Office of Public Sector Information
PART 2 continued CHAPTER 17 continued
This Chapter needs to be read with sections 241 to 245 (provision for cases where a person involved in a relevant transaction or a sale and finance leaseback incurs an additional VAT liability or receives an additional VAT rebate).
For the purposes of this Chapter—
(a) “additional VAT liability” and “additional VAT rebate” have the meaning given by section 547,
(b) the time when—
(i) a person incurs an additional VAT liability, or
(ii) an additional VAT rebate is made to a person,
is given by section 548, and
(c) the chargeable period in which an additional VAT liability or an additional VAT rebate accrues is given by section 549.
(1) This section applies if a person—
(a) has incurred qualifying expenditure (“the original expenditure”), and
(b) incurs an additional VAT liability in respect of the original expenditure at a time when the plant or machinery is provided for the purposes of the qualifying activity.
(2) The additional VAT liability is to be treated as qualifying expenditure—
(a) which is incurred on the same plant or machinery as the original expenditure, and
(b) which may be taken into account in determining the person’s available qualifying expenditure for the chargeable period in which the additional VAT liability accrues.
(1) Subsection (2) applies if—
(a) the original expenditure was first-year qualifying expenditure, and
(b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity.
(2) The additional VAT liability is to be regarded for the purposes of this Part as first-year qualifying expenditure which—
(a) is incurred on the same plant or machinery and is the same type of first-year qualifying expenditure as the original expenditure, and
(b) entitles the person incurring the liability to a first-year allowance for the chargeable period in which the liability accrues.
(3) Subsections (3) and (4) of section 52 apply to first-year qualifying expenditure constituted by the additional VAT liability as they apply to other first-year qualifying expenditure.
(4) This section is subject to sections 237 and 241.
(1) An additional VAT liability is not first-year qualifying expenditure if at the time when the liability is incurred the plant or machinery is used for overseas leasing which is not protected leasing.
(2) An additional VAT liability is not first-year qualifying expenditure if, at the time when the liability is incurred, the original expenditure is treated under section 43 (plant or machinery subsequently primarily for use outside Northern Ireland) as expenditure which was never first-year qualifying expenditure.
(1) This section applies if—
(a) a person has incurred qualifying expenditure (“the original expenditure”),
(b) an additional VAT rebate is made to the person in respect of the original expenditure, and
(c) the person owns the plant or machinery on which the original expenditure was incurred at any time in the chargeable period in which the rebate is made.
(2) If (apart from this section) there would not be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as a disposal value for that chargeable period.
(3) If (apart from this section) there would be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as an addition to that disposal value.
(1) Subsection (2) applies if—
(a) a person is required to bring a disposal value into account in respect of any plant or machinery, and
(b) any additional VAT rebate or rebates has or have been made to him in respect of the original expenditure.
(2) The amount of the disposal value is limited to the amount of the original expenditure reduced by the total of any additional VAT rebates accruing in previous chargeable periods in respect of that expenditure.
But this is subject to subsections (3) to (6).
(3) Subsection (4) applies if the disposal value is required to be brought into account by section 238(2) (disposal value for additional VAT rebate on its own).
(4) The amount of the disposal value to be brought into account is limited to the amount of the original expenditure reduced by the amount of any disposal values brought into account in respect of the plant or machinery as a result of any earlier event.
(5) If—
(a) the person required to bring the 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, and
(b) an additional VAT rebate has been made to any party to the transaction, or to any of the transactions,
the amount of the disposal value is limited to the greatest relevant expenditure of any of the parties.
(6) The relevant expenditure of a party is that party’s qualifying expenditure on the provision of the plant or machinery, less any additional VAT rebate made to that party.
(1) This section applies if a person—
(a) was entitled to a balancing allowance for the final chargeable period for a short-life asset pool for a qualifying activity,
(b) has incurred, after the end of that period, an additional VAT liability in respect of the original expenditure on the provision of the short-life asset, and
(c) has not brought the liability into account in determining the amount of the balancing allowance.
(2) The person is entitled to a further balancing allowance, of an amount equal to the additional VAT liability, for the chargeable period of the qualifying activity in which the additional VAT liability accrues.
(1) This section applies if—
(a) one person (“B”) enters into a transaction with another person (“S”) which is a relevant transaction for the purposes of Chapter 17 (anti-avoidance), and
(b) a first-year allowance in respect of B’s expenditure under the relevant transaction is prohibited by section 217(1) or 223(1).
(2) A first-year allowance is not to be made in respect of any additional VAT liability incurred by B in respect of his expenditure under the relevant transaction.
(3) Any first-year allowance which is prohibited by subsection (2), but which has already been made, is to be withdrawn.
(1) This section applies instead of section 218 (restriction on B’s qualifying expenditure in case other than sale and finance leaseback) if—
(a) apart from this subsection, section 218 would apply, and
(b) an additional VAT liability has been incurred by, or an additional rebate has been made to, any of the persons mentioned in that section.
(2) The amount, if any, by which E exceeds D is to be left out of account in determining B’s available qualifying expenditure.
E and D are defined in subsections (3) to (6).
(3) Except where subsection (6) applies, E is the sum of—
(a) B’s expenditure under the relevant transaction, and
(b) any additional VAT liability incurred by B in respect of that expenditure.
(4) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.
(5) If S is not required to bring a disposal value into account under this Part because of the relevant transaction, D is whichever of the following is the smallest—
(a) the market value of the plant or machinery;
(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—
(i) increased by the amount of any additional VAT liability incurred by S in respect of that expenditure, and
(ii) reduced by the amount of any additional VAT rebate made to S in respect of that expenditure;
(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—
(i) increased by the amount of any additional VAT liability incurred by that person in respect of that expenditure, and
(ii) reduced by the amount of any additional VAT rebate made to that person in respect of that expenditure.
(6) If—
(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction,
(b) the smallest amount under subsection (5) is the market value of the plant or machinery, and
(c) that value is determined inclusive of value added tax,
E is the amount of B’s expenditure under the relevant transaction.
(1) This section applies instead of section 224 (restriction on B’s qualifying expenditure in case of sale and finance leaseback) if—
(a) apart from this subsection, section 224 would apply, and
(b) an additional VAT liability has been incurred by B.
(2) The amount, if any, by which E exceeds D is to be left out of account in determining B’s available qualifying expenditure.
E and D are defined in subsections (3) to (7).
(3) Except where subsection (7) applies, E is the sum of—
(a) B’s expenditure under the relevant transaction, and
(b) any additional VAT liability incurred by B in respect of that expenditure.
(4) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value (determined in accordance with section 222).
(5) If S is not required to bring a disposal value into account under this Part because of the relevant transaction, D is whichever of the following is the smallest—
(a) the market value of the plant or machinery;
(b) if S incurred capital expenditure on the provision of the plant or machinery, the notional written-down value of that capital expenditure;
(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the notional written-down value of that capital expenditure.
(6) In this section “the notional written-down value”, in relation to expenditure incurred by a person on the provision of plant or machinery, has the meaning given by section 222(3).
(7) If—
(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction,
(b) the smallest amount under subsection (5) is the market value of the plant or machinery, and
(c) that value is determined inclusive of value added tax,
E is the amount of B’s expenditure under the relevant transaction.
An additional VAT liability is not qualifying expenditure for the purposes of this Part if—
(a) section 225 (restriction on B’s qualifying expenditure if lessor not bearing compliance risk) applies, and
(b) the additional VAT liability is incurred—
(i) by B, in respect of the expenditure referred to in section 225(2)(a), or
(ii) by the lessor, in respect of the expenditure referred to in section 225(2)(b).
(1) This section applies if—
(a) an election is made under section 227 (sale and leaseback or sale and finance leaseback: election for special treatment), and
(b) an additional VAT liability is incurred by S in respect of the capital expenditure incurred on the provision of the plant or machinery to which the election relates.
(2) The effect of the election is—
(a) that no allowance is to be made to S under this Act in respect of the additional VAT liability, and
(b) that the additional VAT liability must be left out of account in determining Ss' available qualifying expenditure for any period.
(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to sections 241 to 245.
(2) Section 232 (meaning of connected person) applies for the purposes of sections 242 and 243.
If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a trade, the allowance or charge is to be given effect in calculating the profits of that person’s trade, by treating—
(a) the allowance as an expense of the trade, and
(b) the charge as a receipt of the trade.
If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an ordinary Schedule A business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—
(a) the allowance as an expense of that business, and
(b) the charge as a receipt of that business.
(1) If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a furnished holiday lettings business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—
(a) the allowance as an expense of that business, and
(b) the charge as a receipt of that business.
(2) Section 503 of ICTA (letting of furnished holiday accommodation treated as trade for purposes of loss relief rules, etc.) applies to profits calculated in accordance with subsection (1).
If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an overseas property business, the allowance or charge is to be given effect in calculating the profits of that business, by treating—
(a) the allowance as an expense of that business, and
(b) the charge as a receipt of that business.
If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is carrying on a profession or vocation, the allowance or charge is to be given effect in calculating the profits or gains of that person’s profession or vocation, by treating—
(a) the allowance as an expense of the profession or vocation, and
(b) the charge as a receipt of the profession or vocation.
If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a concern listed in section 55(2) of ICTA (mines, transport undertakings etc.) the allowance or charge is to be given effect in calculating the profits of the concern under Case I of Schedule D, by treating—
(a) the allowance as an expense of the concern, and
(b) the charge as a receipt of the concern.
(1) This section applies if the qualifying activity of a person entitled to an allowance or liable to a charge for a chargeable period is the management of an investment company.
(2) The allowance is, as far as possible, to be given effect by deducting the amount of the allowance from any income for the period of the business; and section 75(4) of ICTA (addition of allowances to company’s expenses of management) applies only in so far as it cannot be given effect in this way.
(3) The charge is to be given effect by treating the amount of the charge as income of the business.
(4) Except as provided by subsections (2) and (3), the Corporation Tax Acts apply in relation to the allowance or charge as if they were required to be given effect in calculating the profits of that person’s trade for the purposes of Case I of Schedule D.
(5) Corresponding allowances or charges in the case of the same plant or machinery are not to be made under this Part both under this section and in another way.
(6) Expenditure to which this section applies is not to be taken into account otherwise than under this Part or as provided by section 75(4) of ICTA.
(7) This section is subject to sections 768B(8) and 768C(11) of ICTA.
(1) Sections 255 and 256 apply if a company which is carrying on any life assurance business is entitled or liable to any allowances or charges for a chargeable period in respect of plant or machinery consisting of a management asset.
(2) In this Chapter “management asset” has the same meaning as in Chapter 1 of Part 12 (life assurance business).
(1) Except where subsection (3) applies, the allowances or charges must be apportioned between the different categories of life assurance business carried on by the company, using the formula—
where—
A is the amount of the allowance or charge,
B is the mean of the opening and closing liabilities of the category of life assurance concerned, and
C is the mean of the opening and closing liabilities of all the categories of life assurance business carried on by the company.
(2) In its application to an overseas life insurance company, subsection (1) has effect as if the references to liabilities were only to such liabilities as are attributable to the branch or agency in the United Kingdom through which the company carries on the business concerned.
(3) If—
(a) the company is charged to tax under section 441 of ICTA in respect of its overseas life assurance business, and
(b) the management asset in respect of which it is entitled to an allowance or liable to a charge for a chargeable period is provided outside the United Kingdom for use for the management of that business,
the allowance or charge must be allocated (without any apportionment) to that business.
(1) Subsection (2) applies if a company—
(a) carries on basic life assurance and general annuity business, and
(b) does not fall to be charged to tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of that business.
(2) If this subsection applies—
(a) any allowances (or parts of allowances) to which the company is entitled in respect of the basic life assurance and general annuity business are to be given effect by treating them as additional expenses of management within section 76 of ICTA, and
(b) any charges (or parts of charges) to which the company is liable in respect of that business are to be given effect by treating the amount of the charges (or parts of charges) as income under Case VI of Schedule D for the chargeable period in question.
(3) Subsection (4) applies if, for a chargeable period, a company is charged to tax under—
(a) section 436 of ICTA (pension business and ISA business),
(b) section 439B of ICTA (life reinsurance business), or
(c) section 441 of ICTA (overseas life assurance business).
(4) If this subsection applies, then, for the purpose of calculating the profit under Case VI of Schedule D for the chargeable period in question—
(a) any allowances (or parts of allowances) to which the company is entitled in respect of any particular category of business are to be given effect by treating them as an expense of that category of business, and
(b) any charges (or parts of charges) to which the company is liable in respect of any particular category of business are to be given effect by treating them as receipts of that category of business.
(1) Allowances and charges to which sections 255 and 256 apply are not to be given effect otherwise than in accordance with those sections.
(2) Subsection (1) does not prevent any allowance which is to be given effect under those sections from being taken into account in any calculation for the purposes of—
(a) section 89 of FA 1989 (calculation of “policy holders' share of profits”), or
(b) section 76(2) of ICTA (calculation for purposes of complying with restriction on amount of deductible management expenses).
(3) Expressions that are used—
(a) in sections 255 and 256, and
(b) in Chapter I of Part XII of ICTA (insurance companies and capital redemption business),
have the same meaning in those sections as in that Chapter.
(1) This section applies for income tax purposes if the qualifying activity of a person entitled or liable to an allowance or charge for a chargeable period (“the current tax year”) is special leasing of plant or machinery.
(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the person’s income for the current tax year from any qualifying activity the person has of special leasing of plant or machinery.
(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current tax year for the purposes of a qualifying activity carried on by the lessee—
(a) the allowance, or
(b) a proportionate part of it,
is to be given effect by deducting the allowance, or the part of the allowance, from the person’s income for the current tax year from that special leasing only.
(4) Any charge is to be given effect by treating the charge as income to be taxed under Case VI of Schedule D.
(5) If the amount to be deducted from a description of income specified in subsection (2) or (3) exceeds the person’s income of that description for the current tax year, the excess must be deducted from the person’s income of the same description for the next tax year, and so on for subsequent tax years.
(6) For the purposes of this section, income from special leasing of plant or machinery includes any charge treated as income under subsection (4).
(7) In this section, references to deducting an allowance (or a part of an allowance) from income include setting it off against income.
(1) This section applies for corporation tax purposes if the qualifying activity of a company entitled or liable to an allowance or charge for a chargeable period (“the current accounting period”) is special leasing of plant or machinery.
(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the company’s income for the current accounting period from any qualifying activity it has of special leasing of plant or machinery.
(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current accounting period for the purposes of a qualifying activity carried on by the lessee—
(a) the allowance, or
(b) a proportionate part of it,
is to be given effect by deducting the allowance, or the part of the allowance, from the company’s income for the current accounting period from that special leasing only.
(4) Any charge is to be given effect by treating the charge as income from special leasing of plant or machinery.
(1) This section applies if the amount to be deducted from a description of income specified in section 259(2) or (3) exceeds the company’s income of that description for the current accounting period.
(2) Subject to subsections (3) to (6), the excess must (if the company remains within the charge to tax) be deducted from the company’s income of the same description for the next accounting period (and so on for subsequent accounting periods).
(3) The company may, on making a claim, require the excess to be deducted from any profits—
(a) of the current accounting period, and
(b) if the company was then within the charge to tax, of any previous accounting period ending within the carry-back period.
(4) The carry-back period is a period which—
(a) is of the same length as the current accounting period, and
(b) ends at the start of the current accounting period.
(5) If the preceding accounting period began before the start of the carry-back period, the total amount of deductions that may be made from the profits of the preceding accounting period under—
(a) subsection (3), and
(b) any corresponding provision of the Corporation Tax Acts relating to losses,
must not exceed a part of those profits proportionate to the part of the period falling within the carry-back period.
(6) A claim under subsection (3) must be made no later than 2 years after the end of the current accounting period.
(7) If the deduction of the allowance (or of part of it) was subject to the restriction in section 259(3)—
(a) subsections (3) to (6), and
(b) section 403 of ICTA (group relief),
do not apply in relation to the allowance (or part of it).
(8) In this section “profits” has the same meaning as in section 6 of ICTA (charge to corporation tax etc.).
Capital Allowances Act 2001