Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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(b) used for research and development,

for the whole of the relevant period of ownership.

(2) A balancing allowance is made if--

(a) there are no proceeds from the balancing event, or

(b) the proceeds from the balancing event are less than the residue of qualifying expenditure immediately before the event.

(3) The amount of the balancing allowance is the amount of--

(a) the residue (if there are no proceeds);

(b) the difference (if the proceeds are less than the residue).

(4) A balancing charge is made if the proceeds from the balancing event are more than the residue, if any, of qualifying expenditure immediately before the event.

(5) The amount of the balancing charge is the amount of--

(a) the difference, or

(b) the proceeds (if the residue is nil).

319 Building not an industrial building etc. throughout

(1) This section provides for balancing adjustments where the building was not--

(a) an industrial building, or

(b) used for research and development,

for a part of the relevant period of ownership.

(2) A balancing allowance is made if--

(a) there are no proceeds from the balancing event or the proceeds are less than the starting expenditure, and

(b) the net allowances made are less than the adjusted net cost of the building.

(3) The amount of the balancing allowance is the amount of the difference between the adjusted net cost of the building and the net allowances made.

(4) A balancing charge is made if the proceeds from the balancing event are equal to or more than the starting expenditure.

(5) The amount of the balancing charge is an amount equal to the net allowances made.

(6) A balancing charge is also made if--

(a) there are no proceeds from the balancing event or the proceeds are less than the starting expenditure, and

(b) the net allowances made are more than the adjusted net cost of the building.

(7) The amount of the balancing charge is the amount of the difference between the net allowances made and the adjusted net cost of the building.

320 Overall limit on balancing charge

The amount of a balancing charge made on a person must not exceed the amount of the net allowances made.

Meaning of "the relevant period of ownership" etc.

321 The relevant period of ownership

The relevant period of ownership is the period beginning--

(a) with the day on which the building was first used for any purpose, or

(b) if the relevant interest has been sold after that day, with the day following that on which the sale (or the last such sale) occurred,

and ending with the day on which the balancing event occurs.

322 Starting expenditure

(1) This section gives the starting expenditure for the purposes of this Chapter.

(2) If the person to or on whom the balancing allowance or balancing charge falls to be made is the person who incurred the qualifying expenditure, that expenditure is the starting expenditure.

(3) Otherwise, the starting expenditure is the residue of qualifying expenditure at the beginning of the relevant period of ownership.

(4) If section 340 (treatment of demolition costs) applies, the starting expenditure is increased by an amount equal to the net cost of the demolition.

323 Adjusted net cost

The amount of the adjusted net cost is--

---

where--

S is the starting expenditure,
P is the amount of any proceeds from the balancing event,
I is the number of days in the relevant period of ownership on which the building was an industrial building or used for research and development, and
R is the number of days in the whole of the relevant period of ownership.

324 Net allowances

For the purposes of this Chapter, the amount of the net allowances made, in relation to any qualifying expenditure, is--

---

where--

I is the amount of any initial allowances made to the person in relation to that qualifying expenditure,
WDA is the amount of any writing-down allowances made to the person for chargeable periods ending on or before the date of the balancing event giving rise to the balancing adjustment,
RDA is the amount of any allowances under Part 6 (research and development allowances) made to the person for such chargeable periods, and
B is the amount of any balancing charges made on the person for such chargeable periods.

Balancing allowances restricted where sale subject to subordinate interest

325 Balancing allowances restricted where sale subject to subordinate interest

(1) This section applies if--

(a) the relevant interest in a building is sold subject to a subordinate interest,

(b) the person entitled to the relevant interest immediately before the sale ("the former owner") would, apart from this section, be entitled to a balancing allowance under this Chapter as a result of the sale, and

(2) Condition A is that--

(a) the former owner,

(b) the person who acquires the relevant interest, and

or any two of them, are connected persons.

(3) Condition B is that it appears that the sole or main benefit which might have been expected to accrue to the parties or any of them from the sale or the grant, or transactions including the sale or grant, was the obtaining of an allowance under this Part.

(4) For the purpose of deciding what balancing adjustment is to be made in a case to which this section applies, the net proceeds to the former owner of the sale are to be increased--

(a) by an amount equal to any premium receivable by him for the grant of the subordinate interest, and

(b) if no rent, or no commercial rent, is payable in respect of the subordinate interest, by the amount by which the proceeds would have been greater if a commercial rent had been payable and the relevant interest had been sold in the open market.

(5) But the net proceeds of the sale are not to be treated as being greater than the amount which secures that no balancing allowance is made.

(6) If the terms on which a subordinate interest is granted are varied before the sale of the relevant interest--

(a) any capital consideration for the variation is to be treated for the purposes of this section as a premium for the grant of the interest, and

(b) the question whether any, and if so what, rent is payable in respect of the interest is to be determined by reference to the terms in force immediately before the sale.

(7) If this section applies in relation to a sale to deny or reduce a balancing allowance, the residue of qualifying expenditure immediately after the sale is nevertheless calculated as if the balancing allowance had been made or not reduced.

326 Interpretation of section 325

(1) In section 325--

"commercial rent" means such rent as may reasonably be expected to have been required in respect of the subordinate interest (having regard to any premium payable for the grant of the interest) if the transaction had been at arm's length;
"premium" includes any capital consideration, except so much of any sum as corresponds to an amount of rent or profits falling to be calculated by reference to that sum under section 34 of ICTA;
"subordinate interest" means an interest in or right over the building, whether granted by the former owner or anyone else.

(2) In section 325 and this section--

"capital consideration" means consideration which consists of a capital sum or would be a capital sum if it had consisted of a money payment, and
"rent" includes any consideration which is not capital consideration.

Qualifying enterprise zone expenditure: effect of realising capital value

327 Capital value provisions: application of provisions

Sections 328 to 331 apply only if expenditure on the construction of a building has been incurred--

(a) at a time--

(i) when the site of the building was wholly or mainly in an enterprise zone, and

(ii) which was not more than 10 years after the site was first included in the zone, or

(b) under a contract entered into at such a time.

328 Balancing adjustment on realisation of capital value

(1) There is a balancing event if, while the building is an industrial building or after it has ceased to be one, any capital value is realised.

(2) No balancing allowance is to be made because of a balancing event under this section.

(3) The amount of capital value realised is to be treated as the proceeds from the balancing event.

(4) If a balancing event under this section occurs--

(a) section 319 (balancing adjustment where building not an industrial building etc. throughout) has effect as if, immediately after the balancing event, the starting expenditure were reduced by the amount of capital value realised, and

(b) if the net proceeds of a sale of the relevant interest fall to be increased under section 325(4) (balancing allowances restricted where sale subject to subordinate interest), those proceeds as so increased are reduced by the amount of any capital value realised before the sale.

(5) Capital value is realised if an amount of capital value is paid which is attributable to an interest in land ("the subordinate interest") to which the relevant interest in the building is or will be subject.

(6) The capital value is realised on the making of the payment.

(7) The amount of capital value realised is the amount of capital value that is attributable to the subordinate interest under section 329.

329 Capital value that is attributable to subordinate interest

(1) Capital value is attributable to the subordinate interest if it is paid--

(a) in consideration of the grant of the subordinate interest,

(b) instead of any rent payable by the person entitled to the subordinate interest,

(d) in consideration of--

(i) the surrender of the subordinate interest, or

(ii) the variation or waiver of any of the terms on which it was granted.

(2) If--

(a) no premium is given in consideration of the grant of the subordinate interest or any premium so given is less than the commercial premium, and

(b) no commercial rent is payable in respect of the subordinate interest,

capital value is attributable under subsection (1)(a) as if the commercial premium had been paid on and in consideration of the grant of the subordinate interest.

(3) If any value given instead of any rent payable by the person entitled to the subordinate interest is less than the commercial amount, capital value is attributable under subsection (1)(b) as if the commercial amount had been paid.

(4) If--

(a) any rent payable in respect of the subordinate interest is assigned, but

(b) no value is given in consideration of the assignment or any value so given is less than the commercial amount,

capital value is attributable under subsection (1)(c) as if the commercial amount had been given on and in consideration of the assignment.

(5) If--

(a) the subordinate interest is surrendered, or any of the terms on which the subordinate interest was granted are varied or waived, but

(b) no value is given in consideration of the surrender, variation or waiver or any value so given is less than the commercial amount,

capital value is attributable under subsection (1)(d) as if the commercial amount had been given on and in consideration of the surrender, variation or waiver.

(6) Capital value is not attributable to the subordinate interest if it is paid in consideration of the grant of a lease to which an election under section 290 (treating grant of lease exceeding 50 years as sale) applies.

330 Exception for payments more than 7 years after agreement

(1) Capital value is not realised for the purposes of section 328 if the payment is made more than 7 years after--

(a) the agreement under which the qualifying expenditure was incurred was entered into, or

(b) if that agreement was conditional, the time when the agreement became unconditional.

(2) If an agreement is made to pay in respect of any event an amount of capital value which would be attributable to the subordinate interest, and--

(a) the agreement is made, or if conditional becomes unconditional, before the end of the period of 7 years referred to in subsection (1), and

(b) the event occurs, or any payment in consideration of the event is made, after the end of that period,

the event or payment is treated for the purposes of subsection (1) as occurring or made before the end of the 7 years.

(3) Subsection (1) does not apply if arrangements--

(a) under which the person entitled to the relevant interest acquired it, or

(b) which were made in connection with its acquisition,

include provision which requires, or makes substantially more likely, any of the events set out in subsection (4).

(4) The events are--

(a) the subsequent sale of the relevant interest;

(b) the subsequent grant of an interest in land out of the relevant interest;

331 Capital value provisions: interpretation

(1) "Capital value" means any capital sum--

(a) including what would have been a capital sum if it had been a money payment (and references to payment are to be read accordingly), but

(b) excluding so much of any sum as corresponds to an amount of rent or profits calculated by reference to that sum under section 34 of ICTA (premiums etc. treated as rent).

(2) "Interest in land" means--

(a) a leasehold estate in the land, whether in the nature of a head lease, sub-lease or under-lease;

(b) an easement or servitude;

(3) References to granting an interest in land include agreeing to grant any such interest.

(4) In section 329--

"commercial amount" means the amount that would have been given if the transaction had been at arm's length,
"commercial premium" means the premium that would have been given if the transaction had been at arm's length, and
"commercial rent" means such rent as may reasonably be expected to have been required in respect of the subordinate interest (having regard to any premium paid in consideration of the grant of the interest) if the transaction had been at arm's length.

(5) In the application of section 329 to Scotland, references to assignment are to be read as references to assignation.

Chapter 8 Writing off qualifying expenditure

332 Introduction

For the purposes of this Part qualifying expenditure is written off to the extent and at the times specified in this Chapter.

333 Writing off initial allowances

If an initial allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the time when the building is first used.

334 Writing off writing-down allowances

(1) If a writing-down allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made.

(2) If a balancing event occurs at the end of the chargeable period referred to in subsection (1), the amount written off under that subsection is to be taken into account in calculating the residue of qualifying expenditure immediately before the event to determine what balancing adjustment (if any) is to be made.

335 Writing off research and development allowances

(1) If an allowance under Part 6 (research and development allowances) is made in respect of the qualifying expenditure, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made.

(2) If a balancing event occurs at the end of the chargeable period referred to in subsection (1), the amount written off under that subsection is to be taken into account in calculating the residue of qualifying expenditure immediately before that event to determine what balancing adjustment (if any) is to be made.

336 Writing off expenditure when building not an industrial building

(1) This section applies if for any period or periods between--

(a) the time when the building was first used for any purpose, and

(b) the time when the residue of qualifying expenditure falls to be ascertained,

the building was not an industrial building.

(2) An amount equal to the notional writing-down allowances for the period or periods is written off at the time when the residue falls to be ascertained.

(3) The notional writing-down allowances are the allowances that would have been made for the period or periods in question (if the building had remained an industrial building), at such rate or rates as would have been appropriate having regard to any relevant sale.

(4) In subsection (3) "relevant sale" means a sale of the relevant interest as a result of which a balancing adjustment falls to be made under section 314.

337 Writing off or increase of expenditure where balancing adjustment made

(1) This section applies if the relevant interest in the building is sold.

(2) If a balancing allowance is made, the amount by which the residue of qualifying expenditure before the sale exceeds the net proceeds of the sale is written off at the time of the sale.

(3) If a balancing charge is made, the amount of the residue of qualifying expenditure is increased at the time of the sale by the amount of the charge.

(4) But if the balancing charge is made under section 319(6) (difference between net allowances made and adjusted net cost), the residue of qualifying expenditure immediately after the sale is limited to the net proceeds of the sale.

338 Writing off capital value which has been realised

If a balancing event within section 328 occurs (realisation of capital value), an amount equal to any capital value realised is written off at the time of the event.

339 Crown or other person not within the charge to tax entitled to the relevant interest

(1) This section applies if at any time--

(a) the Crown, or

(b) a person who is not within the charge to tax,

("A") is entitled to the relevant interest in a building.

(2) Sections 333 to 338 (writing off qualifying expenditure) have effect as if all writing-down allowances and balancing adjustments had been made as could have been made if--

(a) a person ("B") who--

(i) is not the Crown,

(ii) is within the charge to tax, and

(iii) is not a company,

had been entitled to the relevant interest, and

(b) the other assumptions in subsection (3) had been made.

(3) The assumptions are that--

(a) while A was entitled to the relevant interest, all things which were done in relation to the building--

(i) by or to A, or

(ii) by or to a person using the building under the authority of A,

were done by or to B for the purposes of, and in the course of, a trade carried on by B,

(b) any sale of the relevant interest in the building by or on behalf of A was made in connection with the termination of the trade carried on by B, and

(c) B's periods of account for that trade had, in the case of each tax year, ended immediately before the beginning of the next tax year.

340 Treatment of demolition costs

(1) This section applies if--

(a) a building is demolished, and

(b) the person to or on whom any balancing allowance or balancing charge is or might be made is the person incurring the cost of the demolition.

(2) The net cost of the demolition is added to the residue of qualifying expenditure immediately before the demolition.

(3) "The net cost of the demolition" means the amount, if any, by which the cost of the demolition exceeds any money received for the remains of the property.

(4) If this section applies, neither the cost of the demolition nor the net cost of the demolition is treated for the purposes of any Part of this Act other than Part 10 (assured tenancy allowances) as expenditure on any other property replacing the property demolished.

Chapter 9 Highway undertakings

341 Carrying on of highway undertakings

(1) For the purposes of this Part the carrying on of a highway undertaking is to be treated as the carrying on of an undertaking by way of trade; and accordingly references in this Part (except sections 274 and 276) to a trade include a highway undertaking.

(2) For the purposes of this Part a person carrying on a highway undertaking is to be treated as occupying, for the purposes of the undertaking, any road in relation to which it is carried on.

(3) In this Chapter "highway undertaking" has the meaning given in item 6 of Table B in section 274.

(4) In that item and this Chapter "highway concession", in relation to a road, means--

(a) a right to receive sums from the Secretary of State or from the Department for Regional Development in Northern Ireland because the road is or will be used by the general public, or

(b) if the road is a toll road, the right to charge tolls in respect of the road.

342 The relevant interest

(1) For the purposes of Chapter 3 (the relevant interest in the building) as it applies to expenditure incurred on the construction of a road, a highway concession is not to be treated as an interest in the road.

(2) But if the person who incurred the expenditure on the construction of the road--

(a) was not entitled to an interest in the road when he incurred the expenditure, but

(b) was at that time entitled to a highway concession in respect of the road,

the highway concession is to be treated as the relevant interest in relation to that expenditure.

(3) Any question as to what is the relevant interest is to be determined on the assumption that, if section 344 (renewed or new concession treated as extension of earlier concession) applies, the renewed or new concession is a continuation of the earlier concession.

343 Balancing adjustment on ending of concession

(1) If--

(a) the relevant interest is a highway concession, and

(b) the concession is brought to or comes to an end without being treated as extended under section 344,

the ending of the concession is a balancing event.

(2) The proceeds from such a balancing event are--

(a) any insurance money received by the person entitled to the highway concession in respect of any qualifying expenditure, and

(b) other compensation so received so far as it consists of capital sums.

344 Cases where highway concession is to be treated as extended

(1) A highway concession in respect of a road is to be treated as extended if--

(a) the person entitled to the concession takes up a renewed concession in respect of the whole or a part of the road, or

(b) that person or a person connected with him takes up a new concession in respect of--

(i) the whole or a part of the road, or

(ii) a road that includes the whole or a part of the road.

(2) But the concession is to be treated as extended only--

(a) to the extent that the concession which has in fact ended, and the renewed or new concession, relate to the same road, and

(b) for the period of the renewed or new concession.

(3) A person takes up a renewed or new concession if he is afforded, whether or not under legally enforceable arrangements, an opportunity to be granted the renewed or new concession and takes advantage of the opportunity.

(4) For the purposes of subsection (3) it does not matter whether the renewed or new concession is on the same terms as the previous concession or on modified terms.

(5) If--

(a) a highway concession is treated as extended under this section, and

(b) the period of the extension is different in relation to different parts of the road in relation to which the concession has been granted,

such apportionments are to be made for the purposes of section 343 as are just and reasonable.

Chapter 10 Additional VAT liabilities and rebates

Introduction

345 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, and the time when, an additional VAT liability or an additional VAT rebate accrues are given by section 549.

Additional VAT liabilities

346 Additional VAT liabilities and initial allowances

(1) This section applies if--

(a) a person was entitled to an initial allowance in respect of qualifying enterprise zone expenditure,

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