Part 1 Introduction

Chapter 1 Capital allowances: general

1 Capital allowances

(1) This Act provides for allowances in respect of capital expenditure (and for charges in connection with those allowances).

(2) The allowances for which this Act provides are those under—

(a) Part 2 (plant and machinery allowances);

(b) Part 3 (industrial buildings allowances);

(c) Part 4 (agricultural buildings allowances);

(d) Part 5 (mineral extraction allowances);

(e) Part 6 (research and development allowances);

(f) Part 7 (know-how allowances);

(g) Part 8 (patent allowances);

(h) Part 9 (dredging allowances);

(i) Part 10 (assured tenancy allowances).

(3) This Act also provides for allowances in respect of contributions to expenditure incurred on plant or machinery, industrial buildings or agricultural buildings, for the purposes of a mineral extraction trade or on dredging (see Part 11).

2 General means of giving effect to capital allowances

(1) Allowances and charges are to be given effect—

(a) for income tax purposes, in calculating income for a chargeable period, and

(b) for corporation tax purposes, in calculating profits for a chargeable period.

(2) For the meaning of “chargeable period”, see section 6.

(3) Subsection (1) needs to be read with the following provisions about giving effect to allowances and charges—

• sections 247 to 262 (plant and machinery allowances);

• sections 352 to 355 (industrial buildings allowances);

• sections 391 and 392 (agricultural buildings allowances);

• section 432 (mineral extraction allowances);

• section 450 (research and development allowances);

• section 463 (know-how allowances);

• sections 478 to 480 (patent allowances);

• section 489 (dredging allowances);

• section 529 (assured tenancy allowances).

(4) In subsection (1)(b) “profits” has the same meaning as in section 6 of ICTA.

3 Claims for capital allowances

(1) No allowance is to be made under this Act unless a claim for it is made.

(2) The claim must be included in a tax return.

(3) In this Act “tax return” means—

(a) for income tax purposes, a return required to be made under TMA 1970, and

(b) for corporation tax purposes, a company tax return required to be made under Schedule 18 to FA 1998 (company tax returns, assessments and related matters).

(4) Subsection (2) does not apply for income tax purposes to a claim for an allowance under—

(a) section 258 (claim for allowance in respect of special leasing of plant or machinery),

(b) section 355 (claim to carry back balance of allowance in respect of buildings for miners etc.), or

(c) section 479 (claim for patent allowance in respect of non-trading expenditure),

which is instead subject to section 42 of TMA 1970 (procedure for making claims and claims not included in returns).

(5) Subsection (2) does not apply for corporation tax purposes to a claim for an allowance under—

(a) section 260(3)(b) (claim to carry back allowance in respect of special leasing of plant or machinery), or

(b) section 355 (claim to carry back balance of allowance in respect of buildings for miners etc.),

which is instead subject to paragraphs 54 to 60 of Schedule 18 to FA 1998 (general provisions as to claims).

(6) This section is subject to section 42(6) and (7) of TMA 1970 (special provisions relating to partnerships).

4 Capital expenditure

(1) In this Act “capital expenditure” and “capital sums” are used in the sense given in this section.

(2) “Capital expenditure” and “capital sums” do not include, in relation to a person incurring the expenditure or paying the sums—

(a) any expenditure or sum that may be deducted in calculating the profits or gains of a trade, profession or vocation or property business carried on by the person, or

(b) any expenditure or sum that may be deducted in calculating the emoluments of an employment or office held by the person.

(3) “Capital expenditure” and “capital sums” do not include, in relation to a recipient of the expenditure or sums—

(a) any amounts that are to be added in calculating the profits or gains of a trade, profession or vocation or property business carried on by the recipient, or

(b) any amounts that are emoluments of an employment or office held by the recipient.

(4) “Capital expenditure” and “capital sums” do not include, in relation to—

(a) a person incurring the expenditure or paying the sums, or

(b) a recipient of the expenditure or sums,

any expenditure or sum in the case of which a deduction of income tax falls or may fall to be made under section 348 or 349(1) of ICTA (annual payments).

(5) Subsection (4) does not apply to any expenditure or sum in the case of which a deduction of income tax falls or may fall to be so made as a result of section 524(3)(b) of ICTA (receipts from sale of patent rights by person not resident in the UK).

5 When capital expenditure is incurred

(1) For the purposes of this Act, the general rule is that an amount of capital expenditure is to be treated as incurred as soon as there is an unconditional obligation to pay it.

(2) The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.

(3) There are the following exceptions to the general rule.

(4) If under an agreement—

(a) the capital expenditure is expenditure on the provision of an asset,

(b) an unconditional obligation to pay an amount of the expenditure comes into being as a result of the giving of a certificate or any other event,

(c) the giving of the certificate, or other event, occurs within the period of one month after the end of a chargeable period, and

(d) at or before the end of that chargeable period, the asset has become the property of, or is otherwise under the agreement attributed to, the person subject to the unconditional obligation to pay,

the expenditure is to be treated as incurred immediately before the end of that chargeable period.

(5) If under an agreement an amount of capital expenditure is not required to be paid until a date more than 4 months after the unconditional obligation to pay has come into being, the amount is to be treated as incurred on that date.

(6) If under an agreement—

(a) there is an unconditional obligation to pay an amount of capital expenditure on a date earlier than accords with normal commercial usage, and

(b) the sole or main benefit which might have been expected to be obtained thereby is that the amount would be treated, under the general rule, as incurred in an earlier chargeable period,

the amount is to be treated as incurred on the date on or before which it is required to be paid.

(7) This section—

(a) is subject to any provision of this Act which has the effect that expenditure is to be treated as incurred on a date later than would result from the application of this section, and

(b) does not apply to expenditure treated as incurred as a result of a person incurring an additional VAT liability.

6 Meaning of “chargeable period”

(1) In this Act “chargeable period” means—

(a) for income tax purposes, a period of account, or

(b) for corporation tax purposes, an accounting period of a company.

(2) “Period of account” means—

(a) in the case of a person entitled to an allowance or liable to a charge in calculating the profits of his trade, profession or vocation, a period for which accounts are drawn up for the purposes of the trade, profession or vocation, and

(b) in the case of any other person entitled to an allowance or liable to a charge, a tax year.

(3) Subsection (2)(a) is subject to subsections (4) to (6).

(4) If—

(a) two periods of account overlap, or

(b) one period of account includes another,

the period common to both is to be treated as part of the first period of account only.

(5) If there is a gap between two periods of account, the gap is to be treated as part of the first period of account.

(6) If a period of account would (apart from this subsection) be longer than 18 months, that period must be treated as divided into separate periods of account—

(a) the first beginning with the start date of the original period, and

(b) each subsequent one beginning with an anniversary of that date,

so as to ensure that none of the periods of account is longer than 12 months.

Chapter 2 Exclusion of double relief

7 No double allowances

(1) If an allowance is made under any Part of this Act to a person in respect of capital expenditure, no allowance is to be made to him under any other Part in respect of—

(a) that expenditure, or

(b) the provision of any asset to which that expenditure related.

(2) This section does not apply in relation to Parts 7 and 8 (know-how and patent allowances).

8 No double relief through pooling under Part 2 (plant and machinery allowances)

(1) Subsection (2) applies if, under Part 2—

(a) any capital expenditure has been allocated to a pool, and

(b) an allowance or charge has been made to or on any person in respect of the pool.

(2) The person to or on whom the allowance or charge has been made is not entitled to an allowance under any Part other than Part 2 in respect of—

(a) the expenditure allocated to the pool, or

(b) the provision of any asset to which the allocated expenditure related.

(3) Subsection (4) applies if under any Part other than Part 2 an allowance has been made to a person in respect of any capital expenditure.

(4) The person to whom the allowance has been made is not entitled to allocate to any pool—

(a) that expenditure, or

(b) any expenditure on the provision of any asset to which the expenditure mentioned in paragraph (a) related.

(5) This section does not apply in relation to Parts 7 and 8 (know-how and patent allowances).

9 Interaction between fixtures claims and other claims

(1) A person is not entitled to make a fixtures claim in respect of any capital expenditure relating to an asset if—

(a) any person entitled to do so has at any previous time claimed an allowance under any Part other than Part 2, and

(b) the claim was for an allowance in respect of capital expenditure relating, in whole or part, to the asset.

(2) Subsection (1) does not prevent a person making a fixtures claim in respect of capital expenditure if—

(a) the only previous claim was under Part 3 or 6 (industrial buildings and research and development allowances), and

(b) section 186(2) or 187(2) (limit on amount of expenditure that may be taken into account) applies to that expenditure.

(3) If a person entitled to do so has made a fixtures claim in respect of capital expenditure relating to an asset, no one is entitled to an allowance on a later claim under any Part other than Part 2 in respect of any capital expenditure relating to the asset.

(4) A person makes a fixtures claim in respect of expenditure if he makes a claim (in the sense given in section 202(3)) under Chapter 14 of Part 2 in respect of the expenditure as expenditure on the provision of a fixture.

10 Interpretation

(1) In this Chapter “capital expenditure” includes any contribution to capital expenditure.

(2) For the purposes of this Chapter—

(a) expenditure relates to an asset only if it relates to its provision, and

(b) the provision of an asset includes its construction or acquisition.

Part 2 Plant and machinery allowances

Chapter 1 Introduction

11 General conditions as to availability of plant and machinery allowances

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

(2) “Qualifying activity” has the meaning given by Chapter 2.

(3) Allowances under this Part must be calculated separately for each qualifying activity which a person carries on.

(4) The general rule is that expenditure is qualifying expenditure if—

(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, and

(b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.

(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3.

12 Expenditure incurred before qualifying activity carried on

For the purposes of this Part, expenditure incurred for the purposes of a qualifying activity by a person about to carry on the activity is to be treated as if it had been incurred by him on the first day on which he carries on the activity.

13 Use for qualifying activity of plant or machinery provided for other purposes

(1) This section applies if a person—

(a) brings plant or machinery into use for the purposes of a qualifying activity carried on by him, and

(b) on the date when he does so, owns the plant or machinery as a result of having incurred capital expenditure (“actual expenditure”) on its provision for purposes other than those of that qualifying activity.

(2) The person is to be treated—

(a) as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result as having incurred that expenditure.

(3) Subject to subsection (4), the amount of the notional expenditure is the market value of the plant or machinery on the date when it is brought into use for the purposes of the qualifying activity.

(4) If the market value is greater than the actual expenditure, the amount of the notional expenditure is the amount of the actual expenditure, less any amount required to be deducted under subsection (5).

(5) The amount to be deducted is any amount that under section 218 or 224 would have been left out of account in determining the person’s available qualifying expenditure if the actual expenditure had been incurred on the provision of the plant or machinery for the purposes of the qualifying activity.

(6) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(a) is wholly or only partly for those purposes.

(7) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

14 Use for qualifying activity of plant or machinery which is a gift

(1) This section applies if a person—

(a) is the owner of plant or machinery as a result of a gift, and

(b) brings the plant or machinery into use for the purposes of a qualifying activity carried on by him.

(2) The person is to be treated—

(a) as having incurred capital expenditure on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result of having incurred that expenditure.

(3) The amount of that capital expenditure is to be treated as being the market value of the plant or machinery on the date when it was brought into use for the purposes of the qualifying activity.

(4) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(b) is wholly or only partly for those purposes.

(5) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

Chapter 2 Qualifying activities

15 Qualifying activities

(1) Each of the following is a qualifying activity for the purposes of this Part—

(a) a trade,

(b) an ordinary Schedule A business,

(c) a furnished holiday lettings business,

(d) an overseas property business,

(e) a profession or vocation,

(f) a concern listed in section 55(2) of ICTA (mines, transport undertakings etc.),

(g) the management of an investment company,

(h) special leasing of plant or machinery, and

(i) an employment or office,

but to the extent only that the profits or gains from the activity are, or (if there were any) would be, chargeable to tax.

(2) Subsection (1) is subject to the following provisions of this Part.

(3) This section, in so far as it provides for—

(a) an ordinary Schedule A business,

(b) an overseas property business, or

(c) special leasing of plant or machinery,

to be a qualifying activity, needs to be read with section 35 (expenditure on plant or machinery for use in a dwelling-house not qualifying expenditure in certain cases).

(4) Also, subsection (1)(i) needs to be read with sections 36 (restriction on qualifying expenditure in case of employment or office) and 80 (vehicles provided for purposes of employment or office).

16 Ordinary Schedule A businesses

In this Part “ordinary Schedule A business” means a Schedule A business except in so far as it is a furnished holiday lettings business.

17 Furnished holiday lettings businesses

(1) In this Part “furnished holiday lettings business” means a Schedule A business in so far as it consists of the commercial letting of furnished holiday accommodation in the United Kingdom.

(2) All commercial lettings of furnished holiday accommodation made by a particular person or partnership or body of persons are to be treated as one qualifying activity.

(3) “Commercial letting of furnished holiday accommodation” has the meaning given by section 504 of ICTA.

(4) If there is a letting of accommodation only part of which is holiday accommodation, such apportionments are to be made for the purposes of this section as are just and reasonable.

18 Management of investment companies

(1) For the purposes this Part, the management of an investment company consists of pursuing those purposes expenditure on which would be treated as expenses of management within section 75 of ICTA.

(2) In this Part “investment company” has the meaning given by section 130 of ICTA.

19 Special leasing of plant or machinery

(1) In this Part “special leasing”, in relation to plant or machinery, means hiring out the plant or machinery otherwise than in the course of any other qualifying activity (and references to a lessor or lessee in the context of special leasing are to be read accordingly).

(2) A qualifying activity consisting of special leasing of plant or machinery begins when the plant or machinery is first hired out in the circumstances given in subsection (1).

(3) A qualifying activity consisting of special leasing of plant or machinery is permanently discontinued if the lessor permanently ceases to hire out the plant or machinery otherwise than in the course of any other qualifying activity.

(4) A person who has more than one item of plant or machinery that is the subject of special leasing has a separate qualifying activity in relation to each item.

(5) If a company carrying on any life assurance business—

(a) hires out plant or machinery which is an investment asset (as defined by section 545(2)), and

(b) does not do so in the course of a property business,

the company is to be treated for the purposes of subsection (1) as hiring out the plant or machinery otherwise than in the course of a qualifying activity.

20 Employments and offices

(1) In section 15(1)(i) “employment” does not include an employment the performance of the duties of which is treated as the carrying on of a trade under section 314 of ICTA (divers and diving supervisors in the North Sea etc.).

(2) Subsection (3) applies if the emoluments for any duties of an employment or office do not fall within Case I or II of Schedule E.

(3) This Part applies in relation to—

(a) those emoluments, or

(b) any other emoluments of the employment or office,

as if the performance of the duties did not belong to that employment or office.

Chapter 3 Qualifying expenditure

Buildings, structures and land

21 Buildings

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a building.

(2) The provision of a building includes its construction or acquisition.

(3) In this section, “building” includes an asset which—

(a) is incorporated in the building,

(b) although not incorporated in the building (whether because the asset is moveable or for any other reason), is in the building and is of a kind normally incorporated in a building, or

(c) is in, or connected with, the building and is in list A.

(4) This section is subject to section 23.

22 Structures, assets and works

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on—

(a) the provision of a structure or other asset in list B, or

(b) any works involving the alteration of land.

(2) The provision of a structure or other asset includes its construction or acquisition.

(3) In this section—

(a) “structure” means a fixed structure of any kind, other than a building (as defined by section 21(3)), and

(b) “land” does not include buildings or other structures, but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(4) This section is subject to section 23.

23 Expenditure unaffected by sections 21 and 22

(1) Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in subsection (2) applies.

(2) The provisions are—

• section 28 (thermal insulation of industrial buildings);

• section 29 (fire safety);

• section 30 (safety at designated sports grounds);

• section 31 (safety at regulated stands at sports grounds);

• section 32 (safety at other sports grounds);

• section 33 (personal security);

• section 71 (software and rights to software);

• section 40D of F(No.2)A 1992 (election relating to tax treatment of films expenditure).

(3) Sections 21 and 22 also do not affect the question whether expenditure on any item described in list C is, for the purposes of this Act, expenditure on the provision of plant or machinery.

(4) But items 1 to 16 of list C do not include any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place.

(5) In item 19 of list C, “caravan” includes, in relation to a holiday caravan site, anything that is treated as a caravan for the purposes of—

(a) the Caravan Sites and Control of Development Act 1960 (c. 62), or

(b) the Caravans Act (Northern Ireland) 1963 (c. 17 (N.I.)).

24 Interests in land

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the acquisition of an interest in land.

(2) In this section “land” does not include—

(a) buildings or other structures, or

(b) any asset which is so installed or otherwise fixed to any description of land as to become, in law, part of the land,

but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(3) Subject to subsection (2), “interest in land” has the meaning given by section 175 (definitions in connection with provisions about fixtures).

25 Building alterations connected with installation of plant or machinery

If a person carrying on a qualifying activity incurs capital expenditure on alterations to an existing building incidental to the installation of plant or machinery for the purposes of the qualifying activity, this Part applies as if—

(a) the expenditure were expenditure on the provision of the plant or machinery, and

(b) the works representing the expenditure formed part of the plant or machinery.

Demolition costs

26 Demolition costs

(1) This section applies if—

(a) plant or machinery is demolished, and

(b) the last use of the plant or machinery was for the purposes of a qualifying activity.

(2) If the person carrying on the qualifying activity replaces the plant or machinery with other plant or machinery then, for the purposes of this Part, the net cost of the demolition to that person is treated as expenditure incurred on the provision of the other plant or machinery.

(3) If the person carrying on the qualifying activity does not replace the plant or machinery, the net cost of the demolition to that person is allocated to the appropriate pool for the chargeable period in which the demolition takes place.

(4) In subsection (3)—

• “the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been or would be allocated in accordance with this Part, and

• “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 plant or machinery.

(5) Subsection (3) is subject to section 164(4) (abandonment expenditure before cessation of ring fence trade: election for special allowance).

Expenditure on thermal insulation, safety measures, etc.

27 Application of Part to thermal insulation, safety measures, etc.

(1) Subsection (2) has effect in relation to expenditure if—

(a) it is expenditure to which any of sections 28 to 33 applies, and

(b) an allowance under Part 2 or a deduction in respect of the expenditure could not, in the absence of this section, be made in calculating the income from the qualifying activity in question.

(2) This Part (including in particular section 11(4)) applies as if—

(a) the expenditure were capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity in question, and

(b) the person who incurred the expenditure owned plant or machinery as a result of incurring it.

28 Thermal insulation of industrial buildings

(1) This section applies to expenditure if a person carrying on a qualifying activity consisting of a trade has incurred it in adding insulation against loss of heat to an industrial building occupied by him for the purposes of the trade.

(2) This section also applies to expenditure if a person carrying on a qualifying activity consisting of an ordinary Schedule A business has incurred it in adding insulation against loss of heat to an industrial building let by him in the course of the business.

(3) “Industrial building” means a building or structure which is in use for the purposes of a qualifying trade (within the meaning of Chapter 2 of Part 3).

29 Fire safety

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required fire precautions in respect of premises which he uses for the purposes of the qualifying activity.

(2) A person takes required fire precautions in respect of premises if—

(a) he has been served with a notice under section 5(4) of the Fire Precautions Act 1971 (c. 40) specifying steps to be taken in respect of the premises, and

(b) he takes the steps specified in the notice.

(3) A person also takes required fire precautions in respect of premises if—

(a) he has not been served with a notice by the fire authority under section 5(4) of the 1971 Act, but has been sent or given a document by or on behalf of the fire authority that specifies steps that might have been specified in respect of the premises in such a notice, and

(b) he takes the steps specified in the document.

(4) A person also takes required fire precautions in respect of premises if—

(a) he has been served with a prohibition notice under section 10 of the 1971 Act in respect of the premises specifying matters giving rise to a risk of a kind mentioned in subsection (2) of that section, and

(b) he takes steps to remedy the matters specified in the prohibition notice.

(5) This section has effect in relation to Northern Ireland subject to the modifications in subsection (6).

(6) The modifications are—

(a) for the references to section 5(4) of the 1971 Act substitute references to Article 26(4) of the Fire Services (Northern Ireland) Order 1984 (S.I.1984/1821 (N.I.11)),

(b) for the reference to section 10 of the 1971 Act substitute a reference to Article 33 of the 1984 Order, and

(c) for the references to a fire authority substitute references to the Fire Authority for Northern Ireland.

30 Safety at designated sports grounds

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a sports ground which is—

(a) designated under section 1 of the Safety of Sports Grounds Act 1975 (c. 52) as requiring a safety certificate, and

(b) used by him for the purposes of the qualifying activity.

(2) A person takes required safety precautions in respect of the sports ground if—

(a) a safety certificate has been issued under the 1975 Act for the sports ground, and

(b) he takes steps necessary for compliance with the terms and conditions of the safety certificate.

(3) A person also takes required safety precautions in respect of the sports ground if—

(a) he has been sent or given a document by or on behalf of the local authority for the area in which the sports ground is situated,

(b) the document specifies steps which, if taken, would—

(i) be taken into account by the local authority in deciding what terms and conditions to include in a safety certificate to be issued under the 1975 Act for the sports ground, or

(ii) lead to the amendment or replacement of a safety certificate issued or to be issued under the 1975 Act for the sports ground, and

(c) he takes the steps specified in the document.

31 Safety at regulated stands at sports grounds

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a stand at a sports ground—

(a) the use of which requires a safety certificate under Part III of the Fire Safety and Safety of Places of Sport Act 1987 (c. 27), and

(b) which he uses for the purposes of the qualifying activity.

(2) A person takes required safety precautions in respect of the stand at the sports ground if—

(a) a safety certificate has been issued under the 1987 Act for the stand, and

(b) he takes steps necessary for compliance with the terms and conditions of the safety certificate.

(3) A person also takes required safety precautions in respect of the stand at the sports ground if—

(a) he has been sent or given a document by or on behalf of the local authority for the area in which the sports ground is situated,

(b) the document specifies steps which, if taken, would—

(i) be taken into account by the local authority in deciding what terms and conditions to include in a safety certificate to be issued under the 1987 Act for the stand, or

(ii) lead to the amendment or replacement of a safety certificate issued or to be issued under the 1987 Act for the stand, and

(c) he takes the steps specified in the document.

32 Safety at other sports grounds

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a sports ground—

(a) which is of a kind described in section 1(1) of the Safety of Sports Grounds Act 1975 (c. 52) but in respect of which no designation order under that section is in force at the time when he takes those precautions, and

(b) which he uses for the purposes of the qualifying activity,

and the expenditure is not incurred in respect of a sports ground stand which is within section 31(1)(a).

(2) A person takes required safety precautions in respect of the sports ground if he takes steps which the relevant local authority certify would have fallen within section 30(2) or (3) if—

(a) a designation order under section 1 of the 1975 Act had then been in force, and

(b) a safety certificate had then been issued or applied for under the 1975 Act.

(3) Any provision of regulations made under section 6(1)(b) of the 1975 Act (power of local authorities to charge fees) applies, with the necessary modifications, to the issue of a certificate for the purposes of subsection (2) as it applies to the issue of a safety certificate.

(4) In subsection (2)—

(a) “the relevant local authority” means the local authority for the area in which the sports ground is situated, and

(b) “local authority” has the same meaning as in the 1975 Act.

33 Personal security

(1) This section applies to expenditure if—

(a) it is incurred by an individual or partnership of individuals in connection with the provision for, or for use by, the individual, or any of the individuals, of a security asset,

(b) the individual or partnership is carrying on a relevant qualifying activity, and

(c) the special threat conditions are met.

(2) The special threat conditions are that—

(a) the asset is provided or used to meet a threat which—

(i) is a special threat to the individual’s personal physical security, and

(ii) arises wholly or mainly because of the relevant qualifying activity, and

(b) the person incurring the expenditure—

(i) has the sole object of meeting that threat in incurring that expenditure, and

(ii) intends the asset to be used solely to improve personal physical security.

(3) If—

(a) the person incurring the expenditure intends the asset to be used solely to improve personal physical security, but

(b) there is another use which is incidental to improving personal physical security,

that other use is ignored for the purposes of this section.

(4) The fact that an asset improves the personal physical security of any member of the family or household of the individual concerned, as well as that of the individual, does not prevent this section from applying.

(5) If—

(a) the asset is not intended to be used solely to improve personal physical security, but the expenditure incurred on it would otherwise be expenditure to which this section applies, and

(b) the person incurring the expenditure intends the asset to be used partly to improve personal physical security,

this section applies only to the proportion of the expenditure attributable to the intended use to improve personal physical security.

(6) In this section “security asset” means an asset which improves personal security; and here “asset”—

(a) does not include—

(i) a car, ship or aircraft, or

(ii) a dwelling or grounds appurtenant to a dwelling, but

(b) subject to paragraph (a), includes equipment, a structure (such as a wall) and an asset which becomes fixed to land.

(7) Section 81 (extended meaning of “car”) does not apply in relation to subsection (6)(a).

(8) In this section “relevant qualifying activity” means a qualifying activity consisting of—

(a) a trade,

(b) an ordinary Schedule A business,

(c) a furnished holiday lettings business,

(d) an overseas property business, or

(e) a profession or vocation.

Exclusion of certain types of expenditure

34 Expenditure by MPs and others on accommodation

(1) Expenditure is not qualifying expenditure if it is incurred by—

(a) a member of the House of Commons,

(b) a member of the Scottish Parliament,

(c) a member of the National Assembly for Wales, or

(d) a member of the Northern Ireland Assembly,

in or in connection with the provision or use of residential or overnight accommodation for the purpose given in subsection (2).

(2) The purpose is enabling the member to perform the duties of a member of the body in or about—

(a) the place where the body sits, or

(b) the constituency or region for which the member has been returned.

35 Expenditure on plant or machinery for use in dwelling-house not qualifying expenditure in certain cases

(1) This section applies if a person is carrying on a qualifying activity consisting of—

(a) an ordinary Schedule A business,

(b) an overseas property business, or

(c) special leasing of plant or machinery.

(2) The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.

(3) If plant or machinery is provided partly for use in a dwelling-house and partly for other purposes, such apportionment of the expenditure incurred in providing that plant or machinery is to be made for the purposes of subsection (2) as is just and reasonable.

36 Restriction on qualifying expenditure in case of employment or office

(1) Subsection (2) applies in relation to a qualifying activity consisting of an employment or office.

(2) Expenditure is qualifying expenditure only if the plant or machinery is necessarily provided for use in the performance of the duties of the employment or office.

(3) Subsection (2) is subject to section 80 (vehicles provided for purposes of employment or office).

37 Exclusion where sums payable in respect of depreciation

(1) Expenditure incurred by a person in providing plant or machinery for the purposes of a qualifying activity is not qualifying expenditure if it appears—

(a) that during the period during which the plant or machinery will be used for the purposes of the qualifying activity sums are, or are to be, payable to that person directly or indirectly, and

(b) that those sums are in respect of, or take account of, the whole of the depreciation of the plant or machinery resulting from its use for those purposes.

(2) Subsection (1) does not apply if the sums fall to be taken into account as income of the person or in calculating the profits of a qualifying activity carried on by him.

38 Production animals etc.

Expenditure is not qualifying expenditure if it is incurred on—

(a) animals or other creatures to which Schedule 5 to ICTA (treatment of farm animals etc. for purposes of Case I of Schedule D) applies, or

(b) shares in such animals or creatures.

Chapter 4 First-year qualifying expenditure

General

39 First-year allowances available for certain types of qualifying expenditure only

A first-year allowance is not available unless the qualifying expenditure is first-year qualifying expenditure under—

Types of expenditure which may qualify for first-year allowances

40 Expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred on or before 11th May 2002,

(b) it is incurred by a small or medium-sized enterprise,

(c) it is incurred on the provision of plant or machinery for use primarily in Northern Ireland, and

(d) it is not excluded by—

(i) section 41 (miscellaneous exclusions from this section),

(ii) section 42 (plant or machinery partly for use outside Northern Ireland), or

(iii) section 46 (general exclusions).

(2) This section is subject to section 43 (effect of plant or machinery subsequently being primarily for use outside Northern Ireland).

41 Miscellaneous exclusions from section 40 (expenditure for Northern Ireland purposes etc.)

(1) Expenditure is not first-year qualifying expenditure under section 40 if—

(a) it is long-life asset expenditure,

(b) it is expenditure on the provision of an aircraft or hovercraft, or

(c) it is expenditure on the provision of a goods vehicle for the purposes of a trade which consists primarily of the conveyance of goods.

(2) Expenditure is not first-year qualifying expenditure under section 40 if it is incurred on the provision of plant or machinery for use primarily in—

(a) agriculture, fishing or fish farming, or

(b) any relevant activity carried out in relation to agricultural produce, fish or any fish product for the purpose of bringing it to market,

unless it is authorised for the purposes of this section by the Department of Agriculture and Rural Development in Northern Ireland.

(3) An authorisation given by the Department—

(a) may be given either generally or specially, and

(b) may in any case be absolute or conditional;

and, if the authorisation is given generally, it may be modified by the Department.

(4) An authorisation is given specially if it is given so as to apply only to a specified item of expenditure or a specified person; otherwise, it is given generally.

(5) In this section—

• “agriculture” and “agricultural produce” have the same meaning as in section 6 of the European Communities Act 1972 (c. 68),

• “fish” includes shellfish,

• “fish farming” means the intensive rearing, on a commercial basis, of fish intended for human consumption,

• “fishing” means a trade, or part of a trade, which consists of the catching or taking of fish,

• “goods vehicle” has the same meaning as in the Road Traffic (Northern Ireland) Order 1995 (S.I.1995/2994 (N.I.18)),

• “hovercraft” has the same meaning as in the Hovercraft Act 1968 (c. 59), and

• “relevant activity” means transportation, storage, preparation, processing or packaging.

42 Exclusion of plant or machinery partly for use outside Northern Ireland

(1) Expenditure on plant or machinery is not first-year qualifying expenditure under section 40 if—

(a) at the time when it is incurred, the person incurring it intends the plant or machinery to be used partly outside Northern Ireland, and

(b) the main benefit, or one of the main benefits, which could reasonably be expected to arise from the relevant arrangements is the obtaining of a first-year allowance, or a greater first-year allowance, in respect of the part of the expenditure that is attributable to that intended use outside Northern Ireland.

(2) For the purposes of subsection (1)—

(a) “the relevant arrangements” means—

(i) the transaction under which the expenditure is incurred, and

(ii) any scheme or arrangements of which that transaction forms part, and

(b) the part of the expenditure that is attributable under subsection (1)(b) is to be determined on a just and reasonable basis.

43 Effect of plant or machinery subsequently being primarily for use outside Northern Ireland

(1) Expenditure on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 40 if, at any relevant time—

(a) the primary use to which the plant or machinery is put is a use outside Northern Ireland, or

(b) the plant or machinery is held for use otherwise than primarily in Northern Ireland.

(2) In subsection (1) “relevant time” means a time which—

(a) falls within the relevant period, and

(b) is a time when the plant or machinery is owned by—

(i) the person who incurred the expenditure, or

(ii) a person who is, or at any time in that period has been, connected with that person.

(3) “The relevant period” means—

(a) if the expenditure concerned exceeds £3.5 million, the period of 5 years beginning with the date of the incurring of that expenditure;

(b) in any other case, the period of 2 years beginning with that date.

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

(5) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, he must give notice to the Inland Revenue specifying how the return needs to be amended.

(6) The notice must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.

44 Expenditure incurred by small or medium-sized enterprises

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred by a small or medium-sized enterprise, and

(b) it is not excluded by subsection (2) or section 46 (general exclusions).

(2) Long-life asset expenditure is not first-year qualifying expenditure under subsection (1).

45 ICT expenditure incurred by small enterprises

(1) Expenditure is first-year qualifying expenditure if—

(a) it is incurred on or before 31st March 2003,

(b) it is incurred by a small enterprise,

(c) it is expenditure on information and communications technology, and

(d) it is not excluded by section 46 (general exclusions).

(2) “Expenditure on information and communications technology” means expenditure on items within any of the following classes.

Class A. Computers and associated equipment

This class covers—

(a) computers,

(b) peripheral devices designed to be used by being connected to or inserted in a computer,

(c) equipment (including cabling) for use primarily to provide a data connection between—

(i) one computer and another, or

(ii) a computer and a data communications network, and

(d) dedicated electrical systems for computers.

For this purpose “computer” does not include computerised control or management systems or other systems that are part of a larger system whose principal function is not processing or storing information.

Class B. Other qualifying equipment

This class covers—

(a) wireless application protocol telephones,

(b) third generation mobile telephones,

(c) devices designed to be used by being connected to a television set and capable of receiving and transmitting information from and to data networks, and

(d) other devices—

(i) substantially similar to those within paragraphs (a), (b) and (c), and

(ii) capable of receiving and transmitting information from and to data networks.

This is subject to any order under subsection (3).

Class C. Software

This class covers the right to use or otherwise deal with software for the purposes of any equipment within Class A or B.

(3) The Treasury may make provision by order—

(a) further defining the kinds of equipment within Class B, or

(b) adding further kinds of equipment to that class.

46 General exclusions applying to sections 40, 44 and 45

(1) Expenditure within any of the general exclusions in subsection (2) is not first-year qualifying expenditure under—

• section 40 (expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises),

• section 44 (expenditure incurred by small or medium-sized enterprises), or

• section 45 (ICT expenditure incurred by small enterprises).

(2) The general exclusions are—

General exclusion 1

The expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued.

General exclusion 2

The expenditure is incurred on the provision of a car (as defined by section 81).

General exclusion 3

The expenditure is of the kind described in section 94 (ships).

General exclusion 4

The expenditure is of the kind described in section 95 (railway assets).

General exclusion 5

The expenditure would be long-life asset expenditure but for paragraph 20 of Schedule 3 (transitional provisions).

General exclusion 6

The expenditure is on the provision of plant or machinery for leasing (whether in the course of a trade or otherwise).

For this purpose, the letting of a ship on charter, or of any other asset on hire, is to be regarded as leasing (whether or not it would otherwise be so regarded).

General exclusion 7

The circumstances of the incurring of the expenditure are that—

(a) the provision of the plant or machinery on which the expenditure is incurred is connected with a change in the nature or conduct of a trade or business carried on by a person other than the person incurring the expenditure, and

(b) the obtaining of a first-year allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change.

General exclusion 8

Either of the following sections applies—

• section 13 (use for qualifying activity of plant or machinery provided for other purposes);

• section 14 (use for qualifying activity of plant or machinery which is a gift).

This is subject to section 161 (pre-trading expenditure on mineral exploration and access).

Expenditure of small or medium-sized enterprises

47 Expenditure of small or medium-sized enterprises: companies

(1) Use this section to decide whether expenditure incurred by a company is, for the purposes of this Chapter, incurred by—

(a) a small or medium-sized enterprise, or

(b) a small enterprise.

(2) The expenditure is incurred by a small or medium-sized enterprise if the company—

(a) qualifies (or is treated as qualifying) as small or medium-sized under the relevant companies legislation in relation to the financial year of the company in which the expenditure is incurred, and

(b) is not a member of a large group at the time when the expenditure is incurred.

(3) The expenditure is incurred by a small enterprise if the company—

(a) qualifies (or is treated as qualifying) as small under the relevant companies legislation in relation to the financial year of the company in which the expenditure is incurred, and

(b) is not a member of a large or medium-sized group at the time when the expenditure is incurred.

(4) Except in the case of a company formed and registered in Northern Ireland—

(a) “the relevant companies legislation” means section 247 of the Companies Act 1985 (c. 6), and

(b) “financial year” has the same meaning as in Part VII of the 1985 Act.

(5) In the case of such a company—

(a) “the relevant companies legislation” means Article 255 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)), and

(b) “financial year” has the same meaning as in Part VIII of the 1986 Order.

(6) “Company” means—

(a) a company, or an oversea company, within the meaning of the 1985 Act, or

(b) a company, or a Part XXIII company, within the meaning of the 1986 Order.

48 Expenditure of small or medium-sized enterprises: businesses

(1) Use this section to decide whether expenditure incurred by a business is, for the purposes of this Chapter, incurred by—

(a) a small or medium-sized enterprise, or

(b) a small enterprise.

(2) In this section “business” means—

(a) an individual,

(b) a partnership of which all the members are individuals,

(c) a registered friendly society within the meaning of Chapter II of Part XII of ICTA, or

(d) a body corporate which is not a company but is within the charge to corporation tax.

(3) The expenditure is incurred by a small or medium-sized enterprise if—

(a) the expenditure is incurred for the purposes of a qualifying activity carried on by the business, and

(b) the business passes the hypothetical company test, in relation to that expenditure, as a small or medium-sized company.

(4) The expenditure is incurred by a small enterprise if—

(a) the expenditure is incurred for the purposes of a qualifying activity carried on by the business, and

(b) the business passes the hypothetical company test, in relation to that expenditure, as a small company.

(5) To apply the hypothetical company test, assume that—

(a) the qualifying activity is carried on by a company (“the hypothetical company”),

(b) every trade, business, profession or vocation carried on by the business is carried on by the business as part of that activity,

(c) the financial years of the hypothetical company coincide with the chargeable periods of the business, and

(d) accounts of the hypothetical company for any relevant chargeable period have been duly drawn up as if that period were a financial year of the company.

(6) The business passes the hypothetical company test as a small or medium-sized company in relation to the expenditure in question if, on the assumptions in subsection (5), the company would qualify (or be treated as qualifying) as small or medium-sized under the relevant companies legislation in relation to the financial year in which the expenditure is assumed to be incurred.

(7) The business passes the hypothetical company test as a small company in relation to the expenditure in question if, on the assumptions in subsection (5), the company would qualify (or be treated as qualifying) as small under the relevant companies legislation in relation to the financial year in which the expenditure is assumed to be incurred.

(8) Except in the case of a business carrying on a qualifying activity wholly or mainly in Northern Ireland—

(a) “the relevant companies legislation” means section 247 of the Companies Act 1985 (c. 6), and

(b) “financial year” has the same meaning as in Part VII of that Act;

and the reference in subsection (5)(d) to accounts being duly drawn up is to their being drawn up in accordance with that Act.

(9) In the case of such a business—

(a) “the relevant companies legislation” means Article 255 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)), and

(b) “financial year” has the same meaning as in Part VIII of that Order;

and the reference in subsection (5)(d) to accounts being duly drawn up is to their being drawn up in accordance with that Order.

49 Whether company is a member of a large or medium-sized group

(1) Use this section to decide whether, for the purposes of section 47, a company is—

(a) a member of a large group, or

(b) a member of a large or medium-sized group.

(2) Subject to subsection (4), a company is a member of a large group at the time when any expenditure is incurred if—

(a) it is at that time the parent undertaking of a group which does not qualify as small or medium-sized in relation to the financial year of the parent undertaking in which that time falls, or

(b) it is at that time a subsidiary undertaking in relation to the parent undertaking of such a group.

(3) Subject to subsection (4), a company is a member of a large or medium-sized group at the time when any expenditure is incurred if—

(a) it is at that time the parent undertaking of a group which does not qualify as small in relation to the financial year of the parent undertaking in which that time falls, or

(b) it is at that time a subsidiary undertaking in relation to the parent undertaking of such a group.

(4) If, at the time when any expenditure is incurred by a company, any arrangements exist which are such that, had effect been given to them immediately before that time, the company or a successor of the company—

(a) would, at that time, have been a member of a large group, or

(b) would, at that time, have been a member of a large or medium-sized group,

the company incurring the expenditure is to be treated as a member of a large group or (as the case may be) a large or medium-sized group at that time.

(5) For the purposes of subsections (2) and (3), the question whether—

(a) a group qualifies as small or medium-sized, or

(b) a group qualifies as small,

is to be decided by reference to the relevant companies legislation (but reading references in that legislation to a parent company as references to a parent undertaking).

(6) In subsection (5) “the relevant companies legislation” means—

(a) except in the case of a company formed and registered in Northern Ireland, section 249 of the Companies Act 1985 (c. 6);

(b) in the case of such a company, Article 257 of the Companies (Northern Ireland) Order 1986 (S.I.1986/1032 (N.I.6)).

(7) For the purposes of subsection (4) a company is the successor of another if—

(a) it carries on a trade which, in whole or in part, the other company has ceased to carry on, and

(b) the circumstances are such that section 343 of ICTA (company reconstructions without a change of ownership) applies in relation to the two companies as the predecessor and the successor within the meaning of that section,

and “arrangements” means arrangements of any kind (whether or not in writing or legally enforceable).

(8) In this section “financial year”, “group”, “parent undertaking” and “subsidiary undertaking” have the same meaning as in—

(a) except in the case of a company formed and registered in Northern Ireland, Part VII of the 1985 Act;

(b) in the case of such a company, Part VIII of the 1986 Order.

Supplementary

50 Time when expenditure is incurred

In determining whether expenditure is first-year qualifying expenditure under this Chapter, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded.

51 Disclosure of information between UK tax authorities

(1) No obligation as to secrecy or other restriction on the disclosure of information imposed by statute or otherwise prevents—

(a) the Inland Revenue from disclosing information, for the purpose given in subsection (2), to the Department of Agriculture and Rural Development in Northern Ireland (“the Department”) or an authorised officer of the Department, or

(b) the Department or an authorised officer of the Department from disclosing information for that purpose to the Inland Revenue.

(2) The purpose is assisting—

(a) the Board of Inland Revenue, in carrying out its functions relating to allowances made because of section 40 (expenditure incurred for Northern Ireland purposes by small or medium-sized enterprises), or

(b) the Department, in carrying out its functions under this Chapter.

(3) Information obtained as a result of a disclosure authorised by this section must not be disclosed except—

(a) to the Inland Revenue, the Department or an authorised officer of the Department, or

(b) for the purposes of any proceedings connected with a matter in relation to which the Board of Inland Revenue or the Department carry out the functions mentioned in subsection (2)(a) or (b).

Chapter 5 Allowances and charges

First-year allowances

52 First-year allowances

(1) A person is entitled to a first-year allowance in respect of first-year qualifying expenditure if—

(a) the expenditure is incurred in a chargeable period to which this Act applies, and

(b) the person owns the plant or machinery at some time during that chargeable period.

(2) Any first-year allowance is made for the chargeable period in which the first-year qualifying expenditure is incurred.

(3) The amount of the allowance is a percentage of the first-year qualifying expenditure in respect of which the allowance is made, as shown in the Table—

(4) A person who is entitled to a first-year allowance may claim the allowance in respect of the whole or a part of the first-year qualifying expenditure.

(5) Subsection (1) needs to be read with section 236 (first-year allowances in respect of additional VAT liabilities) and is subject to—

• section 205 (reduction of first-year allowance if plant or machinery provided partly for purposes other than those of qualifying activity),

• section 210 (reduction of first-year allowance if it appears that a partial depreciation subsidy is or will be payable), and

• sections 217, 223 and 241 (anti-avoidance: no first-year allowance in certain cases).

Pooling

53 Pooling of qualifying expenditure

(1) Qualifying expenditure has to be pooled for the purpose of determining a person’s entitlement to writing-down allowances and balancing allowances and liability to balancing charges.

(2) If a person carries on more than one qualifying activity, expenditure relating to the different activities must not be allocated to the same pool.

54 The different kinds of pools

(1) There are single asset pools, class pools and the main pool.

(2) A single asset pool may not contain expenditure relating to more than one asset.

(3) The following provide for qualifying expenditure to be allocated to a single asset pool—

• section 74 (car above the cost threshold);

• section 86 (short-life asset);

• section 127 (ship);

• section 206 (plant or machinery provided or used partly for purposes other than those of qualifying activity);

• section 211 (payment of partial depreciation subsidy);

• section 538 (contribution allowances: plant and machinery).

(4) A class pool is a pool which may contain expenditure relating to more than one asset.

(5) The following provide for qualifying expenditure to be allocated to a class pool—

• section 101 (long-life assets);

• section 107 (overseas leasing).

(6) Qualifying expenditure may be allocated to the main pool only if it does not fall to be allocated to a single asset pool or a class pool.

Writing-down and balancing allowances and balancing charges

55 Determination of entitlement or liability

(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on—

(a) the available qualifying expenditure in that pool for that period (“AQE”), and

(b) the total of any disposal receipts to be brought into account in that pool for that period (“TDR”).

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

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

(4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.

(5) The final chargeable period is given by section 65.

(6) Subsection (2) is subject to section 110(1) (overseas leasing: allowances prohibited in certain cases).

56 Amount of allowances and charges

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is 25% of the amount by which AQE exceeds TDR.

(2) Subsection (1) is subject to—

(a) section 102 (long-life asset expenditure: 6%), and

(b) section 109 (overseas leasing: 10%).

(3) If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

(4) If the qualifying activity has been carried on for part only of the chargeable period, the amount is proportionately reduced.

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

(6) The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDR exceeds AQE.

(7) The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDR.

Available qualifying expenditure

57 Available qualifying expenditure

(1) The general rule is that a person’s available qualifying expenditure in a pool for a chargeable period consists of—

(a) any qualifying expenditure allocated to the pool for that period in accordance with section 58, and

(b) any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 59.

(2) A person’s available qualifying expenditure in a pool for a chargeable period also includes any amount allocated to the pool for that period under—

• section 26(3) (net costs of demolition);

• section 86(2) or 87(2) (allocation of expenditure in short-life asset pool);

• section 111(3) (overseas leasing: standard recovery mechanism);

• section 129(1), 132(2), 133(3) or 137 (provisions relating to operation of single ship pool and deferment of balancing charges in respect of ships);

• section 165(3) (abandonment expenditure incurred after cessation of ring fence trade);

• section 206(3) (plant or machinery used partly for purposes other than those of the qualifying activity);

• section 211(4) (partial depreciation subsidy paid).

(3) A person’s available qualifying expenditure does not include any expenditure excluded by—

• section 8(4) or 9(1) (rules against double relief);

• section 166(2) (transfers of interests in oil fields: anti-avoidance);

• section 185(2), 186(2) or 187(2) (restrictions where other claims made in respect of fixture);

• section 218(1), 224(1), 228(2), 242(2), or 243(2) (general anti-avoidance provisions).

(4) Subsection (1) is also subject to section 220 (allocation to chargeable periods of expenditure incurred on plant or machinery for leasing under finance lease).

58 Initial allocation of qualifying expenditure to pools

(1) The following rules apply to the allocation of a person’s qualifying expenditure to the appropriate pool.

(2) An amount of qualifying expenditure is not to be allocated to a pool for a chargeable period if that amount has been taken into account in determining the person’s available qualifying expenditure for an earlier chargeable period.

(3) Qualifying expenditure is not to be allocated to a pool for a chargeable period before that in which the expenditure is incurred.

(4) Qualifying expenditure is not to be allocated to a pool for a chargeable period unless the person owns the plant or machinery at some time in that period.

(5) If a first-year allowance is made in respect of an amount of first-year qualifying expenditure—

(a) subject to subsection (6), none of that amount is to be allocated to a pool for the chargeable period in which the expenditure is incurred, and

(b) the amount that may be allocated to a pool for any chargeable period is limited to the balance left after deducting the first-year allowance.

(6) If—

(a) a first-year allowance is made in respect of an amount of first-year qualifying expenditure,

(b) a disposal event occurs in respect of the plant or machinery in any chargeable period, and

(c) none of the balance left after deducting the first-year allowance has been allocated to a pool for an earlier chargeable period,

the balance (or some of it) must be allocated to a pool for the chargeable period in which the disposal event occurs.

(7) Subsection (6) applies even if the balance is nil (because of a 100% first-year allowance).

(8) “The appropriate pool” means whichever pool is applicable under the provisions of this Part apart from this section.

59 Unrelieved qualifying expenditure

(1) A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDR.

(2) The amount of the unrelieved qualifying expenditure is—

(a) the excess less the writing-down allowance made for the period, or

(b) if no writing-down allowance is claimed for the period, the excess.

(3) No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.

Disposal events and disposal values: general

60 Meaning of “disposal receipt” and “disposal event”

(1) In this Part “disposal receipt” means a disposal value that a person is required to bring into account in accordance with—

(a) sections 61, 62 and 63 (disposal events, disposal values and the general limit on the amount of a disposal value),

(b) any of the provisions of this Part listed in section 66, or

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

when read with sections 64 and 264(3) (cases in which no disposal value need be brought into account).

(2) In this Part “disposal event” means any event of a kind that requires a disposal value to be brought into account under this Part (whether under section 61(1) or otherwise).

(3) If—

(a) qualifying expenditure has been allocated to a pool, and

(b) more than one disposal event occurs in respect of the plant or machinery,

a disposal value is required to be brought into account in the pool in connection with the first event only.

(4) In subsection (3) “disposal event” does not include a disposal event arising under—

• section 72 (computer software),

• sections 140 and 143 (attribution of deferred balancing charge), or

• section 238(2) (additional VAT rebates).

61 Disposal events and disposal values

(1) A person who has incurred qualifying expenditure is required to bring the disposal value of the plant or machinery into account for the chargeable period in which—

(a) the person ceases to own the plant or machinery;

(b) the person loses possession of the plant or machinery in circumstances where it is reasonable to assume that the loss is permanent;

(c) the plant or machinery has been in use for mineral exploration and access and the person abandons it at the site where it was in use for that purpose;

(d) the plant or machinery ceases to exist as such (as a result of destruction, dismantling or otherwise);

(e) the plant or machinery begins to be used wholly or partly for purposes other than those of the qualifying activity;

(f) the qualifying activity is permanently discontinued.

(2) The disposal value to be brought into account depends on the disposal event, as shown in the Table—

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

(4) 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 plant or machinery cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

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

(5) In this section “mineral exploration and access” has the same meaning as in Chapter 13 (provisions affecting the mining and oil industries) and Part 5 (mineral extraction allowances).

62 General limit on amount of disposal value

(1) The amount of any disposal value required to be brought into account by a person in respect of any plant or machinery is limited to the qualifying expenditure incurred by the person on its provision.

(2) Subsection (3) applies if a person who is required to bring a disposal value into account has acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons.

(3) The amount of the disposal value is limited to the amount of the qualifying expenditure on the provision of the plant or machinery incurred by whichever party to the transaction, or to any of the transactions, incurred the greatest such expenditure.

(4) This section is subject to section 239 (limit on disposal value where additional VAT rebate or rebates has or have been made in respect of original expenditure).

63 Cases in which disposal value is nil

(1) If a person disposes of plant or machinery by way of gift in circumstances such that there is a charge to tax under Schedule E, the disposal value of the plant or machinery is nil.

(2) If a person carrying on a relevant qualifying activity makes a gift of plant or machinery used in the course of the activity—

(a) to a charity within the meaning of section 506 of ICTA (charities: qualifying and non-qualifying expenditure),

(b) to a body listed in section 507(1) of ICTA (various heritage bodies and museums), or

(c) for the purposes of a designated educational establishment within the meaning of section 84 of ICTA (gifts to educational establishments),

the disposal value of the plant or machinery is nil.

(3) In subsection (2) “relevant qualifying activity” means a qualifying activity consisting of—

(a) a trade,

(b) an ordinary Schedule A business,

(c) a furnished holiday lettings business,

(d) an overseas property business, or

(e) a profession or vocation.

(4) Subsection (2) needs to be read with sections 83A(4) and 84(4) of ICTA (which provide for a charge to tax if subsection (2) applies in circumstances in which the donor or a connected person receives a benefit attributable to the gift).

(5) If expenditure is treated under section 27(2) (expenditure on thermal insulation, safety measures, etc.) as having been incurred on plant or machinery, the disposal value of the plant or machinery is nil.

64 Case in which no disposal value need be brought into account

(1) A person is not required to bring a disposal value into account in a pool for a chargeable period in respect of plant or machinery if none of the qualifying expenditure is or has been taken into account in a claim in determining the person’s available qualifying expenditure in the pool for that or any previous chargeable period.

(2) Subsection (3) applies if—

(a) a person (“C”) has incurred qualifying expenditure on plant or machinery,

(b) C acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons,

(c) any connected person (apart from C) who was a party to the transaction, or one of the series of transactions, is or has been required to bring a disposal value into account as a result of the transaction,

(d) a disposal event (“the relevant disposal event”) occurs in respect of the plant or machinery at a time when it is owned by C, and

(e) none of C’s qualifying expenditure is or has been taken into account in a claim in determining C’s available qualifying expenditure for the chargeable period in which the relevant disposal event occurs or any previous chargeable period.

(3) If this subsection applies—

(a) subsection (1) does not apply in relation to the relevant disposal event, and

(b) C’s qualifying expenditure is to be treated as allocated to the appropriate pool for the chargeable period in which the relevant disposal event occurs.

(4) In subsection (3)—

(a) “qualifying expenditure” means, if a first-year allowance has been made to C, the amount (including a nil amount) remaining after deducting the allowance, and

(b) “the appropriate pool” means whichever pool is applicable in relation to C under the provisions of this Part.

(5) A person takes expenditure into account in a claim if he takes it into account—

(a) in a tax return;

(b) by giving notice of an amendment of a tax return;

(c) in any other claim under this Part.

The final chargeable period

65 The final chargeable period

(1) The final chargeable period for—

(a) the main pool, or

(b) a long-life asset pool,

is the chargeable period in which the qualifying activity is permanently discontinued.

(2) The final chargeable period for a single asset pool is the first chargeable period in which any disposal event given in section 61(1) occurs.

(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—

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

(c) does not then in fact become the owner of the plant or machinery,

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

(c) the person is not treated under Chapter 14 as being the owner of the plant or machinery,

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—

(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—

(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—

(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—

(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.