Office of Public Sector Information
PART 2 continued CHAPTER 10 continued
(1) For the purposes of this Chapter “long-life asset” means plant or machinery which—
(a) if new, can reasonably be expected to have a useful economic life of at least 25 years, and
(b) if not new, could reasonably have been expected when new to have a useful economic life of at least 25 years.
(2) “New” means unused and not second-hand.
(3) The useful economic life of plant or machinery is the period—
(a) beginning when it is first brought into use by any person for any purpose, and
(b) ending when it is no longer used or likely to be used by anyone for any purpose as a fixed asset of a business.
(1) If, under any of the following provisions of this Chapter, this Chapter applies to part only of the capital expenditure on plant and machinery—
(a) the part to which this Chapter applies, and
(b) the part to which it does not,
are to be treated for the purposes of this Act as expenditure on separate items of plant or machinery.
(2) For the purposes of subsection (1), all such apportionments are to be made as are just and reasonable.
(1) Expenditure is not long-life asset expenditure if it is incurred on the provision of plant or machinery which is a fixture in, or is provided for use in, any building used wholly or mainly—
(a) as a dwelling-house, hotel, office, retail shop or showroom, or
(b) for purposes ancillary to the use referred to in paragraph (a).
(2) In this section—
“fixture” has the meaning given by section 173(1);
“retail shop” includes any premises of a similar character where a retail trade or business, including repair work, is carried on.
(1) Expenditure is not long-life asset expenditure if—
(a) it is incurred before 1st January 2011 on the provision of a ship of a sea-going kind, and
(b) each of the conditions in subsection (2) is met.
(2) The conditions are that—
(a) the ship is not an offshore installation,
(b) the ship would not be an offshore installation if the activity for the carrying on of which it is, or is to be, established or maintained were carried on in or under controlled waters, and
(c) the primary use to which ships of the same kind are put by their owners (or, if their use is made available to others, those others) is a use otherwise than for sport or recreation.
(3) “Offshore installation” and “controlled waters” have the same meaning as in the Mineral Workings (Offshore Installations) Act 1971 (c. 61).
(1) Expenditure is not long-life asset expenditure if it is incurred before 1st January 2011 on the provision of a railway asset used by any person wholly and exclusively for the purposes of a railway business.
(2) “Railway asset” means—
(a) a locomotive, tram or other vehicle, or a carriage, wagon or other rolling stock designed or adapted for use on a railway;
(b) anything which is, or is to be, comprised in any railway station, railway track or light maintenance depot or any apparatus which is, or is to be, installed in association with such a station, track or depot.
(3) “Railway business” means a business so far as carried on to provide a service to the public for carrying goods or passengers by means of a railway in the United Kingdom or the Channel Tunnel.
(4) For the purposes of subsection (1), a railway asset of a kind described in subsection (2)(a) is not to be treated as used otherwise than wholly and exclusively for the purposes of a railway business merely because it is used to carry goods or passengers—
(a) from places inside the United Kingdom to places outside the United Kingdom, or
(b) from places outside the United Kingdom to places inside the United Kingdom.
(5) In subsections (2) and (3), “railway” has the same meaning as in section 81(2) of the 1993 Act (“railway” includes tramways and other modes of guided transport).
(6) In this section—
“the 1993 Act” means the Railways Act 1993 (c. 43);
“goods” has the same meaning as in Part I of the 1993 Act;
“railway station” and “railway track” include—
anything included in the definitions of “station” and “track” in section 83 of the 1993 Act, and
anything else that would be included if in section 83 “railway” had the meaning given in section 81(2) of the 1993 Act;
“light maintenance depot” means—
any light maintenance depot within the meaning of Part I of the 1993 Act, and
any land or other property which is the equivalent of such a depot in relation to anything which is a railway only when “railway” has the meaning given by section 81(2) of the 1993 Act.
Expenditure is not long-life asset expenditure if it is incurred on the provision of a car (as defined by section 81).
Expenditure is not long-life asset expenditure if it is—
(a) expenditure to which the monetary limits apply, and
(b) incurred in a chargeable period for which the relevant monetary limit is not exceeded.
(1) The monetary limits apply to expenditure incurred by an individual for a chargeable period if—
(a) the expenditure was incurred by him for the purposes of a qualifying activity carried on by him,
(b) the whole of his time is substantially devoted in that period to the carrying on of that qualifying activity, and
(c) the expenditure is not within subsection (4).
(2) The monetary limits apply to expenditure incurred by a partnership for a chargeable period if—
(a) all of the members of the partnership are individuals,
(b) the expenditure was incurred by the partnership for the purposes of a qualifying activity carried on by it,
(c) at all times throughout that period at least half the partners for the time being devote the whole or a substantial part of their time to the carrying on of that qualifying activity, and
(d) the expenditure is not within subsection (4).
(3) The monetary limits apply for the purposes of corporation tax to any expenditure incurred by a company for a chargeable period other than expenditure within subsection (4).
(4) Expenditure is within this subsection if it is—
(a) incurred on the provision of a share in plant or machinery,
(b) treated as a result of section 538 (contribution allowances: plant and machinery) as incurred on the provision of plant or machinery, or
(c) incurred on the provision of plant or machinery for leasing (whether or not the leasing is in the course of a trade).
(1) The monetary limit in the case of a chargeable period of 12 months is £100,000.
(2) If, in the case of an individual or partnership, the chargeable period is longer or shorter than 12 months, the monetary limit is the amount given by a proportional increase or reduction of £100,000.
(3) If, in the case of a company, the chargeable period is shorter than 12 months, the monetary limit is the amount given by a proportional reduction of £100,000.
(4) If, in a chargeable period, a company has one or more associated companies, the monetary limit for that period is—
where—
L is the monetary limit applicable under subsection (1) or (3), and
N is the number of the associated companies.
(5) Section 13(4) and (5) of ICTA (companies which count as associated companies for the purposes of section 13(3)) applies for the purposes of subsection (4).
(1) The monetary limit for a chargeable period is exceeded if the total expenditure in that period that meets the conditions in subsection (2) exceeds that limit.
(2) The conditions are that the expenditure—
(a) is long-life asset expenditure, or would be long-life asset expenditure in the absence of section 97 (expenditure within monetary limit), and
(b) is expenditure to which the monetary limits apply.
(3) Subsection (4) applies if, in the case of any contract for the provision of plant or machinery, the capital expenditure which is (or is to be) incurred under the contract is (or may fall to be) treated for the purposes of this Act as incurred in different chargeable periods.
(4) All of the expenditure falling to be incurred under the contract on the provision of the plant or machinery is to be treated for the purposes of this section as incurred in the first chargeable period in which any of the expenditure is incurred.
(1) Long-life asset expenditure to which this section applies, if allocated to a pool, must be allocated to a class pool (“the long-life asset pool”).
(2) This section applies to long-life asset expenditure if—
(a) it is incurred on the provision of long-life assets wholly and exclusively for the purposes of a qualifying activity, and
(b) it is not expenditure which is required to be allocated to a single asset pool.
(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of expenditure which is long-life asset expenditure is 6% of the amount by which AQE exceeds TDR (see Chapter 5).
(2) Subsection (1) applies even if the long-life asset expenditure is in a single asset pool.
(3) In the case of expenditure which is within section 107(2)(a) and (b) (overseas leasing which is not protected leasing), this section is subject to sections 110, 114 and 115 (allowances prohibited in certain cases etc.).
(4) Subsections (3) and (4) of section 56 (proportionate increases or reductions in amount in certain cases) apply for the purposes of subsection (1) of this section as they apply for the purposes of subsection (1) of that section.
(1) Subsection (2) applies if—
(a) a person entitled to do so has made a Part 2 claim in respect of expenditure incurred on the provision of plant or machinery, and
(b) the expenditure fell to be treated as long-life asset expenditure for the purposes of the claim.
(2) If—
(a) at any time after making the Part 2 claim, that claimant or another person makes a Part 2 claim in respect of any qualifying expenditure incurred at any time (including a time before the incurring of the expenditure to which the earlier claim relates) on the provision of the same plant or machinery, and
(b) the expenditure to which the later claim relates—
(i) would not (but for this subsection) be treated for the purposes of the later claim as long-life asset expenditure, and
(ii) is not prevented from being long-life asset expenditure by any of sections 93 to 96,
this Part has effect in relation to the later claim as if the expenditure to which it relates were long-life asset expenditure.
(3) A person makes a Part 2 claim in respect of any expenditure if he—
(a) makes a tax return in which the expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part;
(b) gives notice of an amendment of a tax return which provides for the expenditure to be so taken into account;
(c) makes a claim in any other way for the expenditure to be so taken into account.
(1) This section applies if—
(a) section 102 (writing-down allowances at 6%) has had effect in relation to any long-life asset expenditure incurred by a person (“the taxpayer”),
(b) any disposal event occurs in relation to the long-life asset,
(c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the long-life asset, and
(d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.
(2) The disposal value that the taxpayer must bring into account is the notional written-down value of the long-life asset.
(3) The notional written-down value is—
QE - A
where—
QE is the taxpayer’s expenditure on the plant or machinery that is qualifying expenditure, and
A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if—
(a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure,
(b) that expenditure had not been prevented by the application of a monetary limit from being long-life asset expenditure, and
(c) all allowances had been made in full.
(1) In this Chapter—
(a) “leasing” includes letting a ship or aircraft on charter or letting any other asset on hire, and
(b) references to a lease include a sub-lease (and references to a lessor or lessee are to be read accordingly).
(2) Plant or machinery is used for overseas leasing if it is used for the purpose of being leased to a person who—
(a) is not resident in the United Kingdom, and
(b) does not use the plant or machinery exclusively for earning profits chargeable to tax.
(3) In this Chapter “profits chargeable to tax”—
(a) includes profits chargeable under section 830(4) of ICTA (profits from exploration and exploitation of the seabed etc.), but
(b) excludes profits arising to a person who, under double taxation arrangements, is afforded or is entitled to claim any relief from the tax chargeable on those profits.
(4) “Double taxation arrangements” means arrangements specified in an Order in Council making any such provisions as are referred to in section 788 of ICTA.
(5) “Protected leasing” of plant or machinery means—
(a) short-term leasing of the plant or machinery (as defined in section 121), or
(b) if the plant or machinery is a ship, aircraft or transport container, the use of the ship, aircraft or transport container for a qualifying purpose under section 123 or 124 (letting on charter to UK resident etc.).
(6) In this Chapter “qualifying activity” includes (subject to any provision to the contrary) any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.
(1) Subject to subsection (2), the designated period, in relation to expenditure incurred by a person on the provision of plant or machinery, is the period of 10 years beginning with the date on which he first brought the plant or machinery into use.
(2) If the person who incurred the expenditure ceases to own the plant or machinery before the end of the 10 year period, the designated period ends on the date when he ceases to own it.
(3) For the purposes of subsection (2), a person is to be treated as continuing to own plant or machinery so long as it is owned by a person who—
(a) is connected with him, or
(b) acquired it from him as a result of one or more disposals on the occasion of which, or each of which, the qualifying activity carried on by the person making the disposal was treated as continuing under one of the relevant provisions of ICTA.
(4) “The relevant provisions of ICTA” means section 113(2) or 114(1) (effect of change in persons carrying on a trade etc.).
(1) Qualifying expenditure to which this section applies, if allocated to a pool, must be allocated to a class pool (“the overseas leasing pool”).
(2) This section applies to qualifying expenditure if—
(a) it is incurred on the provision of plant or machinery for leasing,
(b) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing, and
(c) the expenditure is not—
(i) long-life asset expenditure, or
(ii) expenditure that is required to be allocated to a single asset pool.
(1) This section applies if—
(a) a person who has incurred qualifying expenditure which has been allocated to an overseas leasing pool disposes of the plant or machinery to a connected person,
(b) the disposal is not an occasion on which the qualifying activity is treated as continuing under any of the relevant provisions of ICTA, and
(c) a disposal value is required to be brought into account on that occasion under this Part.
(2) The disposal value to be brought into account is—
(a) the market value of the plant or machinery at the time of the disposal, or
(b) if less, the qualifying expenditure incurred by the person disposing of the plant or machinery.
(3) The person acquiring the plant or machinery is to be treated for the purposes of this Part as having incurred expenditure on its provision of an amount equal to the disposal value given by subsection (2).
(4) “The relevant provisions of ICTA” means section 113(2), 114(1) or 343(2) (effect of change in persons carrying on a trade etc. or of company reconstruction).
(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of expenditure to which this section applies is 10% of the amount by which AQE exceeds TDR (see Chapter 5).
(2) This section applies to expenditure incurred on the provision of plant or machinery for leasing if—
(a) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing, and
(b) the expenditure is not long-life asset expenditure.
(3) Subsection (2) applies to expenditure even if the expenditure is in a single asset pool.
(4) Subsections (3) and (4) of section 56 (proportionate increases or reductions in amount in certain cases) apply for the purposes of subsection (1) of this section as they apply for the purposes of subsection (1) of that section.
(1) A person is not entitled to any writing-down or balancing allowances in respect of qualifying expenditure which is within subsection (2).
(2) Expenditure is within this subsection if—
(a) it is incurred on the provision of plant or machinery for leasing,
(b) the plant or machinery is at any time in the designated period used for overseas leasing which is not protected leasing,
(c) the plant or machinery is used otherwise than for a qualifying purpose (see sections 122 to 125), and
(d) the lease is within any of the items in the list below.
| 1. | The lease is expressed to be for a period of more than 13 years. |
| 2. | The lease, or a separate agreement, provides for— (a)
extending or renewing the lease, or (b)
the grant of a new lease,making it possible for the plant or machinery to be leased for a period of more than 13 years. |
| 3. | There is a period of more than one year between the dates on which any two consecutive payments become due under the lease. |
| 4. | Any payments are due under the lease or a collateral agreement other than periodical payments. |
| 5. | If payments due under the lease or a collateral agreement are expressed as monthly amounts due over a period, any payment due for that period is not the same as any of the others. But, for this purpose, ignore variations made under the terms of the lease which are attributable to changes in— (a)
the rate of corporation tax or income tax, (b)
the rate of capital allowances, (c)
any rate of interest where the changes are linked to changes in the rate of interest applicable to inter-bank loans, or (d)
the premiums charged for insurance of any description by a person who is not connected with the lessor or the lessee. |
| 6. | The lessor or a person connected with the lessor will, or may in certain circumstances, become entitled at any time to receive from the lessee or any other person a payment, other than a payment of insurance money, which is— (a)
of an amount determined before the expiry of the lease, and (b)
referable to a value of the plant or machinery at or after the expiry of the lease. For this purpose, it does not matter whether the payment relates to a disposal of the plant or machinery. |
(3) In items 4 and 5 of the list “collateral agreement” means an agreement which might reasonably be construed as being collateral to the lease.
(1) If—
(a) expenditure incurred by a person in providing plant or machinery has qualified for a first-year allowance or a normal writing-down allowance, and
(b) at any time in the designated period, the plant or machinery is used for overseas leasing which is not protected leasing,
the following provisions of this section have effect in relation to the person who is the owner of the plant or machinery when it is first so used.
(2) For the chargeable period in which the plant or machinery is first used as described in subsection (1)(b), the owner is—
(a) liable to a balancing charge of an amount given by subsection (4), and
(b) required to bring into account a disposal value of an amount given by that subsection.
(3) For the chargeable period following that in which the plant or machinery is first used as described in subsection (1)(b), an amount given by subsection (4) is to be allocated to whatever pool is appropriate for plant or machinery which is of that description and is provided for leasing and used for overseas leasing.
(4) The amounts are—
The balancing charge
The amount, if any, by which F + N exceeds T, where—
F is the amount of any first-year allowance made in respect of the qualifying expenditure referred to in subsection (1)(a) (“E”),
N is the total of any normal writing-down allowances made in respect of E for the relevant chargeable periods, and
T is the total of the allowances that could have been made for the relevant chargeable periods if no first-year allowance or normal writing-down allowances had been or could have been made.
The disposal value
The amount, if any, by which E exceeds (F + N), where E, F and N have the meaning given in relation to the amount of the balancing charge.
The amount to be allocated to the pool
The aggregate of the balancing charge and the disposal value.
(5) For the purpose of calculating N, the normal writing-down allowances that were made in respect of expenditure on an item of plant or machinery are to be determined as if that item were the only item of plant or machinery in relation to which Chapter 5 had effect.
(6) “The relevant chargeable periods” means the chargeable period in which the qualifying expenditure was incurred and any subsequent chargeable period up to and including the one in which the plant or machinery was first used as described in subsection (1)(b).
(1) Section 111 applies with the modifications in subsections (2) to (4) in a case in which—
(a) the owner acquired the plant or machinery as a result of a transaction between connected persons (or a series of transactions each of which was between connected persons),
(b) none of the relevant provisions of ICTA under which the qualifying activity might have been treated as continuing has applied in respect of the transaction (or transactions), and
(c) any of the connected persons is a person to whom—
(i) a first-year allowance or a normal writing-down allowance has been made in respect of expenditure on the provision of the plant or machinery, or
(ii) a balancing allowance has been made in respect of such expenditure without a first-year allowance or normal writing-down allowance having been claimed.
(2) For the purposes of section 111(2) and (3)—
E is the amount of the expenditure in respect of which an allowance within subsection (1)(c) has been made,
F is the amount of any first-year allowance within subsection (1)(c), and
N is the amount of any normal writing-down allowance or balancing allowance within subsection (1)(c).
(3) For the purposes of section 111(2) and (3), any consideration paid or received on a disposal of the plant or machinery between the connected persons is to be disregarded.
(4) If a balancing allowance or a balancing charge has been made in respect of any of the transactions, the amount representing F + N is to be adjusted in a just and reasonable manner.
(5) “The relevant provisions of ICTA” means section 113(2), 114(1) or 343(2) (effect of change in persons carrying on a trade etc. or of company reconstruction).
(1) If the plant or machinery referred to in section 111 is a ship—
(a) no allowance is to be made in respect of the ship under section 131(3) (postponed allowances) for the first chargeable period of overseas use or any subsequent chargeable period,
(b) nothing in section 132(2) (disposal events and single ship pool) restricts the operation of section 111, and
(c) the amount of any first-year or writing-down allowance in respect of the ship which has been postponed under section 130 and not made is to be allocated to a long-life asset pool or an overseas leasing pool for the chargeable period following the first chargeable period of overseas use.
(2) “The first chargeable period of overseas use” means the chargeable period in which the plant or machinery is first used for overseas leasing which is not protected leasing.
(1) If—
(a) a first-year allowance, a writing-down allowance or a balancing allowance has been made in respect of expenditure incurred in providing plant or machinery, and
(b) at any time in the designated period, an event occurs such that the expenditure is brought within section 110(2) (cases where allowances are prohibited),
the following provisions have effect in relation to the person owning the plant or machinery immediately before that event.
(2) For the chargeable period in which the event occurs, the owner is—
(a) liable to a balancing charge of an amount equal to A — R, and
(b) required to bring into account a disposal value of an amount equal to E − (A − R).
(3) For the purposes of subsection (2)—
A is the amount of any allowances within subsection (1)(a),
R is any amount previously recovered under section 111 or 112 (recovery of excess allowances), and
E is the amount of the expenditure referred to in subsection (1)(a).
(4) For the purpose of calculating A, the amount of the allowances made in respect of expenditure on an item of plant or machinery is to be determined as if that item were the only item of plant or machinery in relation to which Chapter 5 had effect.
Capital Allowances Act 2001