Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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

sections 77(1) and 206(4) (no final chargeable period merely because plant or machinery begins to be used partly for purposes other than those of qualifying activity);
sections 86(2) and 87(2) (ending of short-life asset pool at four-year cut-off without final chargeable period);
section 132(2) (no final chargeable period for single ship pool).

(4) The final chargeable period for a class pool under section 107 (overseas leasing) is the chargeable period at the end of which the circumstances are such that there can be no more disposal receipts in any subsequent chargeable period.

List of provisions outside this Chapter about disposal values

66 List of provisions outside this Chapter about disposal values

The provisions of this Part referred to in section 60(1)(b) are--

section 68	hire-purchase etc.: disposal value on cessation of notional ownership
sections 72 and 73	grant of new software right: disposal value
section 79	cars: disposal value in avoidance cases
sections 88 and 89	short-life assets: disposal at under-value or to connected person
section 104	long-life assets: avoidance cases
sections 108, 111 and 114	overseas leasing: disposal values in various cases
sections 132 and 143	ships: ship used for overseas leasing etc.; attribution of amount where balancing charge deferred
section 171	oil production sharing contracts: disposal values on cessation of ownership
sections 196 and 197	fixtures: disposal values on cessation of notional ownership and in avoidance cases
section 208	effect of significant reduction in use of plant or machinery for purposes of qualifying activity
section 211	effect of payment of partial depreciation subsidy
section 222	anti-avoidance: limit on disposal value
section 229	hire-purchase: disposal values in finance leasing and anti-avoidance cases
sections 238 and 239	additional VAT rebates

Chapter 6 Hire-purchase etc. and plant or machinery provided by lessee

Hire-purchase and similar contracts

67 Plant or machinery treated as owned by person entitled to benefit of contract, etc.

(1) This section applies if--

(a) a person carrying on a qualifying activity incurs capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity, and

(b) the expenditure is incurred under a contract providing that the person shall or may become the owner of the plant or machinery on the performance of the contract.

(2) The plant or machinery is to be treated for the purposes of this Part as owned by the person (and not by any other person) at any time when he is entitled to the benefit of the contract so far as it relates to the plant or machinery.

(3) At the time when the plant or machinery is brought into use for the purposes of the qualifying activity, the person is to be treated for the purposes of this Part as having incurred all capital expenditure in respect of the plant or machinery to be incurred by him under the contract after that time.

(4) If a person--

(a) is treated under subsection (2) as owning plant or machinery,

(b) ceases to be entitled to the benefit of the contract in question so far as it relates to that plant or machinery, and

the person is to be treated as ceasing to own the plant or machinery at the time when he ceases to be entitled to the benefit of the contract.

(5) This section is subject to section 69 (hire-purchase and fixtures) and subsection (3) is subject to section 229 (anti-avoidance).

68 Disposal value on cessation of notional ownership

(1) This section applies if a person--

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

(b) is required to bring a disposal value into account as a result.

(2) If the plant or machinery has been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of--

(a) any relevant capital sums, and

(b) any capital expenditure treated under section 67(3) as having been incurred when the plant or machinery was brought into use but which has not in fact been incurred.

(3) If the plant or machinery has not been brought into use for the purposes of the qualifying activity before the person ceases to own the plant or machinery, the disposal value is the total of any relevant capital sums.

(4) "Relevant capital sums" means capital sums that the person receives or is entitled to receive by way of consideration, compensation, damages or insurance money in respect of--

(a) his rights under the contract, or

(b) the plant or machinery.

(5) This section is subject to section 229 (anti-avoidance).

69 Hire-purchase etc. and fixtures

(1) Section 67 does not--

(a) apply to expenditure incurred on plant or machinery which is a fixture, or

(b) prevent Chapter 14 (fixtures) applying in relation to expenditure on plant or machinery incurred under such a contract as is mentioned in section 67(1)(b).

(2) If--

(a) a person is treated under section 67(2) as owning plant or machinery,

(b) the plant or machinery becomes a fixture, and

the person is to be treated for the purposes of this Part as ceasing to own the plant or machinery at the time when it becomes a fixture.

(3) In this section "fixture" has the meaning given by section 173(1).

Plant or machinery provided by lessee

70 Plant or machinery provided by lessee

(1) This section applies if--

(a) under the terms of a lease, a lessee is required to provide plant or machinery,

(b) the lessee incurs capital expenditure on the provision of that plant or machinery for the purposes of a qualifying activity which the lessee carries on,

(c) the plant or machinery is not so installed or otherwise fixed in or to a building or any other description of land as to become, in law, part of that building or other land, and

(d) the lessee does not own the plant or machinery.

(2) The lessee--

(a) is to be treated as being the owner of the plant or machinery, as a result of incurring the capital expenditure, for so long as it continues to be used for the purposes of the qualifying activity, but

(b) is not required to bring a disposal value into account because the lease ends.

(3) Subsection (4) applies if--

(a) the plant or machinery continues to be used for the purposes of the lessee's qualifying activity until the lease ends,

(b) the lessor holds the lease in the course of a qualifying activity, and

(c) on or after the ending of the lease, a disposal event occurs in respect of the plant or machinery at a time when the lessor owns the plant or machinery as a result of the requirement under the terms of the lease.

(4) The lessor is required to bring a disposal value into account in the appropriate pool for the chargeable period in which the disposal event occurs.

(5) "The appropriate pool" means the pool which would be applicable under this Part in relation to the lessor's qualifying activity if--

(a) the expenditure incurred by the lessee had been qualifying expenditure incurred by the lessor, and

(b) that qualifying expenditure were being allocated to a pool for the chargeable period in which the disposal event occurs.

(6) In this section "lease" includes--

(a) an agreement for a lease if the term to be covered by the lease has begun, and

(b) any tenancy,

but does not include a mortgage (and "lessee" and "lessor" are to be read accordingly).

Chapter 7 Computer software

71 Software and rights to software

(1) For the purposes of this Part computer software is treated as plant (whether or not it would constitute plant apart from this section).

(2) If a person carrying on a qualifying activity incurs capital expenditure in acquiring, for the purposes of the qualifying activity, a right to use or otherwise deal with computer software, this Part applies as if--

(a) the right and the software to which it relates were plant,

(b) the plant were provided for the purposes of the qualifying activity, and

(c) so long as the person is entitled to the right, the person owned the plant as a result of incurring the capital expenditure.

72 Disposal values

(1) This section applies if a person--

(a) has incurred qualifying expenditure on the provision of plant consisting of computer software or the right to use or otherwise deal with computer software, and

(b) grants to another a right to use or otherwise deal with the whole or part of the computer software in circumstances in which the consideration for the grant--

(i) consists of a capital sum, or

(ii) would consist of a capital sum if the consideration were in money.

(2) The person is required to bring a disposal value into account unless--

(a) while the person owned the computer software or the right to use or otherwise deal with the computer software, and

(b) before the grant of the right referred to in subsection (1)(b),

there has been a disposal event falling within section 61(1)(e) (use for purposes other than those of the qualifying activity) or 61(1)(f) (permanent discontinuance of the qualifying activity).

(3) The disposal value to be brought into account under this section depends on the circumstances of the grant of the right, as shown in the Table--

Table

Disposal values: grant of software right

1. Circumstances of grant

2. Disposal value

1. The grant is for a consideration not consisting entirely of money.

The market value of the right granted at the time of the grant.

2. The grant is made where--

(a)

it is for no consideration or at less than market value,

(b)

there is no charge to tax under Schedule E, and

(c)

the condition in subsection (5) is met by the grantee.

The market value of the right granted at the time of the grant.

3. The grant is made in circumstances other than those given in item 1 or 2.

The net consideration in money received in respect of the grant, together with--

(a)

any insurance money received in respect of the computer software as a result of an event affecting the consideration obtainable on the grant, and

(b)

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

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

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

(a) the grantee's expenditure on the acquisition of the plant cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

(b) the grantee is a dual resident investing company which is connected with the grantor.

73 Limit on disposal values

(1) This section applies if a person is required to bring into account a disposal value in respect of--

(a) computer software, or

(b) the right to use or otherwise deal with computer software.

(2) For the purpose only of--

(a) determining whether the limit on the disposal value under section 62 is exceeded, and

(b) reducing the amount of that disposal value so that the limit is not exceeded,

the disposal value is to be taken to be increased by the amount given in subsection (3).

(3) The amount is the total of any disposal values which, in respect of that person and that plant, fall or have fallen to be brought into account under section 72.

Chapter 8 Cars, etc.

Cars above the cost threshold

74 Single asset pool

(1) Qualifying expenditure incurred on the provision of a car to which this section applies, if allocated to a pool, must be allocated to a single asset pool.

(2) This section applies to a car if--

(a) the car is not a qualifying hire car (as defined by section 82), and

(b) the capital expenditure incurred on its provision for the purposes of the qualifying activity exceeds £12,000.

(3) In this Chapter "car" has the meaning given by section 81 (extended meaning of "car").

(4) The Treasury may by order increase or further increase the sums of money specified in subsection (2) and in sections 75 and 76.

75 General limit on amount of writing-down allowance

(1) The amount of the writing-down allowance to be made to a person for a chargeable period in respect of qualifying expenditure incurred on the provision of a car to which section 74 applies must not exceed £3,000.

(2) The limit under subsection (1) is proportionately increased or reduced if the chargeable period is more or less than a year.

(3) The amount of the writing-down allowance may be further limited under--

section 76 (expenditure met by another person),
section 77 (effect of use partly for other purposes), or
section 78 (effect of partial depreciation subsidy).

76 Limit where part of expenditure met by another person

(1) Subsection (2) applies if, as a result of section 532 (general rule excluding contributions), only part of the capital expenditure incurred on the provision of a car to which section 74 applies is treated as incurred by a person.

(2) The amount of the writing-down allowance to be made to that person for a chargeable period in respect of the qualifying expenditure on the car must not exceed--

---

where--

E is the amount of capital expenditure incurred on the provision of the car, and
X is the amount of the expenditure excluded by section 532.

(3) Subsection (4) applies if--

(a) capital expenditure exceeding £12,000 is incurred on the provision of a car to which section 74 applies, and

(b) a person ("the contributor") is entitled to writing-down allowances as a result of section 538 (contribution allowances for plant and machinery).

(4) The amount of the writing-down allowance to be made to the contributor for a chargeable period in respect of his contribution to the expenditure on the car must not exceed--

---

where--

E is the amount of capital expenditure incurred on the provision of the car, and
C is the amount of the contribution.

(5) The limit under subsection (2) or (4) is proportionately increased or reduced if the chargeable period is more or less than a year.

77 Car used partly for purposes other than those of qualifying activity

(1) In the case of a single asset pool under section 74 there is no final chargeable period or disposal event merely because the car begins to be used partly for purposes other than those of the qualifying activity.

(2) For any chargeable period in which the car is used partly for purposes other than those of the qualifying activity--

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) The relevant circumstances include, in particular, the extent to which the car is used in that chargeable period for purposes other than those of the qualifying activity.

(4) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under this section is to be disregarded.

(5) If this section applies, Chapter 15 (plant or machinery provided or used partly for purposes other than those of the qualifying activity) does not apply.

78 Effect of partial depreciation subsidy

(1) This section applies if--

(a) a car to which section 74 applies is in use for the purposes of the qualifying activity,

(b) there is paid to the person carrying on that activity a sum in respect of, or which takes account of, part of the depreciation of the car resulting from that use, and

(c) the sum does not fall to be taken into account as income of that person or in calculating the profits of any qualifying activity carried on by him.

(2) The amount of--

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(4) This section has effect for the chargeable period in which any such sum as is mentioned in subsection (1)(b) is first paid and for any subsequent chargeable period.

(5) If this section applies, Chapter 16 (partial depreciation subsidies) does not apply.

79 Cases where Chapter 17 (anti-avoidance) applies

(1) This section applies if--

(a) a disposal value is required to be brought into account under section 61, and

(b) the disposal event is that the person concerned ceases to own a car to which section 74 applies because of--

(i) a sale, or

(ii) the performance of a contract,

which is a relevant transaction for the purposes of Chapter 17 (anti-avoidance).

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

(a) the market value of the car at the time of the event referred to in subsection (1), or

(b) if less, the capital expenditure incurred, or treated as incurred, on the provision of the car by the person disposing of it.

(3) The person acquiring the car is to be treated as having incurred capital expenditure on its provision of an amount equal to the disposal value required to be brought into account under subsection (2).

Vehicles provided for purposes of employment or office

80 Vehicles provided for purposes of employment or office

(1) This section applies if a person who is carrying on a qualifying activity consisting of an employment or office ("the employee")--

(a) incurs capital expenditure on the provision of a mechanically propelled road vehicle or a cycle, and

(b) owns the vehicle or cycle as a result of incurring that expenditure.

(2) References in this Part to qualifying expenditure include the employee's expenditure on the provision of the vehicle or cycle if it is provided partly for use in--

(a) the performance of the duties of the employment or office, or

(b) the kind of travelling in respect of which expenses would be deductible as qualifying travelling expenses under section 198 of ICTA.

(3) The amount of any balancing allowance to which the employee is entitled for the final chargeable period is--

---

where--

AQE is the available qualifying expenditure in the pool for that period,
TDR is the total of any disposal receipts to be brought into account in that pool for that period,
A is the number of chargeable periods in the case of which the employee--
- (a) has carried on the qualifying activity and owned the vehicle or cycle, and
- (b) has claimed an allowance falling to be made to him by reference to expenditure incurred on the provision of the vehicle or cycle, and
B is the number of chargeable periods in the case of which the employee--
- (a) has carried on the qualifying activity and owned the vehicle or cycle, and
- (b) has been entitled to an allowance by reference to expenditure incurred on the provision of the vehicle or cycle.

(4) In this section "cycle" has the meaning given by section 192(1) of the Road Traffic Act 1988 (c. 52).

Interpretation

81 Extended meaning of "car"

In this Part "car" means a mechanically propelled road vehicle other than one--

(a) of a construction primarily suited for the conveyance of goods or burden of any description, or

(b) of a type not commonly used as a private vehicle and unsuitable for such use.

References to a car accordingly include a motor cycle.

82 Qualifying hire cars

(1) For the purposes of this Part a car is a qualifying hire car if--

(a) it is provided wholly or mainly for hire to, or the carriage of, members of the public in the ordinary course of a trade, and

(b) the case is within subsection (2), (3) or (4).

(2) The first case is where the following conditions are met--

(a) the number of consecutive days for which the car is on hire to, or used for the carriage of, the same person will normally be less than 30, and

(b) the total number of days for which it is on hire to, or used for the carriage of, the same person in any period of 12 months will normally be less than 90.

(3) The second case is where the car is provided for hire to a person who will himself use it--

(a) wholly or mainly for hire to, or for the carriage of, members of the public in the ordinary course of a trade, and

(b) in a way that meets the conditions in subsection (2).

(4) The third case is where the car is provided wholly or mainly for the use of a person in receipt of--

(a) a disability living allowance under--

(i) the Social Security Contributions and Benefits Act 1992 (c. 4), or

(ii) the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

because of entitlement to the mobility component,

(b) a mobility supplement under a scheme made under the Personal Injuries (Emergency Provisions) Act 1939 (c. 82),

(c) a mobility supplement under an Order in Council made under section 12 of the Social Security (Miscellaneous Provisions) Act 1977 (c. 5), or

(d) any payment appearing to the Treasury to be of a similar kind and specified by them by order.

(5) For the purposes of subsection (2) persons who are connected with each other are to be treated as the same person.

Chapter 9 Short-life assets

83 Meaning of "short-life asset"

Plant or machinery in respect of which qualifying expenditure has been incurred is a short-life asset if--

(a) its treatment as a short-life asset is not ruled out by section 84, and

(b) the person incurring the expenditure elects for the plant or machinery to be treated as a short-life asset.

84 Cases in which short-life asset treatment is ruled out

Treatment of plant or machinery as a short-life asset is ruled out in any of the cases listed in column 1 of the Table, unless an exception listed in column 2 applies.

Table

Short-life asset treatment

1. Short-life asset treatment ruled out	2. Exception (if any)
1. The expenditure is treated as incurred for the purposes of a qualifying activity under-- (a) section 13 (use for qualifying activity of plant or machinery provided for other purposes), or (b) section 14 (use for qualifying activity of plant or machinery which is a gift).
2. The plant or machinery is the subject of special leasing (as defined by section 19).
3. The plant or machinery is a car (as defined by section 81).	The car is within section 82(4) (cars hired out to persons receiving disability allowances etc.).
4. The expenditure is long-life asset expenditure (see Chapter 10).
5. The plant or machinery is provided for leasing.	The plant or machinery is a car which is within section 82(4) (cars hired out to persons receiving disability allowances etc.). The plant or machinery will be used within the designated period (as defined by section 106) for a qualifying purpose (as defined by sections 122 to 125).
6. Section 109 provides only a 10% writing-down allowance in respect of expenditure on the plant or machinery.
7. The plant or machinery is leased to two or more persons jointly in circumstances such that section 116 applies.
8. The plant or machinery is a ship.
9. The expenditure was incurred partly for the purposes of a qualifying activity and partly for other purposes (see Chapter 15).
10. The expenditure is required to be allocated to a single asset pool under section 211 (partial depreciation subsidy).

85 Election for short-life asset treatment: procedure

(1) An election under section 83 must specify--

(a) the plant or machinery which is the subject of the election,

(b) the qualifying expenditure incurred in respect of it, and

(2) An election under section 83 must be made by notice given to the Inland Revenue--

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(3) "The relevant chargeable period" means--

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

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