Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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(a) a person carrying on a qualifying activity, or

(b) an employee of that person,

provides business entertainment in connection with that activity, the use of plant or machinery for providing the entertainment is to be treated as use for purposes other than those of that activity.

(2) For the purposes of this section--

(a) "entertainment" includes hospitality of any kind, and

(b) the use of an asset for providing entertainment includes the use of an asset for providing anything incidental to the entertainment.

(3) "Business entertainment" does not include anything provided by a person for employees unless its provision for them is incidental to its provision for others.

(4) "Business entertainment" does not include the use of plant or machinery for the provision of anything by a person if--

(a) it is a function of that person's qualifying activity to provide it, and

(b) it is provided by that person in the ordinary course of that qualifying activity--

(i) for payment, or

(ii) free of charge with the object of advertising to the public generally.

(5) For the purposes of this section--

(a) directors of a company, or

(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.

Part 3 Industrial buildings allowances

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

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

(1) A building is not in use for the purposes of a qualifying trade if it is in use as, or as part of, or for any purpose ancillary to the purposes of--

(a) a dwelling-house;

(b) a retail shop, or premises of a similar character where a retail trade or business (including repair work) is carried on;

(d) a hotel;

(e) an office.

(2) Subsection (3) is about buildings constructed for occupation by, or for the welfare of persons employed--

(a) on, or in connection with, working land outside the United Kingdom which is used as described in item 5 of Table A in section 274 (foreign plantations), or

(b) at, or in connection with, working a source of mineral deposits as defined in item 7 of Table A (mineral extraction).

(3) Subsection (1) does not apply to a building which this subsection is about if the building--

(a) is likely to be of little or no value to the person carrying on the trade when the land or source is no longer worked, or

(b) will cease to be owned by that person on the ending of a foreign concession under which the land or source is worked.

(4) "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.

(5) Subsection (1) is subject to section 283 (non-industrial part of building disregarded).

278 Building used by more than one licensee

A building used by more than one licensee of the same person is not in use for the purposes of a qualifying trade unless each licensee uses it, or the part to which the licence relates, for the purposes of a qualifying trade.

Qualifying hotels and sports pavilions

279 Qualifying hotels

(1) A hotel is a qualifying hotel if the following conditions are met--

(a) the accommodation in the hotel is in a building of a permanent nature,

(b) the hotel is open for at least 4 months during April to October, and

(i) it has 10 or more letting bedrooms,

(ii) the sleeping accommodation it offers consists wholly or mainly of letting bedrooms, and

(iii) the services provided for guests normally include the provision of breakfast and an evening meal, the making of beds and the cleaning of rooms.

(2) Whether a hotel meets the conditions in subsection (1)(b) and (c) at any time in a chargeable period is to be determined by reference to the period given under subsections (3) to (5) ("the reference period").

(3) If the hotel was in use for the purposes of a trade carried on by--

(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.

290 Election to treat grant of lease exceeding 50 years as sale

(1) Subsection (2) applies if--

(a) expenditure has been incurred on the construction of a building,

(b) a lease of the building is granted out of the interest which is the relevant interest in relation to the expenditure,

(d) the lessor and the lessee elect for subsection (2) to apply.

(2) This Part applies as if--

(a) the grant of the lease were a sale of the relevant interest by the lessor to the lessee at the time when the lease takes effect,

(b) any capital sum paid by the lessee in consideration for the grant of the lease were the purchase price on the sale, and

(c) the interest out of which the lease was granted had at that time ceased to be, and the interest granted by the lease had at that time become, the relevant interest.

(3) The election has effect in relation to all the expenditure--

(a) in relation to which the interest out of which the lease is granted is the relevant interest, and

(b) 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--

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