Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

-- Back --

Page 12

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

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,
- (c) that expenditure had been treated as long-life asset expenditure only if it is in fact such expenditure, and
- (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(2) Any first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.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

(1) Subsection (2) applies if--

(a) plant or machinery has been the subject of a sale and finance leaseback,

(b) S was required to bring a disposal value into account under this Part because of the relevant transaction,

(c) at any time after that event, a person ("P") becomes the owner of the plant or machinery as a result of incurring capital expenditure, and

(d) P's allowances are not restricted by any other provision of this Chapter.

(2) The amount of P's qualifying expenditure is limited to the sum of--

(a) the amount given by section 222 as the amount of S's disposal value, and

(b) so much of the actual amount of the expenditure as is treated as expenditure on the provision of plant or machinery under section 25 (building alterations connected with installation of plant or machinery).

Sale and leaseback or sale and finance leaseback: election for special treatment

227 Circumstances in which election may be made

(1) Section 228 applies if--

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

(b) the plant or machinery--

(i) is within section 216(1)(b) (sale and leaseback), or

(ii) is the subject of a sale and finance leaseback (see section 221),

(d) B and S elect that section 228 should apply.

(2) The conditions are--

(a) that S incurred capital expenditure on the provision of the plant or machinery,

(b) that the plant or machinery was unused and not second-hand at or after the time when it was acquired by S,

(c) that the plant or machinery was acquired by S otherwise than as a result of a transaction to which section 217, 218, 223 or 224 applies,

(d) that the relevant transaction is effected not more than 4 months after the first occasion on which the plant or machinery is brought into use by any person for any purpose, and

(e) that S has not--

(i) made a claim for an allowance under this Act in respect of expenditure incurred on the provision of the plant or machinery,

(ii) made a tax return in which such expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or

(iii) given notice of any such amendment of a tax return as provides for such expenditure to be so taken into account.

(3) In subsection (2)(b) and (c), the references to the plant or machinery being acquired by S are, in a case where the relevant transaction between S and B falls within section 213(1)(c) (assignment), references to the making of the contract the benefit of which S assigns to B.

(4) An election under this section--

(a) must be made by notice to the Inland Revenue no later than 2 years after the date of the transaction, and

(b) is irrevocable.

(5) Nothing in--

(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.

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

(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) If--

(a) the person assigns the benefit of the contract to another before the plant or machinery is brought into use, and

(b) the circumstances are such that allowances to the assignee fall to be restricted under this Chapter,

section 68(3) (disposal value where person ceases to be entitled to benefit of contract before plant or machinery brought into use) does not apply.

(3) If the expenditure is incurred on the provision of plant or machinery for leasing under a finance lease--

(a) section 67(3) (expenditure due to be incurred under contract treated as incurred when plant or machinery brought into use), and

(b) section 68 (disposal values where person ceases to be entitled to benefit of contract),

do not apply.

(4) Subsection (5) applies if--

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

(b) 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.

230 Exception for manufacturers and suppliers

(1) The restrictions in sections 217 and 218 do not apply in relation to any plant or machinery if--

(a) the relevant transaction is within section 213(1)(a) or (b), and

(b) the conditions in subsection (3) are met.

(2) The restrictions in sections 222 to 225 do not apply in relation to any plant or machinery if--

(a) the plant or machinery is the subject of a sale and finance leaseback which is within section 213(1)(a) or (b), and

(b) the conditions in subsection (3) are met.

(3) The conditions are that--

(a) the plant or machinery has never been used before the sale or the making of the contract,

(b) S's business, or part of S's business, is the manufacture or supply of plant or machinery of that class, and

231 Adjustments of assessments etc.

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

232 Meaning of connected person

(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

(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) a first-year allowance in respect of B's expenditure under the relevant transaction is prohibited by section 217(1) or 223(1).

(2) A first-year allowance is not to be made in respect of any additional VAT liability incurred by B in respect of his expenditure under the relevant transaction.

(3) Any first-year allowance which is prohibited by subsection (2), but which has already been made, is to be withdrawn.

242 Restriction on B's qualifying expenditure: general

(1) This section applies instead of section 218 (restriction on B's qualifying expenditure in case other than sale and finance leaseback) if--

(a) apart from this subsection, section 218 would apply, and

(b) an additional VAT liability has been incurred by, or an additional rebate has been made to, any of the persons mentioned in that section.

(2) The amount, if any, by which E exceeds D is to be left out of account in determining B's available qualifying expenditure.

E and D are defined in subsections (3) to (6).

(3) Except where subsection (6) applies, E is the sum of--

(a) B's expenditure under the relevant transaction, and

(b) any additional VAT liability incurred by B in respect of that expenditure.

(4) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.

(5) 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--

(i) increased by the amount of any additional VAT liability incurred by S in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to S in respect 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--

(i) increased by the amount of any additional VAT liability incurred by that person in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to that person in respect of that expenditure.

(6) If--

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction,

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

E is the amount of B's expenditure under the relevant transaction.

243 Restriction on B's qualifying expenditure: sale and finance leaseback

(1) This section applies instead of section 224 (restriction on B's qualifying expenditure in case of sale and finance leaseback) if--

(a) apart from this subsection, section 224 would apply, and

(b) an additional VAT liability has been incurred by B.

(2) The amount, if any, by which E exceeds D is to be left out of account in determining B's available qualifying expenditure.

E and D are defined in subsections (3) to (7).

(3) Except where subsection (7) applies, E is the sum of--

(a) B's expenditure under the relevant transaction, and

(b) any additional VAT liability incurred by B in respect of that expenditure.

(4) 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).

(5) 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.

(6) 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).

(7) If--

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction,

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

E is the amount of B's expenditure under the relevant transaction.

244 B's qualifying expenditure if lessor not bearing non-compliance risk

An additional VAT liability is not qualifying expenditure for the purposes of this Part if--

(a) section 225 (restriction on B's qualifying expenditure if lessor not bearing compliance risk) applies, and

(b) the additional VAT liability is incurred--

(i) by B, in respect of the expenditure referred to in section 225(2)(a), or

(ii) by the lessor, in respect of the expenditure referred to in section 225(2)(b).

245 Effect of election under section 227 on additional VAT liability

-- Back --

Stat