Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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(2) The amount of the expenditure ("pre-trading expenditure on plant or machinery") that is qualifying expenditure depends on whether mineral exploration and access is continuing at the source on the first day of trading.

(3) If it is, so much of the pre-trading expenditure on plant or machinery as exceeds any relevant receipts is qualifying expenditure.

(4) If it is not, only so much of the pre-trading expenditure on plant or machinery as--

(a) was incurred within 6 years ending on the first day of trading, and

(b) exceeds any relevant receipts,

is qualifying expenditure.

(5) "Relevant receipts" means--

(a) if the plant or machinery is sold, the net proceeds to the person of the sale;

(b) if the plant or machinery is demolished or destroyed, the net amount received by the person for the remains of the plant or machinery, together with--

(i) any insurance money received by him in respect of the demolition or destruction, and

(ii) any other compensation of any description so received, so far as it consists of capital sums;

(i) any insurance money received by the person in respect of the abandonment, and

(ii) any other compensation of any description so received, so far as it consists of capital sums.

Chapter 3 Qualifying expenditure on acquiring a mineral asset

403 Qualifying expenditure on acquiring a mineral asset

(1) Expenditure on acquiring a mineral asset is qualifying expenditure if--

(a) it is capital expenditure, and

(b) it is incurred for the purposes of a mineral extraction trade.

(2) Subsection (1) is subject to--

section 404 (exclusion of undeveloped market value of land), and
section 406 (reduction where premium relief previously allowed).

(3) In this Chapter "the buyer", in relation to the acquisition of a mineral asset, means the person acquiring it.

404 Exclusion of undeveloped market value of land

(1) If the mineral asset is an interest in land, so much of the buyer's expenditure on acquiring the asset as is equal to the undeveloped market value of the interest is not qualifying expenditure.

(2) "The undeveloped market value of the interest" means the amount that, at the time of the acquisition, the interest might reasonably be expected to fetch on a sale in the open market on the assumptions in subsection (3).

(3) The assumptions are that--

(a) there is no source of mineral deposits on or in the land, and

(b) it will only ever be lawful to carry out existing permitted development.

(4) Development is existing permitted development if at the time of the acquisition--

(a) it has been, or had begun to be, lawfully carried out, or

(b) it could be lawfully carried out under planning permission granted by a general development order.

(5) In applying subsection (4) in relation to land outside the United Kingdom--

(a) whether, at the time of the acquisition, development has been, or had begun to be, lawfully carried out is to be determined according to the law of the territory in which the land is situated, and

(b) whether, at that time, development could be lawfully carried out under planning permission granted by a general development order is to be determined as if the land were in England.

(6) References in this section to the time of acquisition are not affected by section 434 (expenditure incurred before trade carried on).

(7) This section does not apply to the buyer's expenditure if an election under section 569 (election to treat sale as being for alternative amount) is made in relation to the acquisition.

405 Qualifying expenditure where buildings or structures cease to be used

(1) This section applies if--

(a) section 404 (exclusion of undeveloped market value of land) applies to limit the buyer's qualifying expenditure on acquiring the mineral asset,

(b) the undeveloped market value of the interest in land includes the value of any buildings or structures on the land, and

(c) at the time of the acquisition, or at any later time, the buildings or structures permanently cease to be used for any purpose.

(2) The buyer is to be treated--

(a) as having incurred qualifying expenditure, on acquiring a mineral asset, of an amount equal to the unrelieved value of the buildings or structures, and

(b) as having incurred it when the buildings or structures permanently cease to be used for any purpose.

(3) The unrelieved value of the buildings or structures is--

---

where--

V is the value of the buildings or structures at the date of the acquisition (disregarding any value properly attributable to the land on which they stand),
A is the amount of any allowances made to the buyer under the provisions of this Act other than Part 10 (assured tenancy allowances) in respect of--
- (a) the buildings or structures, or
- (b) assets in the buildings or structures, and
B is the amount of any balancing charges made on the buyer under those provisions in respect of those buildings or structures or assets in them.

(4) References in this section to the time of acquisition are not affected by section 434 (time when expenditure incurred).

406 Reduction where premium relief previously allowed

(1) This section applies if--

(a) the mineral asset is or includes an interest in land, and

(b) for chargeable periods previous to the chargeable period for which the buyer first becomes entitled to an allowance under this Part in respect of the expenditure on acquiring the mineral asset, deductions are made under section 87 of ICTA (deductions in calculating trading profits where premiums etc. taxable).

(2) The amount of the expenditure on the acquisition of the mineral asset that is qualifying expenditure is reduced by--

---

where--

D is the total of the deductions made under section 87 of ICTA in the earlier chargeable periods mentioned in subsection (1)(b),
E is the amount of the capital expenditure on the acquisition of the interest in land that would have been qualifying expenditure if the buyer had been entitled to allowances under this Part in those earlier periods, and
T is the total amount of the capital expenditure on the acquisition of the interest in land.

Chapter 4 Qualifying expenditure: second-hand assets

Assets reflecting expenditure on mineral exploration and access

407 Acquisition of mineral asset owned by previous trader

(1) This section applies if--

(a) a person carrying on a mineral extraction trade ("the buyer") incurs capital expenditure on acquiring a mineral asset ("asset X") for the purposes of that trade, and

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

(2) In this section "the buyer's expenditure" means the expenditure referred to in subsection (1)(a), less any amount which, under section 404 (exclusion of undeveloped market value of land), is not qualifying expenditure on the acquisition of the mineral asset.

(3) The conditions are that--

(a) expenditure was previously incurred on acquiring asset X or bringing it into existence by--

(i) the person from whom the buyer acquired asset X, or

(ii) an earlier owner of asset X,

in connection with a mineral extraction trade carried on by the person incurring that expenditure,

(b) part of the value of asset X is properly attributable to expenditure ("E1") on mineral exploration and access by the previous trader, and

(4) In arriving at E1, any expenditure that is or has been deducted in calculating, for tax purposes, the profits of a trade carried on by the previous trader must be excluded.

(5) If this section applies--

(a) so much of the buyer's expenditure as is equal to the lesser of E1 and E2 is to be treated as qualifying expenditure on mineral exploration and access, and

(b) the buyer's expenditure on acquiring the mineral asset is reduced by the same amount.

(6) "The previous trader" means--

(a) the person incurring the expenditure mentioned in subsection (3)(a), or

(b) if there has been more than one such person, the last before the buyer acquired asset X.

(7) In this section references to asset X include--

(a) two or more assets which together make up asset X, and

(b) one asset from which, or two or more assets from the combination of which, asset X is derived.

408 Acquisition of oil licence from non-trader

(1) This section applies if--

(a) a person carrying on a mineral extraction trade ("the buyer") incurs capital expenditure on acquiring an interest in an oil licence for the purposes of that trade,

(b) the person from whom the interest was acquired ("the seller") disposed of the interest without having carried on a mineral extraction trade,

(c) part of the value of the interest is attributable to expenditure ("E1") on mineral exploration and access by the seller, and

(d) it is just and reasonable to attribute part of the buyer's expenditure ("E2") to that part of the value of the interest.

(2) If this section applies--

(a) so much of the buyer's expenditure as is equal to the lesser of E1 and E2 is to be treated as qualifying expenditure on mineral exploration and access, and

(b) the buyer's expenditure on acquiring the interest in the oil licence is reduced by an amount equal to E2.

(3) In this section "oil licence" and "interest in an oil licence" have the same meaning as in Chapter 3 of Part 12.

409 Acquisition of other assets from non-traders

(1) This section applies if--

(a) a person carrying on a mineral extraction trade ("the buyer") incurs capital expenditure on acquiring any assets for the purposes of that trade,

(b) the person from whom the assets were acquired ("the seller") disposed of the assets without having carried on a mineral extraction trade,

(d) section 408 (acquisition of oil licence from non-trader) does not apply in relation to the acquisition.

(2) If this section applies, the buyer's expenditure is qualifying expenditure only to the extent that it does not exceed the amount of the seller's expenditure on mineral exploration and access that is represented by the assets.

(3) The references in this section to assets representing expenditure on mineral exploration and access include any results obtained from any search, exploration or inquiry on which the expenditure was incurred.

Qualifying expenditure on assets limited by reference to historic costs

410 UK oil licence: limit is original licence payment

(1) This section applies if a person carrying on a mineral extraction trade ("the buyer") incurs capital expenditure on acquiring a mineral asset which is a UK oil licence, or an interest in such a licence, for the purposes of that trade.

(2) If this section applies, the buyer's expenditure is qualifying expenditure only to the extent that it does not exceed--

(a) the original licence payment, or

(b) if the mineral asset is an interest in a UK oil licence, such part of the original licence payment as it is just and reasonable to attribute to the interest.

(3) In this section "the original licence payment" means the amount paid to the relevant authority for the purpose of obtaining the licence by the person to whom the licence was granted.

(4) This section does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under--

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

(5) In this section "UK oil licence" and "the relevant authority" have the same meaning as in Chapter 3 of Part 12.

411 Assets generally: limit is residue of previous trader's qualifying expenditure

(1) This section applies if--

(a) a person carrying on a mineral extraction trade ("the buyer") incurs capital expenditure on acquiring an asset ("asset X") for the purposes of that trade, and

(b) expenditure was previously incurred on acquiring asset X or bringing it into existence by--

(i) the person from whom the buyer acquired asset X, or

(ii) an earlier owner of asset X,

in connection with a mineral extraction trade carried on by the person incurring that expenditure.

(2) In this section "the buyer's expenditure" means the expenditure referred to in subsection (1)(a) less any amount which, under section 404 (exclusion of undeveloped market value of land), is not qualifying expenditure on the acquisition of the mineral asset.

(3) If this section applies, the buyer's expenditure is qualifying expenditure only to the extent that it does not exceed the residue of the previous trader's qualifying expenditure.

(4) The residue of the previous trader's qualifying expenditure is--

---

where--

QE is so much of the expenditure incurred by the previous trader on the acquisition or bringing into existence of asset X as constitutes qualifying expenditure for the purposes of this Part,
A is the total of any allowances made under this Part in respect of the previous trader's qualifying expenditure, and
B is the total of any balancing charges made under this Part in respect of the previous trader's qualifying expenditure.

(5) "The previous trader" means--

(a) the person incurring the expenditure mentioned in subsection (1)(b), or

(b) if there has been more than one such person, the last before the buyer acquired asset X.

(6) In this section references to asset X include--

(a) two or more assets which together make up asset X, and

(b) one asset from which, or two or more assets from the combination of which, asset X is derived.

(7) For the purposes of subsection (4), if the previous trader incurred expenditure on the acquisition or bringing into existence of one or more assets from which asset X is derived, QE is so much of that expenditure as--

(a) was qualifying expenditure for the purposes of this Part, and

(b) is just and reasonable to attribute to asset X;

and a similar apportionment is to be made to arrive at A and B.

(8) This section does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under--

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

412 Transfers of mineral assets within group: limit is initial group expenditure

(1) Subject to section 413, this section applies if--

(a) a company ("the buyer") incurs capital expenditure on acquiring a mineral asset ("asset X") from another company ("the seller"), and

(b) the seller is a group company in relation to the buyer at the time of the acquisition.

(2) The buyer's expenditure on acquiring asset X is to be left out of account for the purposes of this Part to the extent that it exceeds--

(a) the capital expenditure incurred by the seller on acquiring asset X, or

(b) if asset X is an interest or right granted by the seller in a mineral asset acquired by the seller ("asset Y"), so much of the capital expenditure incurred by the seller on asset Y as on a just and reasonable apportionment is referable to asset X.

(3) If there is a sequence of acquisitions within subsection (1), apply subsection (2) in the same sequence (starting with the first acquisition in the sequence).

(4) Subsections (5) to (7) apply if--

(a) the buyer is carrying on a mineral extraction trade, and

(b) the asset is an interest in land.

(5) Section 404 (exclusion of undeveloped market value of land) applies to the buyer as if the time of the buyer's acquisition of the interest in land were--

(a) the time of the seller's acquisition of the interest, or

(b) if there is a sequence of acquisitions within subsection (1), the time when the interest was acquired by the company which is the seller in the first acquisition in the sequence.

(6) Subject to subsection (7), section 405 (qualifying expenditure where buildings or structures cease to be used) applies to the buyer as if the time of the buyer's acquisition of the interest in land were the time of the seller's acquisition of the interest.

(7) If there is a sequence of acquisitions within subsection (1), section 405 applies as if--

(a) the time of the acquisition were the time when the interest was acquired by the company which is the seller in the first acquisition in the sequence, but

(b) the allowances and balancing charges to be taken into account in calculating (under section 405(3)) the unrelieved value of the buildings or structures included any allowances or charges made to or on any seller in the sequence.

413 Transfers of mineral assets within group: supplementary

(1) For the purposes of section 412, a company is a group company in relation to another company if--

(a) it controls, or is controlled by, the other company, or

(b) both companies are under the control of another person.

(2) Section 412 does not apply if--

(a) section 410 (UK oil licences: limit is original licence payment) applies to the acquisition, or

(b) the acquisition is a sale in respect of which an election is made under section 569 (election to treat sale as being for an alternative amount).

(3) Section 412 applies regardless of section 568 (sales between connected persons etc., or to obtain tax advantage, treated as at market value).

(4) Section 412 does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under--

section 407(5) (acquisition of mineral asset owned by previous trader), or
section 408(2) (acquisition of oil licence from non-trader).

Chapter 5 Other kinds of qualifying expenditure

414 Expenditure on works likely to become valueless

(1) Expenditure is qualifying expenditure if--

(a) it is capital expenditure on constructing works in connection with the working of a source of mineral deposits,

(b) it is incurred for the purposes of a mineral extraction trade, and

(i) are likely to be of little or no value, when the source is no longer worked, to the last person working the source, or

(ii) if the source is worked under a foreign concession, are likely to become valueless, when the concession ends, to the last person working the source under the concession.

(2) For the purposes of subsection (1), expenditure on constructing works does not include expenditure on acquiring the site of the works or any right in or over the site.

(3) In subsection (1)(c) "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.

415 Contribution to buildings or works for benefit of employees abroad

(1) Subject to subsection (3), expenditure is qualifying expenditure if--

(a) it is incurred by a person carrying on a mineral extraction trade outside the United Kingdom and for the purposes of that trade,

(b) it is a contribution consisting of a capital sum to the cost of buildings or works to which this section applies, and

(c) the buildings or works are likely to be of little or no value, when the source is no longer worked, to the last person working the source.

(2) The buildings or works to which this section applies are--

(a) buildings to be occupied by persons employed at or in connection with the working of a source outside the United Kingdom;

(b) works for the supply of water, gas or electricity wholly or mainly to buildings occupied or to be occupied by persons so employed;

(c) works to be used to provide other services or facilities wholly or mainly for the welfare of persons so employed or their dependants.

(3) Expenditure is not qualifying expenditure if the person making the contribution--

(a) acquires an asset as a result of the expenditure, or

(b) is entitled to an allowance for the expenditure under any other provision of the Tax Acts.

416 Expenditure on restoration within 3 years of ceasing to trade

(1) If--

(a) a person who has ceased to carry on a mineral extraction trade incurs expenditure on the restoration of a relevant site, and

(b) the expenditure is incurred within 3 years from the last day of trading and meets the further conditions in subsection (3),

the net cost of the restoration is qualifying expenditure.

(2) The qualifying expenditure is treated as incurred on the last day of trading.

(3) The further conditions are that the expenditure--

(a) has not been deducted in calculating for tax purposes the profits of any trade carried on by that person, and

(b) would have been--

(i) deductible in calculating the profits of the trade, or

(ii) capable of being qualifying expenditure under this Chapter,

if the expenditure had been incurred while the trade was being carried on.

(4) If any expenditure incurred by a person is qualifying expenditure under this section--

(a) the whole of the expenditure on the restoration (not just the net cost) is not deductible in calculating the person's income for any tax purposes, and

(b) none of the amounts subtracted to produce the net cost is to be treated as the person's income for any tax purposes.

(5) "Restoration" includes--

(a) landscaping,

(b) in relation to land in the United Kingdom, the carrying out of any works required as a condition of granting planning permission for development consisting of the winning and working of minerals, and

(c) in relation to land outside the United Kingdom, the carrying out of any works required by any equivalent condition imposed under the law of the territory in which the land is situated.

(6) A "relevant site" means--

(a) the site of a source to the working of which the mineral extraction trade related, or

(b) land used in connection with working such a source.

(7) "The net cost of the restoration" means the expenditure incurred on the restoration less any amounts--

(a) received within 3 years from the last day of trading, and

(b) attributable to the restoration of the relevant site (for instance, amounts for spoil or other assets removed from the site or for tipping rights).

(8) All such adjustments are to be made, by way of discharge or repayment of tax or otherwise, as are necessary to give effect to this section.

Chapter 6 Allowances and charges

Writing-down and balancing allowances and balancing charges

417 Determination of entitlement or liability

(1) Whether a person who has incurred qualifying expenditure is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period depends on--

(a) how much of the expenditure is unrelieved qualifying expenditure for that period ("UQE"), and

(b) the total of any disposal receipts to be brought into account for that period ("TDR") by reference to the expenditure.

(2) If UQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period.

(3) If TDR exceeds UQE, the person is liable to a balancing charge for the period.

(4) The entitlement under subsection (2) is to a writing-down allowance except in cases for which sections 426 to 431 provide for the entitlement to be to a balancing allowance.

418 Amount of allowances and charges

(1) The amount of the writing-down allowance to which a person is entitled for any chargeable period in respect of qualifying expenditure is--

(a) in the case of qualifying expenditure on the acquisition of a mineral asset, 10% of the amount by which UQE exceeds TDR;

(b) in the case of other qualifying expenditure, 25% of the amount by which UQE exceeds TDR.

(2) If the chargeable period is more or less than a year, the amount of the writing-down allowance is proportionately increased or reduced.

(3) If the mineral extraction trade has been carried on for part only of the chargeable period, the amount of the writing-down allowance is proportionately reduced.

(4) The amount of the balancing charge to which a person is liable for a chargeable period in respect of qualifying expenditure is--

(a) the amount by which TDR exceeds UQE, or

(b) if less, the allowances for earlier chargeable periods in respect of the expenditure less the total of any balancing charges for those periods in respect of the expenditure.

(5) The amount of the balancing allowance to which a person is entitled for a chargeable period in respect of qualifying expenditure is the amount by which UQE exceeds TDR.

(6) A person claiming a writing-down allowance or a balancing allowance may require the allowance to be reduced to a specified amount.

Unrelieved qualifying expenditure

419 Unrelieved qualifying expenditure

(1) A person's unrelieved qualifying expenditure for the chargeable period in which the qualifying expenditure is incurred is the whole of it.

(2) A person's unrelieved qualifying expenditure for a chargeable period after that in which the qualifying expenditure is incurred is the amount, if any, by which it exceeds the aggregate of--

(a) the allowances made in respect of the expenditure for earlier chargeable periods, and

(b) the total of any disposal receipts for earlier chargeable periods.

Disposal values

420 Meaning of "disposal receipt"

In sections 417 to 419 "disposal receipt" means a disposal value that a person is required to bring into account in accordance with--

(a) sections 421 to 425, or

(b) paragraph 11 of Schedule 12 to FA 1997 (finance lease or loan: receipt of major lump sum) or any other enactment.

421 Disposal of, or ceasing to use, asset

(1) This section applies if--

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