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);
F39aa
Part 2A (structures and buildings allowances);
F10b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F7ba
Part 3A (business premises renovation allowances)
F11c
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F18ca
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 machineryF12... for the purposes of a mineral extraction trade or on dredging (see Part 11).
F314
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F315
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1AF35Capital allowances and charges: cash basis
1
This section applies in relation to a chargeable period for which the profits of a trade, profession, vocation or property business (“the relevant activity”) carried on by a person are calculated on the cash basis.
2
The person is not entitled to any allowance or liable to any charge under this Act except as provided by subsections (4) and (7).
3
No disposal value is to be brought into account except as provided by subsections (5) and (8).
4
If, apart from subsection (2), the person would be entitled to an allowance in respect of expenditure incurred on the provision of a car or liable to a charge in connection with such an allowance, the person is so entitled or (as the case may be) so liable.
5
If, apart from subsection (3), a disposal value would be brought into account in respect of a car, the disposal value is brought into account in respect of the car.
6
Subsections (7) and (8) apply if—
a
a person carrying on a relevant activity incurs qualifying expenditure relating to an asset at a time when the profits of that activity are not calculated on the cash basis,
b
after incurring the expenditure, the person enters the cash basis for a tax year, and
c
no deduction would be allowed in respect of the expenditure in calculating the profits of the relevant activity on the cash basis for that tax year, on the assumption that the expenditure was paid in that tax year.
7
If, apart from subsection (2), the person would be liable to a charge in connection with allowances in respect of the qualifying expenditure mentioned in subsection (6), the person is so liable.
8
If, apart from subsection (3), a disposal value would be brought into account in respect of the asset mentioned in subsection (6), the disposal value is brought into account in respect of the asset.
9
For the purposes of this section a person carrying on a trade, profession or vocation “enters the cash basis” for a tax year if—
a
an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, profession or vocation for the tax year, and
b
no such election has effect in relation to the trade, profession or vocation for the previous tax year.
10
For the purposes of this section a person carrying on a property business “enters the cash basis” for a tax year if the profits of the business are calculated—
a
on the cash basis for the tax year (see section 271D of ITTOIA 2005), and
b
in accordance with GAAP (see section 271B of that Act) for the previous tax year.
11
In this section—
a
references to calculating the profits of a trade, profession or vocation on the cash basis are to calculating the profits of a trade, profession or vocation in relation to which an election under section 25A of ITTOIA 2005 has effect, and
b
references to calculating the profits of a property business on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis).
12
In this section—
“car” has the same meaning as in Part 2 (see section 268A);
“disposal value” means—
- a
a disposal value for the purposes of Part 2, 4A, 5, 6, 7, 8 or 10, or
- b
proceeds from a balancing event for the purposes of Part 3 or 3A;
- a
“qualifying expenditure” means qualifying expenditure within the meaning of any Part of this Act.
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 F36262 (plant and machinery allowances);
F40sections 270HA to 270HI (structures and buildings allowances);
F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F8sections 360Z and 360Z1 (business premises renovation allowances)
F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 F17Part 2 of CTA 2009 (see section 2(2) of that Act).
3 Claims for capital allowances
C5C7C91
No allowance is to be made under this ActF37... unless a claim for it is made.
2
The claim must be included in a tax return.
F442ZZA
Any claim for a first-year allowance under section 45O (expenditure on plant and machinery for use in F47special tax sites) must include, or be accompanied by, such information as Her Majesty's Revenue and Customs may require.
F412ZA
Any claim for an allowance under Part 2A (structures and buildings allowances) F45—
a
must be separately identified as such in the returnF46, and
b
where it relates to F48special tax site qualifying expenditure (as defined in section 270BNA), must include, or be accompanied by, such information as Her Majesty's Revenue and Customs may require.
F92A
Any claim for an allowance under Part 3A (business premises renovation allowances) must be separately identified as such in the return.
F382B
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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),
F15b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
F16b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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).
C3C4C6C84 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, F25...
F24aa
any cash basis expenditure, other than expenditure incurred on the provision of a car, or
F2b
any expenditure or sum that may be allowed as a deduction under a relevant provision from the taxable earnings from an employment or office held by the person.
F232ZA
In subsection (2)(aa)—
“cash basis expenditure” means any expenditure incurred—
- a
in the case of a trade, profession or vocation, at a time when an election under section 25A of ITTOIA 2005 has effect in relation to the trade, profession or vocation, or
- b
in the case of a property business, in a tax year for which the profits of the business are calculated on the cash basis (see section 271D of that Act); and
- a
“car” has the same meaning as in Part 2 (see section 268A).
F12A
In subsection (2)—
“relevant provision” means any of the following—
a
section 262;
b
section 232 of ITEPA 2003 (giving effect to mileage allowance relief);
c
Chapters 2 to 6 of Part 5 of that Act (general deductions allowed from earnings); and
F4d
sections 188 to 194of FA 2004 (contributions under registered pension schemes), and
“taxable earnings” has the meaning given by section 10 of ITEPA 2003.
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 F3earnings 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 F6Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments or patent royalties) or under section 906 of that Act (certain royalties etc where usual place of abode of owner is abroad).
F55
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C10C12C11C13C14C155 When capital expenditure is incurred
C21
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.
C22
The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.
C23
There are the following exceptions to the general rule.
C24
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.
C25
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.
F22CHAPTER 1ATrades attracting Northern Ireland rate of corporation tax
6A“NIRE company” and “F26SME (Northern Ireland employer) company”
In this Act—
“NIRE company” means a company that is a Northern Ireland company for the purposes of Part 8B of CTA 2010 by virtue of F27the SME (election) condition or the large company condition in section 357KA of that Act;
F28“SME (Northern Ireland employer) company” means a company that is a Northern Ireland company for the purposes of Part 8B of CTA 2010 by virtue of the F29SME (Northern Ireland employer) condition in section 357KA of that Act.
6B“Northern Ireland firm” etc
1
This section has effect for the purposes of this Act.
2
“Northern Ireland firm” has the meaning given by section 357WA of CTA 2010.
3
If section 357WC of CTA 2010 (Northern Ireland profits etc of firm determined under Chapter 6 of Part 8B of that Act) applies to a Northern Ireland firm for a chargeable period, the partnership is a “Northern Ireland Chapter 6 firm” for any purpose for which that section applies.
4
If section 357WD of CTA 2010 (Northern Ireland profits etc of firm determined under Chapter 7 of Part 8B of that Act) applies to a Northern Ireland firm for a chargeable period, the partnership is a “Northern Ireland Chapter 7 firm” for any purpose for which that section applies.
6C“NI rate activity”
1
In this Act “NI rate activity” means—
a
a qualifying trade carried on by F33an SME (Northern Ireland employer) company, except to the extent that it is an excluded activity,
b
a qualifying trade, other than an excluded financial trade, carried on by a NIRE company, to the extent that the trade—
i
is carried on through a Northern Ireland regional establishment of the company, and
ii
does not consist of an excluded activity,
c
the back-office activities of an excluded financial trade carried on by F34an SME (Northern Ireland employer) company which has made an election for the purposes of section 357KB(2) of CTA 2010,
d
the back-office activities of an excluded financial trade carried on by a NIRE company which has made an election for the purposes of section 357KB(2) of CTA 2010, to the extent that those activities are carried on through the Northern Ireland regional establishment of the company,
e
a qualifying partnership trade carried on by a Northern Ireland Chapter 6 firm, except to the extent that it is an excluded activity,
f
a qualifying partnership trade, other than an excluded financial trade, carried on by a Northern Ireland Chapter 7 firm, to the extent that the trade—
i
is carried on through a Northern Ireland regional establishment of the partnership, and
ii
does not consist of an excluded activity,
g
the back-office activities of an excluded financial trade carried on by a Northern Ireland Chapter 6 firm which has made an election for the purposes of section 357WB(2) of CTA 2010, or
h
the back-office activities of an excluded financial trade carried on by a Northern Ireland Chapter 7 firm which has made an election for the purposes of section 357WB(2) of CTA 2010, to the extent that those activities are carried on through the Northern Ireland regional establishment of the partnership.
2
In subsection (1)—
“back-office activities” has the same meaning as in Part 8B of CTA 2010 (see section 357XI of that Act);
“excluded financial trade” means a trade that is an excluded trade for the purposes of Part 8B of CTA 2010 merely because it falls within one or more of the following provisions of that Act—
- a
section 357XB (lending and investment),
- b
section 357XC (investment management), or
- c
section 357XE (re-insurance trade);
- a
“Northern Ireland regional establishment” has the same meaning as in Part 8B of CTA 2010 (see Chapter 5 of that Part as read, in relation to a partnership, with section 357WA(4) of that Act);
“qualifying partnership trade” has the same meaning as in Part 8B of CTA 2010 (see section 357WB of that Act);
“qualifying trade” has the same meaning as in Part 8B of CTA 2010 (see section 357KB of that Act).
6D NI rate activity treated as separate trade
1
For the purposes of this Act, the NI rate activity carried on by F30an SME (Northern Ireland employer) company or a NIRE company is to be treated as a separate trade, distinct from any other activities carried on by the company as part of the trade.
2
For the purposes of the corporate partner calculation, the NI rate activity carried on by a Northern Ireland firm is to be treated as a separate trade, distinct from any other activities carried on by the firm as part of the trade.
3
In this Act “the corporate partner calculation”, in relation to a trade carried on by a Northern Ireland firm, means the determination of the allowances and charges to which effect is to be given under this Act in determining under subsection (3) or (4) of section 1259 of CTA 2009 (calculation of firm's profits and losses) the amount of the profits of the trade chargeable to corporation tax.
6EGiving effect to allowances and charges: NI rate activity cases
1
This section applies if F32an SME (Northern Ireland employer) company or a NIRE company is entitled or liable to—
a
an allowance or charge under Part 2 (plant and machinery allowances) where the qualifying activity is a trade,
F42aa
an allowance under Part 2A (structures and buildings allowances),
b
an allowance or charge under Part 3A (business premises renovation allowances),
c
an allowance or charge under Part 5 (mineral extraction allowances),
d
an allowance or charge under Part 6 (research and development), or
e
an allowance under Part 9 (dredging allowances).
2
For the purposes of the corporate partner calculation, this section also applies if a Northern Ireland firm is entitled or liable to an allowance or charge falling within any of subsection (1)(a) to (e).
3
The allowance or charge is to be given effect in calculating the profits of the trade, by treating—
a
the allowance as an expense of the trade, and
b
the charge as a receipt of the trade.
4
If the allowance or charge relates to an NI rate activity, it is treated for the purposes of Part 8B of CTA 2010 (trading profits taxable at the Northern Ireland rate) as forming part of the Northern Ireland profits or Northern Ireland losses of the trade.
5
If the allowance or charge relates to a main rate activity, it is treated for the purposes of Part 8B of CTA 2010 as forming part of the mainstream profits or mainstream losses of the trade.
6
In this section—
a
“the trade” means the trade carried on by the company or partnership (disregarding for this purpose section 6D), and
b
“main rate activity” means so much of the trade as is not an NI rate activity.
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.
F431A
In subsection (1), the reference to capital expenditure includes a reference to expenditure that is treated as capital expenditure for the purposes of section 270BJ(1) (structures and buildings allowances: expenditure on renovation, conversion and incidental repairs).
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 3F20, 3A or 6 (industrial buildings and research and development allowances), and
b
section 186(2)F21, 186A(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.
Pt. 1 Ch. 1A inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 1 para. 2