Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

-- Back --

Page 11

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28 | P.29 | P.30 | P.31

as the part of the sale price that is expenditure incurred by the purchaser on the provision of the fixture.

(3) The amount fixed by the election must not exceed--

(a) the amount of the capital expenditure which was treated as incurred by the seller on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual sale price.

(4) If an election fixes the amount to be treated as the part of the sale price--

(a) the remaining amount (if any) of the sale price is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to--

(a) sections 186 and 187 (fixtures on which industrial buildings allowance or research and development allowance has been made),

(b) section 197 (disposal values in avoidance cases), and

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) for the other purposes of this Part,

as the part of the capital sum that is expenditure incurred by the lessee on the provision of the fixture.

(3) The amount fixed by the election must not exceed--

(a) the amount of the capital expenditure which was treated as incurred by the lessor on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual capital sum.

(4) If an election fixes the amount to be treated as the part of the capital sum--

(a) the remaining amount (if any) of the capital sum is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to--

(a) sections 186 and 187 (fixtures on which industrial buildings allowance or research and development allowance has been made),

(b) section 197 (disposal values in avoidance cases), and

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.

201 Elections under sections 198 and 199: procedure

(1) An election must be made by notice to the Inland Revenue no later than 2 years after the date when--

(a) the purchaser acquires the qualifying interest, in the case of an election under section 198, or

(b) the lessee is granted the lease, in the case of an election under section 199.

(2) The amount fixed by an election must be quantified at the time when the election is made.

(3) The notice must state--

(a) the amount fixed by the election,

(b) the name of each of the persons making the election,

(d) information sufficient to identify the relevant land,

(e) particulars of--

(i) the interest acquired by the purchaser, in the case of an election under section 198, or

(ii) the lease granted to the lessee, in the case of an election under section 199, and

(f) the tax district references of each of the persons making the election.

(4) If a person--

(a) 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

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) 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.

204 Appeals etc.

(1) Subsections (2) and (3) apply if--

(a) any question arises as to whether any plant or machinery has become, in law, part of a building or other land, and

(b) that question is material to the tax liability (for whatever period) of two or more persons.

(2) The question is to be determined, for the purposes of the tax of all the persons concerned, by the Special Commissioners.

(3) The Special 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 Special Commissioners, or

(b) to make representations to them in writing.

(4) Subsections (5) and (6) apply if any question relating to an election under section 198 or 199 (apportionments) arises for determination by any body of Commissioners for the purposes of any proceedings before them.

(5) The Commissioners must determine the question separately from any other questions in those proceedings.

(6) Each of the persons who has joined in making the election is entitled--

(a) to appear before and be heard by the Commissioners, or

(b) 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) Subsection (1) applies to qualifying expenditure incurred by a person carrying on a qualifying activity--

(a) partly for the purposes of the qualifying activity, and

(b) partly for other purposes.

(3) If a person is required to bring a disposal value into account in a pool for a chargeable period because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity, an amount equal to that disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool for that chargeable period.

(4) In the case of a single asset pool under subsection (1), there is no final chargeable period or disposal event merely because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity.

207 Reduction of allowances and charges on expenditure in single asset pool

(1) This section applies if a person's expenditure is in a single asset pool under section 206(1) or (3).

(2) The amount of--

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery was used in the chargeable period in question for purposes other than those of the person's qualifying activity.

(4) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(5) If a person entitled to a writing-down allowance for a chargeable period--

(a) 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.

208 Effect of significant reduction in use for purposes of qualifying activity

(1) This section applies if--

(a) expenditure is allocated to a single asset pool under this Chapter,

(b) there is such a change of circumstances as would make it appropriate for any reduction falling to be made under section 207--

(i) for the chargeable period in which the change takes place ("the relevant chargeable period"), or

(ii) for any subsequent chargeable period,

to represent a larger proportion of the amount reduced than would have been appropriate apart from the change,

(c) no disposal value in respect of the plant or machinery would, apart from this section, fall to be brought into account for the relevant chargeable period, and

(d) the market value of the plant or machinery at the end of the relevant chargeable period exceeds the available qualifying expenditure in that pool for that period by more than £1 million.

(2) If this section applies--

(a) a disposal value is required to be brought into account in the single asset pool for the relevant chargeable period, and

(b) section 206 applies as if, at the beginning of the following chargeable period, expenditure had been incurred on the provision of the plant or machinery of an amount equal to the disposal value brought into account as a result of paragraph (a).

Chapter 16 Partial depreciation subsidies

209 Meaning of "partial depreciation subsidy"

In this Chapter "partial depreciation subsidy" means a sum which--

(a) is payable directly or indirectly to a person who has incurred qualifying expenditure for the purposes of a qualifying activity,

(b) is in respect of, or takes account of, part of the depreciation of the plant or machinery resulting from its use for the purposes of that activity, and

(c) does not fall to be taken into account as income of that person or in calculating the profits of any qualifying activity carried on by him.

210 Reduction of first-year allowances

(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--

(a) the person is required to bring a disposal value into account in the pool referred to in subsection (3), and

(b) an amount equal to the disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool.

(5) If qualifying expenditure in respect of any plant or machinery is in a single asset pool under this section, there is no further allocation of that qualifying expenditure because a further partial depreciation subsidy is paid in respect of that plant or machinery.

212 Reduction of allowances and charges on expenditure in single asset pool

(1) This section applies if expenditure is in a single asset pool under section 211(1) or (4).

(2) The amount of--

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(4) If a person entitled to a writing-down allowance for a chargeable period--

(a) 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

Relevant transactions

213 Relevant transactions: sale, hire-purchase (etc.) and assignment

(1) For the purposes of this Chapter, a person ("B") enters into a relevant transaction with another ("S") if--

(a) S sells plant or machinery to B,

(b) B enters into a contract with S providing that B shall or may become the owner of plant or machinery on the performance of the contract, or

(c) S assigns to B the benefit of a contract providing that S shall or may become the owner of plant or machinery on the performance of the contract.

(2) For the purposes of this Chapter, references to B's expenditure under a relevant transaction are references--

(a) in the case of a sale within subsection (1)(a), to B's capital expenditure on the provision of the plant or machinery by purchase,

(b) in the case of a contract within subsection (1)(b), to B's capital expenditure under the contract so far as it relates to the plant or machinery, or

(c) in the case of an assignment within subsection (1)(c), to B's capital expenditure under the contract so far as it relates to the plant or machinery or is by way of consideration for the assignment.

(3) If--

(a) B is treated under section 14 (use for qualifying activity of plant or machinery which is a gift) as having incurred capital expenditure on the provision of plant or machinery, and

(b) the donor of the plant or machinery was S,

B is to be treated for the purposes of this Chapter as having incurred capital expenditure on the provision of the plant or machinery by purchasing it from S.

Restrictions on allowances

214 Connected persons

Allowances under this Part are restricted under sections 217 and 218 if--

(a) B enters into a relevant transaction with S, and

(b) B and S are connected with each other.

215 Transactions to obtain allowances

Allowances under this Part are restricted under sections 217 and 218 if--

(a) B enters into a relevant transaction with S, and

(b) it appears that the sole or main benefit which (but for this section) might have been expected to accrue to B or S, or to any other party, from--

(i) the relevant transaction, or

(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.

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.

(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 amount of that expenditure;

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

(4) If plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), section 224 or 225 applies instead of this section.

Finance leases

219 Meaning of "finance lease"

(1) In this Chapter "finance lease" means any arrangements--

(a) which provide for plant or machinery to be leased or otherwise made available by a person ("the lessor") to another person ("the lessee"), and

(b) which, under normal accountancy practice--

(i) fall (or would fall) to be treated, in the accounts of the lessor or a person connected with the lessor, as a finance lease or a loan, or

(ii) are comprised in arrangements which fall (or would fall) to be so treated.

(2) For the purpose of applying subsection (1)(b), the lessor and any person connected with the lessor are to be treated as being companies which are incorporated in a part of the United Kingdom.

(3) In this section "accounts", in relation to a company, includes any accounts which--

(a) 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 any person, 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.

-- Back --

Stat