Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

(2) Subsection (1) does not apply for the purposes of section 145 (see instead section 145(4) and (5)).

158 Members of same group

For the purposes of this Chapter two companies are members of the same group at any time if they would be treated as members of the same group of companies at that time for the purposes of Chapter IV of Part X of ICTA (group relief).

Chapter 13 Provisions affecting mining and oil industries

Expenditure connected with mineral extraction trades

159 Meaning of "mineral extraction trade" etc.

In this Chapter--

"mineral extraction trade", and
"mineral exploration and access"

have the same meaning as in Part 5 (mineral extraction allowances).

160 Expenditure treated as incurred for purposes of mineral extraction trade

For the purposes of this Part, expenditure incurred by a person--

(a) on the provision of plant or machinery for mineral exploration and access, and

(b) in connection with a mineral extraction trade carried on by him,

is to be treated as incurred for the purposes of that trade.

161 Pre-trading expenditure on mineral exploration and access

(1) This section applies if a person--

(a) incurs pre-trading expenditure on the provision of plant or machinery for the purposes of mineral exploration and access, and

(b) owns the plant or machinery on the first day of trading.

But this is subject to subsection (5).

(2) The person is to be treated for the purposes of this Part as if he had--

(a) sold the plant or machinery immediately before the first day of trading, and

(b) on that first day incurred capital expenditure on the provision of the plant or machinery for the purposes of the trade.

(3) The amount of the capital expenditure that the person is to be treated as having incurred is an amount equal to--

(a) the pre-trading expenditure, or

(b) if there has been an actual sale and re-acquisition before the first day of trading, the amount last incurred on the provision of the plant or machinery.

(4) In this section--

(a) "pre-trading expenditure" means capital expenditure incurred before the day on which a person begins to carry on a mineral extraction trade, and

(b) "the first day of trading", in relation to a person's pre-trading expenditure, means the day on which that person begins to carry on the mineral extraction trade.

(5) This section does not apply if the plant or machinery on which the pre-trading expenditure was incurred is sold, demolished, destroyed or abandoned before the first day of trading (but see section 402 (mineral extraction allowances: pre-trading expenditure on plant or machinery)).

Provisions relating to ring fence trades

162 Ring fence trade a separate qualifying activity

(1) If a person carries on a ring fence trade, it is a separate qualifying activity for the purposes of this Part.

(2) In this Chapter "ring fence trade" means activities which--

(a) fall within any of paragraphs (a) to (c) of section 492(1) of ICTA (oil extraction activities, the acquisition, enjoyment or exploitation of oil rights, etc.), and

(b) constitute a separate trade (whether as a result of section 492(1) of ICTA or otherwise).

163 Meaning of "abandonment expenditure"

(1) In sections 164 and 165 "abandonment expenditure" means expenditure which meets the requirements in subsections (2) to (4).

(2) The expenditure must have been incurred--

(a) for the purposes of, or in connection with, the closing down of an oil field or of any part of an oil field, and

(b) on the demolition of plant or machinery--

(i) which has been brought into use for the purposes of a ring fence trade, and

(ii) which is, or forms part of, an offshore installation or a submarine pipeline.

(3) The demolition of the plant or machinery must be carried out, wholly or substantially, to comply with--

(a) an abandonment programme, or

(b) any condition to which the approval of an abandonment programme is subject.

(4) The plant or machinery must not be replaced.

(5) In this section--

(a) "oil field" has the same meaning as in Part I of OTA 1975, and

(b) "abandonment programme", "offshore installation" and "submarine pipeline" have the same meaning as in Part IV of the Petroleum Act 1998 (c. 17).

164 Abandonment expenditure incurred before cessation of ring fence trade

(1) If a person carrying on a ring fence trade incurs abandonment expenditure, he may elect to have a special allowance made to him.

(2) The election--

(a) must be made by notice to the Inland Revenue no later than 2 years after the end of the chargeable period in which the abandonment expenditure is incurred, and

(b) is irrevocable.

(3) The election must specify--

(a) the abandonment expenditure to which it relates, and

(b) any amounts received for the remains of the plant or machinery in question.

(4) If a person makes an election under this section--

(a) he is entitled to a special allowance, of an amount equal to the net abandonment cost, for the chargeable period in which the abandonment expenditure is incurred, and

(b) section 26(3) (net cost of demolition added to existing pool where plant or machinery not replaced) does not apply.

(5) "The net abandonment cost" means the amount by which the abandonment expenditure to which the election relates exceeds any amounts received for the remains of the plant or machinery.

165 Abandonment expenditure within 3 years of ceasing ring fence trade

(1) This section applies if--

(a) a person ("the former trader") has ceased to carry on a ring fence trade,

(b) the former trader incurs abandonment expenditure on the demolition of plant or machinery within the post-cessation period, and

(c) the abandonment expenditure is not otherwise deductible in calculating the income of the former trader for any tax purpose.

(2) "The post-cessation period" means the period of 3 years immediately following the last day on which the former trader carried on the ring fence trade.

(3) If this section applies--

(a) an amount equal to the relevant abandonment cost is allocated to the appropriate pool for the chargeable period in which the former trader ceased to carry on the ring fence trade, and

(b) any amount received within the post-cessation period for the remains of the plant or machinery does not constitute income of the former trader for any tax purpose.

(4) In subsection (3)--

"the appropriate pool" means the pool to which the expenditure on the demolished plant or machinery has been allocated, and
"the relevant abandonment cost" means the amount by which the abandonment expenditure exceeds any amounts received within the post-cessation period for the remains of the plant or machinery.

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

Transfers of interests in oil fields: anti-avoidance

166 Transfers of interests in oil fields: anti-avoidance

(1) This section applies if--

(a) there is, for the purposes of Schedule 17 to FA 1980, a transfer by a participator in an oil field of the whole or part of his interest in the field, and

(b) as part of the transfer, the old participator disposes of, and the new participator acquires--

(i) plant or machinery used, or expected to be used, in connection with the field, or

(ii) a share in such plant or machinery.

(2) The amount, if any, by which the new participator's expenditure exceeds the old participator's disposal value is to be left out of account in determining the new participator's available qualifying expenditure.

(3) In subsection (2)--

(a) "the new participator's expenditure" means the expenditure incurred by the new participator on the acquisition of the plant or machinery, and

(b) "the old participator's disposal value" means the disposal value to be brought into account by the old participator as a result of the disposal of the plant or machinery to the new participator.

(4) In this section--

(a) "oil field" and "participator" have the same meaning as in Part I of OTA 1975,

(b) "the old participator" means the participator whose interest in the oil field is wholly or partly transferred, and

(5) Nothing in this section affects the operation of Chapter 17 (anti-avoidance).

Oil production sharing contracts

167 Oil production sharing contracts

(1) Sections 168 to 170 apply if--

(a) a person ("the contractor") is entitled to an interest in a contract made with, or with the authorised representative of, the government of a country or territory in which oil is or may be produced, and

(b) the contract provides (among other things) for any plant or machinery of a description specified in the contract which--

(i) is provided by the contractor, and

(ii) has an oil-related use under the contract,

to be transferred (immediately or later) to the government or representative.

(2) For the purposes of this section and sections 168 to 170, plant or machinery has an oil-related use if it is used--

(a) to explore for, win access to or extract oil,

(b) for the initial storage or treatment of oil, or

(3) In this section and sections 168 to 170 "oil" has the meaning given by section 556(3).

168 Expenditure on plant or machinery incurred by contractor

(1) This section applies if--

(a) the contractor incurs capital expenditure on the provision of plant or machinery of a description specified in the contract,

(b) the plant or machinery is to have an oil-related use under the contract, for the purposes of a trade of oil extraction carried on by the contractor,

(d) the plant or machinery is transferred to the government or representative in accordance with the contract.

(2) Despite the transfer, the plant or machinery is to be treated for the purposes of this Part as owned by the contractor (and not by any other person) until--

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to section 170(2).

169 Expenditure on plant or machinery incurred by participator

(1) This section applies if--

(a) a person ("the participator") acquires an interest in the contract from--

(i) the contractor, or

(ii) another person who has acquired it (directly or indirectly) from the contractor,

(b) the participator incurs capital expenditure on the provision of plant or machinery,

(c) the plant or machinery is to have an oil-related use under the contract, for the purposes of a trade of oil extraction carried on by the participator,

(d) the amount of the expenditure is commensurate with the value of the participator's interest under the contract, and

(e) the plant or machinery is transferred to the government or representative in accordance with the contract.

(2) Despite the transfer, the plant or machinery is to be treated for the purposes of this Part as owned by the participator (and not by any other person) until--

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to section 170(2).

170 Participator's expenditure attributable to plant or machinery

(1) This section applies if--

(a) a person ("the relevant participator") acquires an interest in the contract from--

(i) the contractor, or

(ii) another person who has acquired it (directly or indirectly) from the contractor, and

(b) some of the expenditure incurred by the relevant participator to acquire the interest in the contract is attributable to plant or machinery which--

(i) is treated by section 168 as owned by the contractor, or

(ii) is treated by section 169 or subsection (2) as owned by another person ("the other participator").

(2) The plant or machinery is to be treated for the purposes of this Part as owned by the relevant participator (and not by any other person) until--

(a) it ceases to be owned by the government or representative, or

(b) it ceases to be used, or held for use, by any person under the contract.

This is subject to a later application of this subsection.

(3) The person who, until subsection (2) applies, is treated as owning the plant or machinery is to be treated for the purposes of this Part as if he had disposed of it for a consideration equal to the relevant participator's expenditure attributable to it.

(4) The relevant participator is to be treated for the purposes of this Part as if--

(a) he had incurred capital expenditure of an amount given by subsection (5), and

(b) he owned the plant or machinery (in accordance with subsection (2)) as a result of having incurred that expenditure.

(5) The amount of that expenditure is--

(a) the amount of the relevant participator's expenditure attributable to the plant or machinery, or

(b) if less, the disposal value to be brought into account by the contractor or the other participator as a result of subsection (3).

(6) The expenditure attributable to plant or machinery for the purposes of this section is to be determined having regard to what is just and reasonable in the circumstances.

171 Disposal values on cessation of ownership

(1) This section applies if a person treated as owning plant or machinery under section 168(2), 169(2) or 170(2) ceases to be treated as owning it solely as a result of one of those provisions.

(2) If the person receives capital compensation, the disposal value to be brought into account is the amount of the compensation.

(3) If the person does not receive capital compensation, the disposal value to be brought into account is nil.

Chapter 14 Fixtures

Introduction

172 Scope of Chapter etc.

(1) This Chapter applies to determine entitlement to allowances under this Part in respect of expenditure on plant or machinery that is, or becomes, a fixture.

(2) For the purposes of this Part, ownership of plant or machinery that is, or becomes, a fixture is determined under this Chapter.

(3) The provisions of this Chapter that treat a person as being the owner of a fixture (see sections 176 to 184 and 193 to 195) are subject to the provisions of this Chapter which treat a person as ceasing to be the owner of a fixture (see sections 188 to 192).

(4) References in this Chapter to a person being treated--

(a) as the owner of plant or machinery, or

(b) as ceasing to be the owner of plant or machinery,

are to be read as references to the person being so treated for the purposes of this Part.

(5) This Chapter does not affect any entitlement a person has to an allowance as a result of section 538 (contribution allowances for plant and machinery).

173 Meaning of "fixture" and "relevant land"

(1) In this Chapter "fixture"--

(a) means plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

(b) includes any boiler or water-filled radiator installed in a building as part of a space or water heating system.

(2) In this Chapter "relevant land", in relation to a fixture means--

(a) the building or other description of land of which the fixture becomes part, or

(b) in the case of a boiler or water-filled radiator which is a fixture as a result of subsection (1)(b), the building in which it is installed as part of a space or water heating system.

174 Meaning of "equipment lease" and "lease"

(1) In this Chapter "equipment lease" means--

(a) an agreement entered into in the circumstances given in subsection (2), or

(b) a lease entered into under or as a result of such an agreement.

(2) The circumstances are that--

(a) a person incurs capital expenditure on the provision of plant or machinery for leasing,

(b) an agreement is entered into for the lease, directly or indirectly from that person, of the plant or machinery to another person,

(d) the agreement is not an agreement for the plant or machinery to be leased as part of the relevant land.

(3) In this Chapter--

"equipment lessor" means the person from whom (directly or indirectly) the equipment lease provides for the plant or machinery to be leased, and
"equipment lessee" means the person to whom the equipment lease provides for the plant or machinery to be leased.

(4) Except in the context of leasing plant or machinery, any reference in this Chapter to a lease is to--

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

(b) any agreement to acquire such an estate or, in Scotland, lease;

and, in relation to such an agreement, "grant" is to be read accordingly.

175 Meaning of "interest in land", etc.

(1) In this Chapter "interest in land" means--

(a) the fee simple estate in the land or an agreement to acquire such an estate,

(b) in relation to Scotland, the interest of the owner or an agreement to acquire such an interest,

(d) an easement or servitude or an agreement to acquire an easement or servitude, and

(e) a licence to occupy land.

(2) If an interest in land is--

(a) conveyed or assigned by way of security, and

(b) subject to a right of redemption,

the person with the right of redemption is treated for the purposes of this Chapter as having that interest, and not the creditor.

Persons who are treated as owners of fixtures

176 Person with interest in relevant land having fixture for purposes of qualifying activity

(1) If--

(a) a person incurs capital expenditure on the provision of plant or machinery for the purposes of a qualifying activity carried on by him,

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

that person is to be treated, on and after that time, as the owner of the fixture as a result of incurring the expenditure.

(2) If there are two or more persons with different interests in the relevant land who would be treated as the owner of the same fixture as a result of subsection (1), one interest only is taken into account under that subsection.

(3) The interest to be taken into account is given by the following rules--

Rule 1

If one of the interests is an easement or servitude or any agreement to acquire an easement or servitude, that interest is the interest to be taken into account.

Rule 2

If Rule 1 does not apply, but one of the interests is a licence to occupy land, that interest is the interest to be taken into account.

Rule 3

In any other case--

(a) except in Scotland, the interest to be taken into account is the interest which is not in reversion (at law or in equity and whether directly or indirectly) on any other interest in the relevant land which is held by any of the persons referred to in subsection (2), and

(b) in Scotland, the interest to be taken into account is the interest of whichever of the persons referred to in subsection (2) has, or last had, the right of use of the relevant land.

(4) Subsection (1) is subject to section 177(4).

177 Equipment lessors

(1) If--

(a) the conditions in--

(i) section 178 (equipment lessee has qualifying activity etc.),

(ii) section 179 (equipment lessor has right to sever fixture that is not part of building), or

(iii) section 180 (equipment lease is part of affordable warmth programme),

are met in relation to an equipment lease,

(b) the equipment lessor and the equipment lessee are not connected persons, and

the equipment lessor is to be treated, on and after the relevant time, as the owner of the fixture as a result of incurring the capital expenditure on the provision of the plant or machinery that is the subject of the equipment lease.

(2) The relevant time for the purposes of subsection (1) is (unless subsection (3) applies) the time when the equipment lessor incurs the expenditure.

(3) If--

(a) the conditions in section 178 are met in relation to an equipment lease (but the conditions in sections 179 and 180 are not), and

(b) the equipment lessor incurs the capital expenditure before the equipment lessee begins to carry on the qualifying activity,

the relevant time is the time when the equipment lessee begins to carry on the qualifying activity.

(4) If an election is made under this section, the equipment lessee is not to be treated under section 176 as the owner of the fixture.

(5) An election under this section must be made by notice 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.

(6) "The relevant chargeable period" means the chargeable period in which the capital expenditure was incurred.

178 Equipment lessee has qualifying activity etc.

The conditions referred to in section 177(1)(a)(i) are that--

(a) the equipment lease is for the lease of the plant or machinery for the purposes of a qualifying activity which is, or is to be, carried on by the equipment lessee,

(b) if the equipment lessee had incurred the capital expenditure incurred by the equipment lessor on the provision of the plant or machinery that is the subject of the equipment lease, he would, as a result of section 176, have been entitled to an allowance in respect of it, and

179 Equipment lessor has right to sever fixture that is not part of building

(1) The conditions referred to in section 177(1)(a)(ii) are that--

(a) the plant or machinery becomes a fixture by being fixed to land that is neither a building nor part of a building,

(b) the equipment lessee has an interest in the land when taking possession of the plant or machinery under the equipment lease,

(c) under the terms of the equipment lease, the equipment lessor is entitled to sever the plant or machinery, at the end of the period for which it is leased, from the land to which it is fixed at that time,

(d) under the terms of the equipment lease, the equipment lessor will own the plant or machinery on its severance in accordance with the equipment lease,

(e) the nature of the plant or machinery and the way in which it is fixed to land are such that its use on one set of premises does not, to any material extent, prevent it from being used, once severed, for the same purposes on a different set of premises,

(f) the equipment lease is one which under normal accountancy practice falls (or would fall) to be treated in the accounts of the equipment lessor as an operating lease, and

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