Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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(1) This section applies if--

(a) a person has incurred qualifying expenditure on providing assets (including the construction of works), and

(b) any of those assets--

(i) is disposed of, or

(ii) permanently ceases to be used by him for the purposes of a mineral extraction trade (whether because of the discontinuance of the trade or for any other reason).

(2) The person is required to bring the disposal value of the asset into account for the chargeable period in which the disposal or cessation occurs.

422 Use of asset otherwise than for permitted development etc.

(1) This section applies if--

(a) a person has acquired a mineral asset,

(b) at any time after the acquisition, the asset begins to be used (by him or another person) in a way which constitutes development, and

(i) existing permitted development, or

(ii) development for the purposes of a mineral extraction trade carried on by the person.

(2) The person is required to bring the disposal value of the mineral asset into account for the chargeable period in which the use begins.

(3) 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.

(4) In applying subsection (3) 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.

423 Sections 421 and 422: amount of disposal value to be brought into account

(1) The disposal value to be brought into account under section 421 or 422 depends on the event requiring it to be brought into account, as shown in the Table--

Table

Disposal value for sections 421 and 422

1. Event	2. Disposal value
1. Sale of the asset, except in a case where item 2 applies.	The net proceeds of the sale, together with-- (a) any insurance money received in respect of the asset as a result of an event affecting the price obtainable on the sale, and (b) any other compensation of any description so received, so far as it consists of capital sums.
2. Sale of the asset where-- (a) the sale is at less than market value, (b) there is no charge to tax under Schedule E, and (c) the condition in subsection (3) is met by the buyer.	The market value of the asset at the time of the sale.
3. Demolition or destruction of the asset.	The net amount received for the remains of the asset, together with-- (a) any insurance money received in respect of the demolition or destruction, and (b) any other compensation of any description so received, so far as it consists of capital sums.
4. Permanent loss of the asset otherwise than as a result of its demolition or destruction.	Any insurance money received in respect of the loss and, so far as it consists of capital sums, any other compensation of any description so received.
5. Permanent discontinuance of the trade followed by the occurrence of an event within any of items 1 to 4.	The disposal value for the item in question.
6. Any event not falling within any of items 1 to 5.	The market value of the asset at the time of the event.

(2) The amounts referred to in column 2 of the Table are those received by the person required to bring the disposal value into account.

(3) The condition referred to in item 2 of the Table is met by the buyer if--

(a) the buyer's expenditure on the acquisition of the asset cannot be qualifying expenditure under Part 2 or 6 (plant and machinery and research and development allowances), or

(b) the buyer is a dual resident investing company which is connected with the seller.

424 Disposal value restricted in case of interest in land

(1) If the asset in relation to which a disposal value is required to be brought into account under section 421 or 422 is an interest in land, the disposal value is restricted by excluding the undeveloped market value of the interest.

(2) "The undeveloped market value of the interest" means the amount that, at the time of the disposal, 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 disposal--

(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 disposal, 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.

425 Receipt of capital sum

(1) This section applies if a person--

(a) has incurred qualifying expenditure, and

(b) receives a capital sum which, in whole or in part, it is reasonable to attribute to that expenditure.

(2) The person is required to bring into account as a disposal value for the chargeable period in which the capital sum is received so much of the capital sum as is reasonably attributable to the qualifying expenditure.

(3) This section does not apply if the capital sum falls to be brought into account under section 421 or 422.

Cases in which a person is entitled to a balancing allowance

426 Pre-trading expenditure

A person's entitlement to an allowance for a chargeable period is to a balancing allowance if--

(a) the expenditure is qualifying expenditure under--

(i) section 401(4) (pre-trading exploration expenditure where exploration etc. has ceased before first day of trading), or

(ii) section 402 (pre-trading expenditure on plant or machinery), and

(b) the first day of trading occurs in that chargeable period.

427 Giving up exploration, search or inquiry

A person's entitlement to an allowance for a chargeable period is to a balancing allowance if--

(a) the qualifying expenditure is expenditure on mineral exploration and access,

(b) he gives up the exploration, search or inquiry to which the expenditure related in that chargeable period, and

(c) he does not then or later carry on a mineral extraction trade which consists of or includes the working of mineral deposits to which the expenditure related.

428 Ceasing to work mineral deposits

(1) A person's entitlement to an allowance for a chargeable period is to a balancing allowance if--

(a) in that chargeable period he permanently ceases to work particular mineral deposits, and

(b) the qualifying expenditure is expenditure incurred--

(i) on mineral exploration and access relating solely to those deposits, or

(ii) on acquiring a mineral asset consisting of those deposits or part of them.

(2) If the person carrying on the mineral extraction trade is entitled to two or more mineral assets which at any time were--

(a) comprised in a single mineral asset, or

(b) otherwise derived from a single mineral asset,

subsection (1) does not apply until such time as the person permanently ceases to work the deposits comprised in all the mineral assets concerned taken together.

(3) For the purposes of subsection (2), if a mineral asset relates to, but does not actually consist of, mineral deposits, the deposits to which the asset relates are to be treated as comprised in the asset.

429 Buildings etc. for benefit of employees abroad ceasing to be used

A person's entitlement to an allowance for a chargeable period is to a balancing allowance if--

(a) the expenditure is qualifying expenditure under section 415 (contributions to buildings or works for benefit of employees abroad), and

(b) in that chargeable period the buildings or works permanently cease to be used for the purposes of or in connection with the mineral extraction trade.

430 Disposal of asset, etc.

(1) A person's entitlement to an allowance for a chargeable period is to a balancing allowance if--

(a) the qualifying expenditure was incurred on the provision of any assets, and

(b) in that chargeable period any of those assets--

(i) is disposed of, or

(ii) otherwise permanently ceases to be used by him for the purposes of the mineral extraction trade.

(2) A person's entitlement to an allowance for a chargeable period is to a balancing allowance if any of the following events occurs in that chargeable period in relation to assets representing the qualifying expenditure--

(a) the person loses possession of the assets in circumstances where it is reasonable to assume that the loss is permanent;

(b) the assets cease to exist as such (as a result of destruction, dismantling or otherwise);

(c) the assets begin to be used wholly or partly for purposes other than those of the mineral extraction trade carried on by the person.

431 Discontinuance of trade

A person's entitlement to an allowance for a chargeable period is to a balancing allowance if in that chargeable period the mineral extraction trade is permanently discontinued.

Chapter 7 Supplementary provisions

432 Giving effect to allowances and charges

An allowance or charge to which a person is entitled or liable under this Part is to be given effect in calculating the profits of that person's mineral extraction trade, by treating--

(a) the allowance as an expense of the trade, and

(b) the charge as a receipt of the trade.

433 Treatment of demolition costs

(1) The net cost to a person of demolishing an asset which represents qualifying expenditure is added to that qualifying expenditure in determining the amount of any balancing allowance or balancing charge for the chargeable period in which the demolition occurs.

(2) "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 asset.

(3) If this section applies, the net cost of the demolition is not treated as expenditure incurred on any other asset which replaces the demolished asset.

434 Time when expenditure incurred

(1) For the purposes of this Part, expenditure incurred for the purposes of a mineral extraction trade by a person about to carry it on is treated as incurred by that person on the first day on which that person does carry it on.

(2) Subsection (1) does not apply to pre-trading expenditure on mineral exploration and access (for which specific provision is made by section 400(4)).

435 Shares in assets

(1) This Part applies in relation to a share in an asset as it applies (under section 571) in relation to a part of an asset.

(2) For the purposes of those provisions, a share in an asset is treated as used for the purposes of a trade so long as, and only so long as, the asset is used for the purposes of the trade.

436 Meaning of "development" etc.

(1) In this Part--

"development"
"development order",
"general development order", and
"planning permission",

have the meaning given by the relevant planning enactment.

(2) "The relevant planning enactment" means--

(a) in relation to land in England or Wales, section 336(1) of the Town and Country Planning Act 1990 (c. 8);

(b) in relation to land in Scotland, section 277(1) of the Town and Country Planning (Scotland) Act 1997 (c. 8);

(c) in relation to land in Northern Ireland, Article 2(2) of the Planning (Northern Ireland) Order 1991 (S.I.1991/1220 (N.I.11)).

Part 6 Research and development allowances

Chapter 1 Introduction

437 Research and development allowances

(1) Allowances are available under this Part if a person incurs qualifying expenditure on research and development.

(2) In this Part "research and development"--

(a) has the meaning given by section 837A of ICTA (activities falling to be treated as research and development under normal accounting practice, subject to regulations), and

(b) includes oil and gas exploration and appraisal.

438 Expenditure on research and development

(1) Expenditure on research and development includes all expenditure incurred for--

(a) carrying out research and development, or

(b) providing facilities for carrying out research and development.

(2) But it does not include expenditure incurred in the acquisition of--

(a) rights in research and development, or

(b) rights arising out of research and development.

(3) Nor does it include expenditure on the provision of a dwelling.

(4) But if--

(a) part of a building consists of a dwelling and the rest of the building is used for research and development, and

(b) no more than 25% of the capital expenditure referable to the construction or acquisition of the whole building is referable to the construction or acquisition of the dwelling,

the whole of the building is to be treated as used for research and development.

(5) For the purposes of subsection (4)(b), the expenditure referable to the construction or acquisition of the building is to be apportioned in a just and reasonable manner.

(6) Any additional VAT liability or rebate (as to which see Chapter 4) is to be disregarded in applying subsection (4)(b).

Chapter 2 Qualifying expenditure

439 Qualifying expenditure

(1) In this Part "qualifying expenditure" means capital expenditure incurred by a person on research and development directly undertaken by him or on his behalf if--

(a) he is carrying on a trade when the expenditure is incurred and the research and development relates to that trade, or

(b) after incurring the expenditure he sets up and commences a trade connected with the research and development.

(2) The same expenditure may not be taken into account as qualifying expenditure in relation to more than one trade.

(3) The trade by reference to which expenditure is qualifying expenditure is referred to in this Part as "the relevant trade" in relation to that expenditure.

(4) If capital expenditure is partly within subsection (1) and partly not, the expenditure is to be apportioned in a just and reasonable manner.

(5) References in this Chapter to research and development related to a trade include--

(a) research and development which may lead to or facilitate an extension of that trade, and

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in that trade.

440 Excluded expenditure: land

(1) Expenditure on the acquisition of land, or rights in or over land, is not qualifying expenditure.

(2) But that does not prevent such expenditure from being qualifying expenditure so far as it is referable to the acquisition of--

(a) a building or structure already constructed on the land,

(b) rights in or over such a building or structure, or

(3) For the purposes of subsection (2), the expenditure is to be apportioned in a just and reasonable manner.

Chapter 3 Allowances and charges

441 Allowances

(1) A person who incurs qualifying expenditure is entitled to an allowance in respect of that expenditure for the relevant chargeable period equal to--

(a) the amount of the qualifying expenditure, or

(b) if a disposal value is required to be brought into account for that period in respect of that expenditure, the amount (if any) by which that expenditure exceeds the disposal value.

(2) The relevant chargeable period is--

(a) the chargeable period in which the expenditure is incurred, or

(b) if the expenditure was incurred before the chargeable period in which the relevant trade is set up and commenced, that chargeable period.

(3) A person claiming an allowance under this section may require the allowance to be reduced to a specified amount.

442 Balancing charges

(1) This section applies if--

(a) an allowance is made to a person for a chargeable period in respect of qualifying expenditure, and

(b) the person is required to bring a disposal value into account for a later chargeable period in respect of that expenditure.

(2) The person is liable to a balancing charge for the later chargeable period in respect of the qualifying expenditure.

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

(a) the amount (if any) by which the disposal value to be brought into account for the period exceeds any unclaimed allowance, or

(b) if less, the allowance made in respect of the qualifying expenditure.

(4) "Unclaimed allowance" means any part of the allowance to which the person was entitled in respect of the qualifying expenditure but which has not been claimed.

(5) This section is to be read with section 449 (effect on balancing charges of additional VAT rebates in earlier chargeable periods).

443 Disposal values and disposal events

(1) A person is required to bring a disposal value into account in respect of qualifying expenditure incurred by him if--

(a) he ceases to own an asset representing the expenditure, or

(b) an asset representing the expenditure is demolished or destroyed at a time when he owns the asset.

(2) Subsection (1) is to be read with section 555 (disposal of oil licence with exploitation value).

(3) But a person is not required to bring a disposal value into account under subsection (1) if the disposal event gives rise to a balancing charge under Part 2 or 3 (plant and machinery allowances and industrial buildings allowances).

(4) The disposal value to be brought into account under subsection (1) depends on the disposal event, as shown in the Table--

Table

Disposal values

1. Disposal event

2. Disposal value

1. Sale of the asset at not less than market value.

The net proceeds of the sale.

2. Demolition or destruction of the asset.

The net amount received for the remains of the asset, together with--

(a)

any insurance money received in respect of the demolition or destruction, and

(b)

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

3. Any event not falling within item 1 or 2.

The market value of the asset at the time of the event.

(5) Subsection (4) is subject to--

section 445 (costs of demolition),
section 553 (nil value in case of disposal of oil licence relating to undeveloped area), and
section 555 (disposal of oil licence with exploitation value).

(6) A person is also required to bring a disposal value into account by section 448 (additional VAT rebate generates disposal value).

(7) In this Chapter "disposal event" means an event of a kind that requires a disposal value to be brought into account under subsection (1).

444 Disposal events: chargeable period for which disposal value is to be brought into account

(1) The chargeable period for which a disposal value is to be brought into account under section 443(1) in respect of qualifying expenditure is given by this section.

(2) Subsection (3) applies if the disposal event occurs in or after the chargeable period for which the allowance in respect of the expenditure is made.

(3) The disposal value is to be brought into account for--

(a) the chargeable period in which the event occurs, or

(b) if the event occurs after the chargeable period in which the relevant trade is permanently discontinued, that chargeable period.

(4) If the disposal event occurs before the chargeable period for which the allowance in respect of the expenditure is made, the disposal value is to be brought into account for that chargeable period.

445 Costs of demolition

(1) This section applies if--

(a) an asset representing qualifying expenditure incurred by a person is demolished at a time when the person owns the asset, and

(b) the person incurred costs of demolition.

(2) The disposal value which the person is required to bring into account in respect of the qualifying expenditure is to be reduced by the cost to the person of the demolition.

(3) If the amount of the disposal value is reduced to nil (or less than nil) under subsection (2), the person is not required to bring a disposal value into account.

(4) If--

(a) the cost to the person of the demolition exceeds the disposal value, and

(b) before its demolition the asset had not begun to be used for purposes other than research and development related to the relevant trade,

the person is to be treated as incurring qualifying expenditure equal to the excess.

(5) That qualifying expenditure is to be treated as incurred--

(a) when the demolition occurs, or

(b) if that is on or after the date on which the relevant trade is permanently discontinued, immediately before the discontinuance.

(6) If this section applies, the cost to the person of the demolition is not to be treated for the purposes of this Act as expenditure on any property that replaces the demolished asset.

Chapter 4 Additional VAT liabilities and rebates

446 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.

447 Additional VAT liability treated as additional expenditure etc.

(1) If a person--

(a) has incurred qualifying expenditure ("the original expenditure"), and

(b) incurs an additional VAT liability in respect of that expenditure,

the liability is to be treated as capital expenditure incurred on the same research and development as the original expenditure.

(2) But subsection (1) does not apply if by the time the liability is incurred--

(a) the person who incurred the original expenditure has ceased to own the asset representing that expenditure, or

(b) that asset has been demolished or destroyed.

(3) Any allowance arising as a result of this section is available for--

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