciation allowance as it applies in relation to an allowance of any kind mentioned in that section.

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

The amount of the initial allowance is 20% of the additional VAT liability.

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

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

In this paragraph “qualifying lessee” and “qualifying licensee” have the same meaning as in section 305.

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

Qualifying enterprise zone expenditure is not to be taken into account as 1992-93 qualifying expenditure for the purposes of sub-paragraph (1).

The 1992-93 element of qualifying expenditure within section 295 or 296 is—

$\mathrm{QE}\times \genfrac{}{}{0.1ex}{}{\mathrm{E}}{\mathrm{T}}$

where—

QE is the amount of qualifying expenditure,

E is the amount of 1992-93 construction expenditure, and

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

Sub-paragraph (2) applies where section 21(9) of CAA 1990 (expenditure on preparatory work on land where building used before 6th April 1956) applied to any expenditure immediately before the commencement of Part 3 of this Act, so that Part I of that Act (industrial buildings and structures) except for section 1 (initial allowances) applied to part of the expenditure separately from the remainder.

Where this sub-paragraph applies, Part 3 of this Act, except for Chapter 5, similarly applies to the part of the expenditure separately from the remainder.

Sections 407 and 411 apply, in relation to a case where asset X is a mineral asset situated in the United Kingdom, as if the references to an earlier owner of the asset did not include a person who has not owned the asset at any time after 31st March 1986.

In the case of a mineral asset which consists of or includes an interest in or right over mineral deposits or land, the asset is not to be regarded for the purposes of this paragraph as situated in the United Kingdom unless the deposits or land are or is so situated.

Expressions used in this paragraph and Chapter 4 of Part 5 have the same meaning in this paragraph as they have in that Chapter.

Part 5 of this Act does not apply in relation to expenditure incurred before 1st April 1986 (“old expenditure”) except as provided by the following provisions of this paragraph.

In the case of expenditure incurred in the acquisition of a mineral asset, nothing in sub-paragraph (3)(c) affects the time as at which under section 404 the undeveloped market value of an interest is to be determined.

Where the qualifying expenditure in respect of which a balancing charge falls to be made represents part only of the outstanding balance of an item of old expenditure, the reference in sub-paragraph (5) to allowances made in respect of that item is to be construed as a reference to such part of those allowances as it is just and reasonable to apportion to that part of the balance (having regard to any apportionment made under paragraph 3(2) of Schedule 14 to FA 1986).

Paragraphs 93 to 101 apply to capital expenditure incurred by a person before 1st April 1986 on the purchase of patent rights.

Chapters 2 to 4 of Part 8 do not apply to such expenditure, except for certain provisions which are specifically applied by paragraph 101.

In this paragraph and paragraphs 94 to 101, “qualifying expenditure” means capital expenditure incurred before 1st April 1986 on the purchase of patent rights.

The result of Steps 1 to 3 is the unrelieved qualifying expenditure for a chargeable period.

• Step 1

  Take an item of qualifying expenditure.

• Step 2

  Subtract any writing-down allowances made in respect of that expenditure for earlier chargeable periods.

• Step 3

  If the person who incurred the expenditure sold any part of the patent rights before the beginning of the chargeable period, subtract the net proceeds of sale (so far as they consist of capital sums).

The total writing-down allowances made in respect of an item of qualifying expenditure (whether to the same or to different persons) must not exceed the amount of that expenditure.

For the purpose of determining the writing-down period, expenditure incurred for the purposes of a trade by a person about to carry on the trade is treated as if incurred on the first day on which that person carries on that trade, unless that person has by then sold all the rights on which the expenditure was incurred.

“The commencement of the patent”, means, in relation to a patent, the date as from which the patent rights become effective.

The basic rule for calculating a writing-down allowance for an item of qualifying expenditure is—

$\mathrm{E}\times \genfrac{}{}{0.1ex}{}{\mathrm{C}}{\mathrm{W}}$

where—

E is the amount of the qualifying expenditure;

C is the length of the part of the chargeable period falling within the writing-down period;

W is the length of the writing-down period.

If a writing-down allowance in respect of qualifying expenditure is prohibited by sub-paragraph (1) for a chargeable period, no writing-down allowance is to be made in respect of that expenditure for any subsequent chargeable period.

If a person sells part of any patent rights in a chargeable period, and for that period U is greater than N, the writing-down allowance for that period is—

$\genfrac{}{}{0.1ex}{}{\mathrm{U}-\mathrm{N}}{\mathrm{Y}}$

where—

U is the unrelieved qualifying expenditure for the chargeable period,

N is the net proceeds of any sales of the patent rights which take place in the chargeable period (so far as those proceeds consist of capital sums), and

Y is the number of complete years of the writing-down period remaining at the beginning of the chargeable period.

If an amount is calculated under sub-paragraph (1) for a chargeable period, that amount is also the amount of the writing-down allowance for subsequent chargeable periods until another sale in a period for which U is greater than N causes a fresh calculation to be made under sub-paragraph (1).

If a chargeable period is more or less than a year, an allowance calculated under sub-paragraph (1) or (2) is proportionately increased or reduced.

If there is no unrelieved qualifying expenditure, the amount of the balancing charge is equal to the net proceeds of sale (so far as they consist of capital sums).

This is subject to sub-paragraphs (4) and (5).

If there is some unrelieved qualifying expenditure, the amount of the balancing charge is equal to the amount by which the net proceeds of sale (so far as they consist of capital sums) exceed the unrelieved qualifying expenditure.

This is subject to sub-paragraphs (4) and (5).

The total amount of the first balancing charge must not exceed the total writing-down allowances actually given in respect of the expenditure.

The total amount on which a second or further balancing charge is made must not exceed the total writing-down allowances actually made in respect of the expenditure, less the amount of any earlier charge.

Sections 479 and 480 apply in relation to giving effect to the allowance or charge referred to in sub-paragraph (3) as they apply in relation to giving effect to an allowance or charge under Chapter 3 of Part 8 in respect of qualifying non-trade expenditure.

For the purposes of Part 8 a person’s “income from patents” includes balancing charges to which the person is liable in respect of qualifying expenditure.