Capital Allowances Act 2001

Anti-avoidanceU.K.

241 No [F1annual investment allowance or] first-year allowance in respect of additional VAT liabilityU.K.

(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)[F2an annual investment allowance or] a first-year allowance in respect of B’s expenditure under the relevant transaction is prohibited by section 217(1)F3....

(2)[F4No annual investment allowance or first-year allowance is] to be made in respect of any additional VAT liability incurred by B in respect of his expenditure under the relevant transaction.

(3)Any [F5annual investment allowance or] first-year allowance which is prohibited by subsection (2), but which has already been made, is to be withdrawn.

242 Restriction on B’s qualifying expenditure: generalU.K.

(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.

[F6(4A)D is nil if—

(a)S is not required to bring a disposal value into account under this Part because of the relevant transaction, and

(b)at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.]

(5)[F7Otherwise,] 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—

F8(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)[F9subsection (5) applies and the smallest amount under that subsection] 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.

[F10(7)Linked person”, in relation to plant or machinery, means a person—

(a)who owned the plant or machinery at any time before the relevant transaction, and

(b)who was connected with S at any time between—

(i)the time when the person became owner of the plant or machinery, and

(ii)the time of the relevant transaction.

(8)Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a)that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b)that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.]

F11243 Restriction on B’s qualifying expenditure: sale and finance leasebackU.K.

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244 B’s qualifying expenditure if lessor not bearing non-compliance riskU.K.

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).

245 Effect of election under section 227 on additional VAT liabilityU.K.

(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.

246 MiscellaneousU.K.

(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.